Madison, Wisconsin Inclusionary Zoning Ordinance

Manna, Inc.

Fall 2006

In July, 2006, the Common Council in Madison amended its Inclusionary Zoning (IZ) ordinance (officially adopted in 2009; see the new ordinance at, the second of its kind in the Midwest, in response to perceived resistance of buyers of IZ homes to the permanent resale restrictions in the original ordinance. The original ordinance included a formula intended to preserve long-term affordability of IZ units.  The formula determined what percentage of appreciation (between 0 and 50%) the homeowner could realize in order to keep the IZ unit affordable to the next eligible purchaser.  The restrictions were permanently tied to the particular IZ unit. For the new

After 18 months, the City conducted a study of the IZ program and found that one major concern was that “it is difficult to attract potential buyers to discuss the purchase of inclusionary units.  Some cite the complexity and effect of the equity sharing model in the ordinance.” (p. 21, Inclusionary Zoning Ordinance Evaluation Study, Madison, WI,

The new ordinance, adopted in July, releases IZ units from permanent resale restrictions and initiates a model whereby the City and the owner/seller share the proceeds of sale.  The new model substitutes a City share of the sale proceeds for long-term affordability of the original IZ unit.  The City share that is recaptured upon resale is placed in a fund to subsidize future affordable homes.  This new model provides incentives for the IZ homeowner to maintain and improve the home, allows the homeowner to build equity and take risks commensurate with the market, provides the City with a permanent source of funding for affordable housing development that increases as the market increases, and gives the flexibility and opportunities of homeownership to lower-income households.

For example, in simple terms, an IZ unit is assessed to be worth $300,000, but an eligible buyer can only afford to pay $200,000.  The City’s interest is 1/3, or 33%, of the IZ unit.  Fifteen years later, the homeowner sells the IZ unit at its assessed market rate, now $400,000, and pays the City 95% of its interest in the property, which is $126,654 that the City will then recycle into further affordable housing development.  The owner/seller can now take his proceeds, $273,346, and put them toward a larger home, a college education for his kids, etc.

Subsection 26.9 of Madison IZ Ordinance

(h) Distribution of proceeds from sale of an owner-occupied Inclusionary Dwelling Unit.

1. At the time of the qualifying sale of an owner-occupied inclusionary dwelling unit, the income eligible family shall provide the City with a promissory note, secured by a second mortgage, for an amount that is the percentage difference between the appraised value of the unit, determined within thirty (30) days prior to the sale, and the sales price of the unit. The resulting City percentage share of the value of the inclusionary dwelling unit shall be the percentage of the total value represented by the difference between the appraised value and the sales price divided by the appraised value of the inclusionary dwelling unit.

2. At the time of the sale of an inclusionary dwelling unit, the amount of the sale proceeds paid to the City shall be the City’s percentage share of ninety-five percent (95%) of the sales price of the inclusionary dwelling unit. This provision applies to all inclusionary dwelling units sold by income eligible families before or after the effective date of this amendment.

3. Any proceeds of a sale that are remaining after the seller’s share shall be deposited in the Inclusionary Zoning Special Revenue Fund.

4. The seller cannot offer the inclusionary dwelling unit for sale at a price below the assessed value unless approved by the Director of the Department of Planning and Development.


Stakeholders, housing advocates, City officials, developers and non-profit housing providers in Madison, Wisconsin observed that their IZ program created significant barriers for lower-income residents and changed the affordability requirements from a permanent resale restriction tied to IZ units to a Recapture/Recycle model that gives lower-income homebuyers the opportunity to build equity and the City the ability to recapture public investment and recycle the proceeds into further affordable housing.

Manna’s Response to a 2006 DC Fiscal Policy Report


Fall 2006

Manna, Inc. is one of DC’s nonprofit affordable housing organizations specializing in affordable homeownership. Manna, Inc. has developed and/or built and sold nearly 1000 affordable homes since 1982. These efforts have resulted in the creation of over $50 million in equity for low-income persons and helped revitalize many disadvantaged DC neighborhoods.

