In 1983, the New Jersey Supreme Court, in the landmark case, Burlington NAACP v. Mt. Laurel Township, limited the use of exclusionary zoning as a means of preventing the construction of affordable housing in wealthy communities. The Mt. Laurel case shaped zoning law across the country in the ensuing decades and the Mt. Laurel Doctrine is established precedent. Over the last 3 plus decades, we have seen the growth of low and moderate income housing in the suburbs, giving lower income families access to ownership of homes, in many cases for the first time. As such, these families have had access to crime free neighborhoods and better schools and to better long term success that come with these opportunities.

Mt. Laurel, in many respects, was the next logical step following the passage of the Fair Housing act in 1968 which outlawed racial discrimination in the sale and rental of housing. While that Act certainly helped many people of color move to more affluent suburban communities, it didn’t do enough for lower income families. It was, and is only a single law dealing with discrimination. Mt. Laurel exposed a problem. Local governments manipulated zoning laws to segregate communities by income and consequently, by race.

Despite the Mt. Laurel Doctrine, local governments have done nothing to encourage economic desegregation. Recognizing this problem, Senator Cory Booker (D-NJ) recently introduced the Housing, Opportunity, Mobility and Equity Act (HOME Act) (not yet assigned a bill number). The bill would close the loop on Mt. Laurel and take the Fair Housing Act to its natural next step. It would promote more inclusive zoning policies in order to economically and thus racially desegregate housing and make it more affordable.

The Act provides that states, cities and counties receiving funding under the Community Development Block Grant Program for infrastructure and housing would be required to develop new strategies to reduce barriers to housing development and creating the housing supply. Governments would be required to support new, inclusive zoning policies which create a “more affordable, elastic and diverse housing supply.” Best practices should include: authorizing higher density, eliminating off street parking requirements, establishing density bonuses, removing height limitations, prohibiting income discrimination, relaxing size restrictions and allowing accessory dwelling units. This list is not complete and are examples of things you don’t see in the suburbs and in planned communities.

The Act would also create a new refundable tax credit for renters who pay more than 30% of their income on rent and utilities.

The legislation would also provide local governments with incentives to allow “by right development” so that projects meeting zoning requirements could be administratively approved. If developers can save on the costs of lengthy hearings, the costs could be passed on to the end users, further reducing housing costs. Local elected officials (and staff, for that matter) are painfully blind to their role in the end cost of rents and sale price.

The topic of economic segregation in housing is not often talked about. The fact that it leads to racial segregation means that it should be discussed and addressed. That is not yet addressed by the Fair Housing Act makes it an important topic. President Obama sounded the warnings and Senator Booker’s proposed legislation goes a long way to addressing this important issue. However, ultimately, it will be up to the states to mandate that local governments eliminate economic segregation and take steps similar to Senator Booker’s proposals.

In November 2012, Colorado voters approved a constitutional amendment making Colorado the first state in the nation to legalize the use of recreational marijuana. Amendment 64 to the Colorado constitution became effective January 1, 2014 and since then, Colorado has been at the forefront of cannabis law and policy. During 2013, the state had to implement laws and policies to make the new amendment work. Governor John Hickenlooper and the legislature had to figure everything out from what the state’s role would be in regulating the sale and use of cannabis versus local government, to tax policy. Local governments were given the option to opt out and to prohibit dispensaries within their boundaries and nearly half of Colorado cities did so.

Tax policy became a huge challenge. How much could the state charge for this new “sin tax”? Ultimately, the state determined that the taxes on cannabis related products would be significantly higher than alcohol and tobacco. Currently, the state assesses a 15% excise tax on cannabis and products and a 15% sales tax on non-medical marijuana and products (on top of the state’s 2.9% sales tax). Local governments also levy their own sales tax and may assess an excise tax as well. Denver, for example has a 3.62% sales tax and a marijuana tax of 3.5%.

