Housing Market Analysis:
Barriers to Affordable Housing

In Iowa, property tax policies are set by the state; the City has no control over either the cap on taxes or the rollback set annually by the state. The City is financially dependent upon property taxes as its main source of revenues as the City does not have a local sales tax or income tax. Since housing values are higher than in other localities, property taxes are higher as well, thus further increasing the cost of housing and acting as a barrier to securing affordable housing. However, housing developed and owned by non-profit housing agencies is exempt from property taxes so they can develop affordable housing at slightly lower expense than private developers.

Though the state property tax rollback policy decreases the percent of taxable value, property taxes still may go up due to the increases in value. The rollback policy limits the amount of tax revenues the City can collect. Subsequently, this limits funds that could otherwise be applied to developing and/or providing incentives for low-income housing and supportive services. The rollback factor limits the ability of the City to budget or commit funds for the development of affordable housing.

Demand for low density single-family housing developments in the past have also limited the interest in more intensive residential development. There is a prevalence of RS-5 (5 units to an acre) zones, and values for houses with larger lots have remained high and not very affordable. There is currently very little vacant land zoned for multi-family development within Iowa City, and attempts to rezone some residential areas have encountered resistance from neighbors opposed to more intensive development, especially the construction of apartments in single-family areas. Their concerns about the impact of more intensive development, such as increased traffic, building scale and design, noise and demands on services, and the lengthy rezoning process during which these concerns usually arise, have created additional barriers to the construction of more affordable housing units. Even when development is not at a higher density, such as in a manufactured housing park, neighborhood concerns about devaluation of their property and other factors, make rezoning difficult.

The Comprehensive Plan has attempted to address these concerns by identifying appropriate areas for townhouses and apartments. The Plan encourages development of moderate density housing in locations that have good access to collector and arterial streets and parks and open space. The Plan also encourages that multi-family buildings be designed in a scale and manner which is compatible with the neighborhoods in which they will be built. The City has also used the district planning process to bring more focus to the policies of the Comprehensive Plan and to involve property owners and neighborhood residents in the process of identifying locations for townhouses and apartment buildings.

The City has initiated the "Good Neighbor" policy to encourage developers to meet with their neighbors prior to submitting a rezoning or development application to the Planning and Zoning Commission. The focus of these meetings is to help inform neighborhoods about developments and help developers identify issues and possible solutions. When developers have used the Good Neighbor policy their developments have been less controversial and their proposals have received greater community acceptance.

The City implemented an open space ordinance and impact fee in 1994. Developers are required to dedicate land to be preserved as neighborhood open space or to contribute an equivalent amount of money to go toward open space acquisition. Open space is an important element in planning functioning neighborhoods, however, it can affect housing prices. Requiring land to be incorporated into the development as open space could increase development costs, thus increasing housing costs and/or rents.

Subdivision and infrastructure requirements may also be considered as barriers to affordable housing. Standards such as road width could possibly be reduced in some areas to lessen the cost of infrastructure and hence the cost of housing construction while still maintaining acceptable levels of safety and infrastructure quality. The City has encouraged Planned Unit Developments (PUDs) and has an overlay zone that enables developers to cluster housing which may cut infrastructure expenses.

The City is constructing a new water plant and upgrading the sewage treatment plant. In order to pay for construction, water user fees increased approximately 40 percent and sewer fees approximately 35 percent from 1995-2000. This represents a substantial increase in the costs associated with living in Iowa City. Though these increases will impact all water users in Iowa City, the increase will make it more difficult for low-income households to be able to afford to live in Iowa City.

Though Iowa City does not require construction measures in excess of the Uniform Building Code (UBC), several UBC-approved construction practices that could be used to reduce construction costs are not being implemented by local contractors. Some measures to reduce costs include increasing spacing between studs, using straight-gable roofs, and careful planning of the location of plumbing and electrical fixtures to reduce the number of fixtures used. Combined with the other factors contributing to the high costs of constructing new units, local construction practices adding to the costs of housing lessen the likelihood that newly constructed units would be "affordable" to low- and moderate-income households. The City has completed a study to review the City’s unified development codes to determine if streamlining or other changes were necessary. As a result, several changes were accepted that will allow for greater flexibility and promote affordability while maintaining safety.

Planned growth through the "phasing in" of infrastructure and services as identified in Iowa City's Comprehensive Plan, is intended to limit development to areas adjacent to those currently served, thus allowing for the orderly extension of infrastructure. Growth is also limited by the fact that some services (e.g. sewers) are presently at capacity in certain parts of the city. However, urban growth is proceeding mainly with the development of single-family subdivisions, with costs ranging from $150,000-$375,000 per home. Development that does occur where services are not in place must incorporate the provision of water, sewer, streets, and other infrastructure into their design, thus effectively raising the development costs of each housing unit. As a result, prices of new homes reflect these increased costs and are beyond the reach of lower-income households.