Manna staff has analyzed Mr. Ed Lazere’s DC Fiscal Policy Institute (DCFPI) Report on affordability controls and disagrees with his approach, assumptions and conclusions. The Report used a hypothetical example that is not based in reality because it uses assumptions that are incorrect, left out key expenses and skewed other expenses, and grossly overstated the financial benefits to low-income homeowners subject to these restrictions.

Manna’s analysis of the report is based on its daily experience of working with existing government programs in the DC Department of Housing and Community Development, the National Capital Revitalization Corporation, and with thousands of low and moderate income DC residents who are trying to become homeowners and better their lives.  Manna believes there are reasonable, more equitable and just alternative approaches to the current long-term affordability restrictions. These alternatives would help preserve affordable housing in high cost areas without denying the financial benefits of homeownership related to equity build-up for low- and very-low income households over the key periods of their families’ financial lifetimes.

Manna’s staff feels The Report is severely flawed in several respects. Here are Manna’s analyses and conclusions:

PART I – Response to the Example Used by DCFPI

1.  The Report uses an overly simplified and hypothetical example that does not address the key affordability restriction: the income of the subsequent buyer. In reality, there have been and are many projects on which affordability restrictions have been placed. To our knowledge, the one hypothesized by DCPFI, limiting resale prices to a 3% annual increase on original sales price, hasn’t been used. All of the affordability restrictions Manna has seen involve restrictions on the income of the subsequent buyer. DCFPI’s 3% limit introduces a significant additional reduction in resale value.  Even if DCFPI’s hypothetical structure had been used, the assumption and analysis of the economic effect is flawed.

2.  Having an income restriction for a subsequent buyer  reduces expected future sales value. Any time an affordability program requirement limits resale to a person in the same income category, the price for which a property can be resold automatically is controlled by what a future buyer can pay, and that is severely limited by interest rates. Manna feels this is a dangerous approach and puts the low-income buyer at great risk. We all know how interest rates fluctuate and we have been in a period of historical low rates. In the short and medium terms, if the resale occurs during a period of interest rates that are higher than when the original buyer bought, then it’s likely that the net resale price would be lower than the original purchase price.

3. The Report’s calculated value of homeownership relies heavily ($77,000 of the $212,000 value) on the “savings” from avoiding rent increases, which imply a fictitious scenario where homeownership and rental costs are the same. Manna’s experience is that every buyer of an affordability-restricted home has faced increases of monthly housing expense (PITI) of at least $300 above their prior monthly rent.  The “savings” from avoiding future rent increases would only be savings if you ignore the higher monthly housing payment from homeownership, which The Report does. A $300 monthly homeownership payment that is $300 higher than rent amounts to $54,000 over 15 years – effectively equal to the amortization that is included in DCFPI’s net equity calculation.  The expense of higher homeownership payments is reduced, but not completely offset, by future rent increases that the homeowner avoids. However, it is grossly incorrect to ‘credit’ the homebuyer with ‘savings’ from avoiding rent increases without recognizing the higher monthly payment of homeownership.

4. The DCFPI example uses an inappropriately high income and property sales price. The Report assumes an income of $72,000 which represents 80% AMI for a family of four. That is doing a disservice to the cause of affordable homeownership housing. One should not use the highest possible income as an assumption if one is seeking to provide affordable housing to those earning up to 80%AMI because almost all affordable buyers, by definition, earn substantially less.  Additionally, the $72,000 family of four income is only 80% of AMI for the Housing Production Trust Fund related projects.  Other affordability restrictions using the CDBG/HOME HUD 80% AMI calculations cap a family of four to $59,600 per year. In addition, most buyers tend to be one and two person households with 80% AMI incomes capped at $41,700 or $47,600. The use of $72,000 income example in The Report skews the analysis by supporting a relatively high $225,000 sales price and a high estimated benefit from homeownership. Most of the affordability-restricted units are substantially lower in price.