Recently, Denver Mayor Michael Hancock proposed increasing the marijuana tax to 5.5%. The extra 2% would be earmarked for the city’s affordable housing program. Mayor Hancock estimates that the new tax would generate $8,000,000 for affordable housing. His proposal also provides that the city set aside an additional $7,000,000 from its general fund for affordable housing. The $15,000,000 in new dollars into the affordable housing fund would mean 6,400 new affordable housing units over 5 years. Colorado’s marijuana industry strongly supports the mayor’s plan.

6,400 new units can go a long way to helping Denver with its affordable housing crunch. But, it is ironic that taxes on marijuana and related products would be used to fund affordable housing when the federal government still considers marijuana a banned substance. Consequently, if HUD or other federal dollars are used in the construction of these units, or if a tenant receives federal assistance for rental through HUD, FHA or other programs, potential tenants with marijuana related convictions could be denied housing in these new units. Similarly, the use of marijuana is banned in subsidized housing under federal law. If the new Denver units are constructed without federal subsidies, this won’t be a problem. However, a developer could, presumably, receive the Denver marijuana tax money through the Denver Housing Authority and also obtain a low interest HUD loan. In such an event, marijuana use or possession in the units would be prohibited despite being legal in Colorado, subjecting a tenant to arrest or eviction. It is ironic that the marijuana dollars would be good enough to build the building, but use of the product itself, though perfectly legal in the state, would subject a tenant to eviction.

Colorado has used direct marijuana tax revenue for many good projects since making recreational marijuana legal. By law, the 1st $40 million of the excise tax each year goes to schools and school construction. The state marijuana sales tax is used for enforcement, education and awareness programs. Denver’s proposal makes great sense. But, it is time for the federal government to align with the states. Housing programs are administered by the states because the program is too big for HUD to do. And, marijuana is a states’ right issue. If marijuana is legal in a state and state tax dollars can be used to solve a problem, the federal government should bend over backwards to allow it to happen without penalty.

On June 14th, the world watched in horror as Grenfell Tower, a public housing apartment tower in London’s Kensington neighborhood, lit up the early morning skies in a frightening inferno. The 24-story building burned for over 60 hours.  The fire was responsible for at least 80 deaths and more than 70 injuries.  In the aftermath of the fire, the reports out of Britain have been consistent that safety guidelines in Grenfell Tower were not followed, either in the planning for a fire or in the design of the building.  For example, the only escape route was 1 central staircase.  Residents were told that in the event of a fire, they should wait in their apartments for rescuers.  Fire alarms were either inoperable or inaudible when the fire began so residents who might have had an opportunity to escape when the fire began were not alerted in time to escape.  Gas pipes were exposed and uninsulated.

Renovations to Grenfell Tower were made in 2015/2016 and completed in late 2016. Prior to renovations, as early as 2014, the Grenfell Residents Association expressed concern about safety in the building.  But their concerns were not heard.  To add to the tragedy, the United Kingdom significantly cut funding to legal aid over the last several years making it difficult, if not impossible, for the residents to obtain any representation to take legal action against the Housing Authority to improve conditions in the building.

And then the tragedy occurred. The worst fears were realized.  Some speculate that the building cladding, the exterior insulation, was not properly installed and separated from the building, causing it to act as a chimney and allowing the fire to spread at an alarmingly fast rate.  In addition, it appears that the cladding itself was flammable.  One would question whether the construction was properly inspected.  Since the fire, the government has ordered inspections of some 600 buildings on this issue alone.  To date, at least 149 buildings have failed this inspection.  The government will be expanding inspections to include other components and other types of buildings (such as hospitals and office buildings) as quickly as possible.

Grenfell Towers is run by the Kensington and Chelsey Council Housing Authority. The authority is like the public housing authorities in the United States.  London Mayor Sadiq Khan and Members of Parliament have called to strip the Kensington and Chelsey Council of its power.  3 top Council leaders have already resigned.  Mayor Kahn has also called on Prime Minister Theresa May to appoint new commissioners to run the authority.  The scandal appears to be growing.