The absence of vacant infill lots also acts as a barrier, limiting the extent that the City can expand its affordable housing stock. Typically, the few existing infill lots are zoned for less-dense development and are located in low-density single-family neighborhoods. The City is experimenting with various ways of providing affordable single-family housing on these lots. Methods include moving donated houses, sweat equity of future owners, and modular homes.

Though Iowa City does not employ policies that directly affect the return on residential investment, the combination of high demand for housing, the phasing in of new housing developments, and the land use and zoning restrictions implemented have protected residential investments. Market forces determine a developer/builders ability to maximize their return on investment. As Iowa City has one of the most active housing markets in the state, the median cost of single-family dwelling units has increased from $104,517 to $139,500, or 33.5 percent between 1993 and first quarter 1999. Fifty-six percent of owner-occupied homes in Iowa City are valued between $55,000 and $125,000 (1998 Iowa City Building Permits); however, due to the constantly increasing value of housing, the number of homes in this price range is shrinking annually. For example, the average cost of a home built in Iowa City in 1998 was $134,039, not including the price of the lot, which can range from $20,000-$70,000. (Source: Iowa City Building Permits issued for 1998.)

Lack of information about the availability of housing and services for low- and moderate-income households acts as a barrier to securing affordable housing. One of the misconceptions that is prevalent in Iowa City among the general citizenry is that all housing needs are being met, either by the private market, by the City, or by non-profit agencies. Though there is a wide continuum of housing and services available through public, for-profit, and non-profit agencies in the city, available resources do not stretch far enough to cover everyone's needs; some housing needs go unmet. As the number of households requiring assistance increases, agencies are finding it more difficult to secure the necessary funding to meet those needs.

In order to fulfill the need for citizen input on housing issues and solutions, City staff organized the Iowa City Community Housing Forum on October 23, 1996. The purpose of this meeting was to allow residents the opportunity to participate in a discussion concerning housing issues and needs in Iowa City. Approximately 100 people attended the Forum including 75 residents. Out of this meeting came three subcommittees; the Goal Setting and Target Group, Funding Mechanisms Group, and the Development and Regulatory Measures Group. These groups met over the next year and published their report in December of 1997.

The Community Housing Forum members made their recommendations to the City Council and have since begun development and implementation of various programs and policies. City staff provides periodic progress reports to City Council, the Housing and Community Development Commission and to everyone who attended the Forum.

There is also some resistance to integrating low-income families into established neighborhoods. "Not in My Back Yard" (NIMBY) concerns over the effect on property values of locating low-income households have acted as a barrier in some Iowa City neighborhoods. These fears most often arise from misconceptions regarding the lifestyle and needs of low-income families.

Neighborhood opposition to low-income housing projects makes finding feasible sites more difficult. Such concerns as aesthetics, crime, and declining property values were cited as reasons for the opposition by adjacent property owners and neighborhood groups.

The reluctance of property owners to sell properties to the City at prices making affordable housing construction feasible have also limited the viability of City-sponsored projects; some owners have operated on the assumption that the City has "deep pockets" and will pay for land based on speculative development values. Additionally, undeveloped land around the City's fringes has been purchased by individuals as an investment and speculation of increasing values. Often undeveloped land is held by a speculator until the property is re-zoned, thus increasing the land value and maximizing his/her return. Furthermore, local "peer pressure" has deterred property owners further from selling land in particular neighborhoods for the creation of "low income" housing. These recent events would most likely discourage attempts at developing similar projects in the near future.

The City of Iowa City has maintained a dialogue with the public in order to educate the public about the need for and importance of providing affordable housing. This has lead to a growing acceptance of affordable housing projects. Additionally, the City has implemented programs to entice private developers to build affordable housing. This has been done through such programs as low interest general obligation bonds. Further education of the public and increased use of the City’s affordable housing programs by developers will lead to greater ease in developing affordable housing projects in the future.

The City of Iowa City will continue to look for ways to remove barriers to affordable housing. In 1996 the City hosted a Community Housing Forum that attracted approximately 100 persons. The purpose of the forum was to increase public awareness of affordable housing issues and to receive input from citizens, program users, developers and others. From that meeting three subcommittees were formed and charged with developing the ideas presented at the forum. The three subcommittees met for about one year at which time a Community Housing Forum Report (CHFR) was issued. The CHFR contained an array of strategies and priorities for the community to pursue with the end result being an increase in affordable housing units. The City Council adopted a number of the strategies that were presented in the CHFR. Over the last year the City staff has worked with numerous partners to implement the strategies.

In December 1999 the City of Iowa City will meet with prospective consultants regarding a review of the City’s development code. The purpose of this study is to find areas where policies and regulations maybe streamlined or add unnecessary cost in developing housing. Once the study has been completed the City would consider implementing the recommendations.