5.  Calculation of itemized income tax deduction savings is misleading, since it doesn’t recognize the Standard Deduction alternative. Those who are producers of affordable housing realize that if you’re serving very low and low-income persons, their incomes are usually in an income tax bracket where it makes more sense to use the standard deduction, which is $5,000 for each tax payer and $800 for each dependent child, than to itemize deductions. In theory itemizing sounds good; but in reality it’s not needed. And, even if it’s used, one should use the marginal benefit over the standard deduction rather than assume the entire benefit of itemizing. The report attributes $31,000 of the $212,000 of ‘benefit’ to the tax deduction which exaggerates the total benefit.

6.  Manna estimates that real estate taxes would increase the homebuyer’s cost by an additional $28,000 over the taxes assumed in The Report. While principal and interest are fixed–assuming a 30-year fixed rate loan–taxes and insurance are not. Even though real estate tax increases are addressed, the calculation only uses 3% per year. The increases for below market affordability- restricted property will likely increase by the current maximum of 10% per year for the full 15 years of the scenario, as the tax level tries to catch up to the market price of the affordable home (assuming market values increase 3% a year).

7.  The Report uses 10 and 15-year horizons, but those time frames are in excess of the average turnover period for housing in the DC area, which is about 7-8 years. The financial benefits available to low- and very-low income homebuyers under affordability restrictions, in the time periods when they most need those benefits, are even less than presented by The Report’s longer term focus.

Therefore, in summary for PART I of Manna’s analysis, DCFPI’s Report (1) doesn’t address the most widely used affordability restrictions, specifically the restriction of the AMI of subsequent buyers that ties future sales prices to changes in interest rates, and therefore doesn’t represent a useful analysis for evaluating the real world affordability debate; and (2) distorts the financial benefits by using unrealistic and hypothetical assumptions of:  a) new housing expense equaling rents for comparable homes to calculate ‘rent increase avoidance’ savings, ignoring the real world issue of low-income homebuyers making the sacrifice of paying more for homeownership than rent , b) using the highest income allowed by government programs to create the highest home price possible when most affordable dwelling units are substantially lower in price and buyers are substantially lower in income, c) treating itemized interest deductions as savings, when in a large percentage of affordable housing transactions, buyers are just as well off by using the same standard deduction they’d use as renters, and d) not properly calculating the real estate tax increases that below market affordability-restricted units will face.

Manna believes that the income tax deductions, rental increase avoidance and real estate taxes in The Report overstate the benefits by about 60%. If the impact of the restriction on resale to AMI-limited households, and risks related to interest rate increases are included, the overstatement is substantially greater.

There are real benefits of homeownership over renting under currently imposed affordability restrictions, but they are substantially less than the Report calculates. They create very little usable equity that a low-income family can use to manage its finances. Simply put, the majority of the $212,000 in financial benefits The Report projects is greatly exaggerated and cannot be used or leveraged by low-income homeowners.

PART II- The People and Fairness Issue

In addition to the above, it is unfortunate that most reports that rely simply on statistics, like DCFPI’s, completely ignore the indirect financial and non-financial impact on real people who are trying very hard to improve their lives and gain a share of the wealth being generated in the real estate market. While Manna supports long term affordability, through experience we have learned to understand the obstacles that low-income homeowners may face in the future. When a low-income person is earning an income at 80% or less of the AMI, then that person is usually living on the margin. When one relies solely on statistics, the real life human experiences of individual persons associated with important issues like these, are, by and large, ignored.

We know that many low-income owners have little savings. We know that most affordable homeownership units being developed now and in the near future will be condominium. We know that most condos now being developed, both affordable and market rate, consist of one and two bedroom units. We know that a large percentage of the buyers will be singles or single mothers. We know that the low-income persons we serve have rates of salary increases much lower than the population in general and lower than middle and upper income persons. And we know that earning disparities continue to grow. We, and other developers of affordable for-sale housing, know these facts are true because they represent the real world that low-income people have to contend with and the marketplace in which we work.

