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Sun Investigates

Baltimore might get a new inclusionary housing law. Here’s why the old one failed.

Baltimore City Councilman John Bullock spent four years sitting on the city’s Inclusionary Housing Board, an opportunity he thought would involve working with developers to create more housing units for low- and moderate-income residents.

In those four years, however, Bullock barely recalls developers setting aside any affordable units. Instead, his tenure was spent granting waivers. Many, many waivers.

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“We’d get these requests for waivers and, looking at the numbers and where folks were, we didn’t have an option,” Bullock said. “Our hands were literally tied.”

Baltimore’s inclusionary housing policy, adopted in 2007, was a failure. Few affordable units were built, and the city missed an opportunity to potentially claw back tens of millions of dollars in tax breaks from developers who declined to include housing for low-income residents in their projects as the law required.

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Now, the City Council is trying to get it right. The inclusionary housing law lapsed in June, and members are expected to discuss the latest proposal at a hearing Monday night.

Sharonda L. Huffman, left, director of housing at Maryland Inclusive Housing, joins four City Council members and several advocacy groups at an October rally outside a luxury apartment building on Light Street in downtown Baltimore. Speakers called for the council to pass an inclusionary housing bill that would require at least 10% of units in many apartment buildings to be set aside for affordable housing and to put extra requirements on apartments that get tax subsidies.

Cities and counties across the country have enacted inclusionary housing policies with mixed success. They all start with a simple premise: When developers build housing complexes and apartment buildings, they should set aside some units for low-income people.

By design, they typically have a modest impact on any given housing market. These policies depend on developers. Developers generally want to maximize revenue from a building. Adding affordable units to a building cuts into that revenue.

So policymakers use a mix of carrots and sticks, coaxing and prodding developers to include affordable housing units in their buildings — while trying not to dampen the overall housing market.

“It’s actually a very complex intervention in the market. And you need to be super careful about really running the numbers, really doing the financials and trying to understand what’s going to happen,” said Vicki Been, who oversaw the implementation of New York City’s inclusionary housing policy. “I think it’s an important policy, but it’s definitely a hard policy to get right.”

Been, now the faculty director of the Furman Center for Real Estate and Urban Policy at New York University, said that an inclusionary housing policy is a “medium-sized tool” in a city’s toolbox for providing affordable housing. Perhaps its biggest impact — and why it arouses passionate debate — is often the message it sends.

“What do we want our communities to look like? Should there be all rich, probably white, segregated neighborhoods? Should you always have a mix of incomes within the neighborhood?” Been said. “It’s a big statement about what we want our society and our communities to look like. So from that standpoint, it’s a big deal.”

Baltimore’s old inclusionary housing law said the city wanted to “encourage economic diversity and balanced neighborhoods,” but it did little else.

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While thousands of new, market-rate apartments have been built since the law’s passage, only a few dozen units were set aside for low- and moderate-income Baltimoreans.

City officials have been unable to provide a firm tally of how many affordable housing units have been created as a result of the law.

When she announced her bill, Councilwoman Odette Ramos said 37 units had been built in the past 15 years. City Housing Commissioner Alice Kennedy said approximately 34 affordable units were created during the law’s life span. But a 2014 report commissioned by the Inclusionary Housing Board said 32 units were created in the first seven years of the law’s existence. Annual reports filed by the board for 2019 to 2021 show an additional 23 units were developed during that span.

Baltimore's Inclusionary Housing Board granted the Banner Hill Apartments on South Charles Street in Federal Hill, shown here in the summer of 2016, a waiver in 2019 because the $15 million cost of building affordable units was more than the city's inclusionary housing law allowed for reimbursement.

So why did Baltimore’s policy fail to produce more affordable housing?

The city’s policy was a mix of carrots and sticks — subsidies, building requirements and fees — but the subsidies were too small, the building requirements were almost always waived and the fees were rarely collected.