Building fires happen everywhere. A loss as cataclysmic as Grenfell Towers, fortunately is rare.  Of course, it will be months before a final report is issued and everything I have mentioned is third or fourth hand.  But it does appear that there was a lack of proper oversight at the very least.  Was there gross negligence?  Fraud?  Incompetence?  That remains to be seen.  All of these things could happen in any aspect of housing and real estate development but the fact that this tragedy happened in a public housing development is frightening.  Could this have happened in the United States?  Certainly, I am not an expert on construction practices anywhere and definitely not in the UK.  But as a starting point, I would HOPE that construction practices in the US would not allow something like this to happen anywhere in the US.  Of course, that is a Pollyanna view and not fair to the contractors and workers in the UK.  Shortcuts can be taken on either side of the Atlantic.

Were shortcuts taken? Did someone do something to save on costs and boost the bottom line?  These are global issues and checks and balances always have to be put in place to guard against shoddy practice.

To answer the question whether a tragedy like this could happen in a US Public Housing Project I think we need to look at what is US Public Housing Policy.  Back in the 60’s and 70’s and into the 80’s, the “projects” were bastions of poverty.  There was not much attention paid to the people in the projects or to the infrastructure of the projects.  Think about Cabrini Green in Chicago, or LA or New York Projects.  With the mass amount of people living in confined places, crime was prevalent and up keep of buildings was not a priority, if it was possible at all.

In 1992, housing officials began receiving grants to tear down and replace the worst of the public housing complexes. By 2012, over 285,000 homes were eliminated and only about 1/6th of those were replaced.  The policy became to get people into their own homes in order to “end the cycle of poverty”.  As sites were redeveloped, some moved back, but many, most, didn’t and don’t.  Projects or public housing has become “Affordable Housing”.  People are subsidized to rent or own.  On balance, our affordable housing stock is newer, it is up to code and unlikely to have major problems.  Our housing issue is that we don’t have enough funding or enough inventory.

That is not to say that we have eliminated the public housing problem totally. New York, for example, still has a large number of public housing units.  One 2014 study found that 79% of New York’s public housing’s units had a least one “major problem”.  These include broken or missing windows, rats, leaks, peeling paint, holes and cracks.  The city does not have adequate funding to keep up with the problems but does not ignore the problems either.  The city also has a strong affordable housing program.

Of course, we could look to Oakland, California and the warehouse fire from a couple years ago as a parallel to the Grenfell Tower fire. That fire is only a parallel and not a direct comparison.  In Oakland, a landlord illegally converted a warehouse and rented it for residential use.  What still is not clear there is whether anyone in the city knew of the illegal conversion and turned a blind eye.  Obviously, this was not a public housing situation, but it shows a crisis of lack of quality affordable or public housing in the Oakland area as so many people crowded into this illegal and dangerous warehouse, looking for an affordable place to live, at great risk to themselves.

Hopefully, the UK and the world will learn from the Grenfell Tower tragedy. More importantly, if there was negligence, or even just plain indifference, people will be punished.  Those living in public housing deserve safe and sanitary living conditions, whatever the cost.  No one should live in conditions that put their lives at risk.

President Trump’s proposed budget includes $6 Billion in potential cuts to HUD that will have a significant impact on affordable housing. The proposed cuts, which amount to nearly 14% of HUD’s budget, could cause properties “in which billions of dollars have been invested over decades to fall further into disrepair” according to the National Low Income Housing Coalition (NLIHC).  Proposed cuts would in part come from the Public Housing Capital Fund (about $1.3 Billion) and the Public Housing Operating Fund (about $600 Million).  These funds are allocated for building maintenance and community development projects.

The NLIHC estimates that over 200,000 families would lose support due to cuts to housing choice voucher grant assistance programs. In addition, low income seniors and disabled people will be at higher risk of eviction due to loss of rental assistance funds.  Trulia Chief Economist, Ralph McLaughlin, predicts that the cuts will cause the affordable housing inventory shortage to increase in major markets.  Mr. McLaughlin also predicts that cuts to Sections 8, 802 and 811 programs and others “could undermine housing market recovery in communities where affordable housing, economic opportunity, public services and community development is undersupplied by the private sector”.  He believes that the costs will put 8 million people at risk of losing public  housing and 4 million people will be at risk of losing rental subsidiaries.