Now, we pose the following questions, which relate to common real life situations, to all those who favor long term affordability controls:

1.  If a low-income person gets married, or a couple has a child, and needs to trade up to a larger home in the same neighborhood, where will the equity come from to enable them to buy a larger home in DC? As second time homeowners, they will not be eligible for the same benefits they could get as low-income, first time homebuyers.

2.  If a low-income owner has a health or other personal crisis requiring substantial expenses, or needs money to pay college tuition for a child, where does the money come from since there wouldn’t be sufficient equity to permit a home equity loan? Every low-income college age student will not get a full scholarship. Additionally, some scholarship eligibility criteria uses home ownership and equity calculations as part of eligibility requirements, but would not likely have adjustments for homeowners restricted in their use of equity due to affordability restrictions. (PLEASE NOTE: To Manna’s knowledge no local programs address the issue of home equity loans which play a major role with the middle and upper-income population.)

3.  If a low-income owner has a better job opportunity in another location, how will he/she be able to remain a homeowner unless reasonable equity can be realized so that a home can be purchased in another area? Even in an area with lower prices, substantial down payments are often needed for low-income persons.

4.  What happens if the housing market declines and there is a financial loss? The Report only addresses the limited financial benefit a low-income buyer is allowed to share in. It would appear that the low-income owner bears the full burden of all losses whereas the same owner is severely restricted in what he/she can realize. This strikes us as grossly unfair.

In summary, without the ability to accumulate reasonable equity over time, not simply financial benefits that are dubious under the Report’s assumptions, the low-income buyer can easily become trapped in a homeownership situation and forced to sell rather than be able to cope with adverse life situations which are common and which are much more easily dealt with by those who aren’t subject to long term affordability restrictions. In short the people who can least afford it and are in need of the economic opportunity only homeownership can give them, are being forced to shoulder a disproportionate share of the burden in creating affordable homeownership in DC. We and the population we serve feel this is unfair and discriminatory.

Manna believes that better options are available, with more reasonable affordability controls  than the restrictions being imposed and proposed. We are saddened that more creative energy and effort has not gone into creating a plan that does not pit the goal of long term affordability against the goal of reasonable equity gain and opportunity for low-income persons to share in the economic benefits of homeownership.  The sacrifices and efforts that low income families put into obtaining and sustaining homeownership should offer benefits to the homeowner and their children, and not be restricted to only benefiting their grandchildren in 20 or 30 years.

Rev. Jim Dickerson, Chairman & Founder, Manna, Inc.

George Rothman, President & CEO, Manna, Inc.

Frank Demarais, VP & General Manager, Manna Mortgage Corp.

“DC Foreclosures Jump Nearly 40 Percent From May to June”

An article in the Housing Complex column by Ruth Samuelson points to the alarming rise in foreclosures in DC:

Obviously, Washington D.C.’s still not overwhelmed like some places, which have so many abandoned homes sales prices are averaging $10,000.

But today, RealtyTrac reported that foreclosures had jumped 39.46 percent between May and June 2009 in DC. The total number of filings was 417.

The the rise in foreclosure underscores the need for action and leadership from our public officials.  Though the numbers are not as significant as our neighbors in Northern Virginia and Prince George’s County, this is a frightening trend that cannot be ignored.


HAT’s suggestion to the City Council and other public officials is that HPAP (Home Purchase Assistance Program) can be utitlized to stabilize the bottom third of the housing market, thus securing the real estate values in the city.  Sadly, HPAP remains woefully underfunded.  In FY2010 budget, HPAP has been scaled back to accomodate less than 300 borrowers, reduced by 40% of its historic annual capacity.

Here is testimony by Frank Demarais at a recent public roundtable on foreclosures in the District.

Frank Demarais testimony on HPAP



May 28, 2009

Good morning and thank you for opportunity to comment on the serious impact the growing foreclosure problem will have on District Homeownership and Affordable Housing. My name is Frank Demarais, and I am vice president and general manager of Manna Mortgage, the District’s only non-profit mortgage company.

The increasing numbers of foreclosures in the District have already wiped out significant amounts of home value and undercut hard fought growth in financial stability for many current District residents. Continue reading Frank Demarais testimony on HPAP