For example, Baltimore has a tax break — the high-performance market-rate rental tax credit — that is meant to spur the creation of more apartment buildings throughout the city. It was created in 2014 and it cost taxpayers more than $20 million last year.

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Almost every building that has benefited from this tax break should have included apartments affordable to low-income Baltimoreans. Developers repeatedly claimed it would be too expensive to add these units, so the city granted them waivers. As part of that deal, developers were supposed to pay back some of their tax credit, but the city rarely enforced this.

An analysis by The Baltimore Sun found that developers who received the rental tax credit should have paid between $12 million and $60 million into an offset fund. That money would have gone toward the creation of affordable housing.

It’s unclear whether any developer benefiting from this tax break ever paid into the offset fund.

Tammy Hawley, spokeswoman for the housing department, said she was looking for information about the fund and was not able to answer questions about it last week. In its annual reports, the Inclusionary Housing Advisory Board has asked the housing department three times to create an alternative funding source to the offset fund.

The fund was in operation a decade ago. The Sun reported in 2014 that the city had spent $2.2 million to compensate builders for 32 affordable units — an average of nearly $69,000 per unit — and that the fund was nearly empty by that point.

The new inclusionary housing bill before City Council is less complicated than the original. It does not include an offset fund and there are no waivers for developers. It would apply to developments of at least 20 units that receive significant tax breaks. Developers would need to set aside 10% of the units as affordable for low-income households — those earning 60% of the median income in metropolitan Baltimore.

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Developments receiving an additional subsidy from the city would be required to add at least 5% more affordable units for residents who are very low or extremely low income.

An October downtown rally organized by the Inclusionary Housing Coalition to urge passage of Baltimore Councilwoman Odette Ramos’ Inclusionary Housing Bill. Behind them is 414 Light Street, a rental building that received a subsidy.

Anirban Basu, an economist who runs a consulting firm in Baltimore, said the proposed policy is all stick and no carrot. He believes it would repel developers and actually could have the opposite effect of what was intended, reducing development and housing supply. The increased scarcity would mean an increase in housing prices, he said.

“Baltimore is starved for capital. It needs investment. And for some reason, the city’s policymakers are bent on making it as difficult as possible for capitalists — the people who deploy capital — to choose Baltimore City,” Basu said. “They really think that they can socially engineer good economic outcomes.”

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Tom Coale, a Howard County attorney and board member of the Baltimore Regional Housing Partnership, said there are plenty of carrots already. A variety of tax breaks for developers cost the city tens of millions of dollars every year. The proposed inclusionary housing law would only affect new buildings that benefit from significant tax breaks.

Yes, the proposed inclusionary housing law would not solve Baltimore’s affordable housing crisis, Coale said, but that’s not the intent. He called the proposal an “anti-gentrification tool.”

“When Baltimore City is being redeveloped, it is displacing existing residents,” Coale said. “The only way you can ensure that existing residents … can participate in that rejuvenation in a meaningful way is to have a certain percentage of those units created by redevelopment set aside for them.”

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The city is not suffering from a lack of new apartments in places like Harbor East, Coale said, but it does need housing that’s affordable and safe for low- and moderate-income families. That’s where the focus should be, he said.

“The city needs to reexamine how much tax revenue it’s forgiving and giving away for new development that really isn’t serving a government purpose. And meanwhile, the rest of Baltimore City still [pays] some of the highest tax rates in the state,” Coale said. “It drives me nuts.”

Ramos said she’s been in negotiations with city officials to reach final language for the new inclusionary housing bill and is hopeful the council will vote on the legislation soon. Developers also have been at the table during talks. Ramos said she’s confident the new legislation will right the numerous wrongs of the past bill.

“The [housing] commissioner herself has said ‘Let’s be as prescriptive as possible’ so she or anyone after her could not have as much discretion,” Ramos said. “We’re clear we need to do this. We’re trying to streamline and make it as simple as possible.”

The Wheelhouse apartment building in Federal Hill is built in 2019.

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