Diane Yentel, President/CEO of NLHIC, called the cuts “Draconian” and said that the cuts could cause homelessness. The NLHIC, in its Case for Increased Federal Investment in Affordable Housing, argues that evidenced based research shows that families with stable, accessible homes are better able to find  employment and achieve mobility.  Housing causes positive impacts for families.  The proposed cuts will be harmful to families.

HUD Secretary Ben Carson, in his Senate confirmation hearings, seemed to agree with this as he expressed support for HUD homeownership programs. The NLHIC and other groups have called on Secretary Carson to uphold his commitment as stated in his testimony.  So far, the only word from the Secretary is the release of an email from Secretary Carson to HUD employees telling the employees that the budget numbers are just starting numbers for negotiation.  However, Secretary Carson has not assured anyone, inside or outside of HUD where he stands or where the budget will end up.

The president’s commitment to affordable housing appears to be in jeopardy. In fact, there does not appear to be any commitment to affordable housing at the federal level or from this administration.  The loss of this finding will have a devastating affect on a large number of people across the country and state and local governments can’t make up the short fall.  Progressive cities will continue to involve the private sector to combat this crises.  The problem has the potential to grow exponentially.  If the proposed budget is passed as presented, government participation at all levels is necessary to solve and prevent homelessness and to provide affordable housing.

Pittsburgh, Pennsylvania, a working class town, is generally known as an affordable city. Of course, many families struggle, but the National Low Income Housing Coalition ranks Pittsburgh among the cities with the highest availability of affordable housing units for rent.  Nevertheless, the Pittsburgh City Council has recognized the need to stay ahead of the curve.  Circumstances could change at any moment.  The economy could change.  Unemployment rates could reverse course again and the need for affordable housing units could again exceed availability.  Therefore, the Pittsburgh City Council has been proactive in adopting affordable housing policy.

The City Council created an Affordable Housing Task Force in 2015. It has adopted inclusionary zoning policy and encourages use of low income housing tax credits.  Most recently, at the end of 2016,  the City Council approved an Affordable Housing Trust Fund.  The ordinance commits funding of not less than $10 million annually.  However, the ordinance does not create a revenue stream to fund the $10 million and the debate continues as to whether the trust fund will actually be funded.

The most obvious source of revenue for the trust fund is a transfer tax on deeds and mortgages. Florida, for example, assess documentary stamps on deeds at the rate of $.70 per $100 of consideration and $.35 per $100 of consideration on mortgages.  Closer to Pittsburgh, Philadelphia charges a $10 recording fee on deeds and a $17 recording fee on mortgages that is allocated to the Philadelphia Housing Trust.  However, there is strong opposition to any sort of additional transfer tax in Pittsburgh, particularly from local realtors.  Transfers are already taxed at 4% in Pittsburgh, which is the highest in the Allegheny County.  One-half of that amount is allocated to the city.  Realtors fear that a higher tax will have a chilling effect on the real estate industry.

Living and practicing real estate in a state that taxes conveyances at a significantly higher rate, I have to chuckle at such an assertion. Buyers will continue to buy and sellers will continue to sell regardless of the transfer tax.  The tax is just the cost of doing business, even in residential sales.  Because these taxes are paid at closing and not after the fact, the responsible party doesn’t feel the pain of having to write a check at a later date.

The need for an Affordable Housing Trust Fund is too great to worry about the small price that buyers and/or Sellers of real estate might have to pay at their closings sometime in the future. With out this revenue, every day tax payers will be covering additional social service costs including temporary housing costs.  In the short and long term, the an additional point or two on transfer taxes at closing is a good investment for everyone.  Pittsburgh should act now and fund the Housing Trust immediately.

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    Welcome to Assouline & Berlowe’s Florida Real Estate Law and Investment Blog with news, insights, and commentary for investors, developers, and their advisors.


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