In June 2004, the Regulatory Barriers Clearinghouse (RBC) published an article about legislation that would establish a process for settling disputes between homeowners and builders without expensive litigation. The article describes how states have enacted "notice to cure" legislation that has reduced the chances that those who develop and build affordable housing will be forced to increase prices and make housing less affordable.

Divergent Views

Shortly after publishing the article, we received a number of responses arguing that this "notice to cure" legislation creates a regulatory barrier to those who want to sue builders for unsatisfactory work. In an email from Nancy Seats, President of Homeowners Against Deficient Dwellings, Ms. Seats asserts that the recent claims against builders are a result of poor workmanship. She cites a recent Consumer Reports article indicating that up to 15 percent of all new homes constructed have serious problems. She states, "The existing process for settling disputes is laborious and costly, but is still preferable to the new process enacted in several states." Ms. Seats goes on to say that "Much of the new state legislation places strict limits on the amount of time homeowners have to notify builders of problems and to reply to builder responses." She concludes by saying, "If owners fail to meet those deadlines, then they lose the right to sue the builder."

Opponents of "notice to cure" legislation cite Missouri Governor Bob Holden's recent veto message, which contains a number of specific reasons for his rejection of similar legislation, including:

• The bill places unreasonable obstacles that will prevent or delay homeowners from exercising their legal rights as a result of a homebuilder's mistake or malfeasance;



• It gives homebuilders unwarranted protections from lawsuits that tip the scales of justice against homeowners; and



• It may violate the open courts provisions of the Missouri Constitution's Bill of Rights.

The governor's concern is that many new homeowners, especially those with low and moderate incomes, do not have the means to address construction defects, and the proposed legislation would further restrict their ability to rectify builder mistakes.

For More Information

Consumers Union discourages direct links to individual articles in Consumer Reports Magazine. However, for more general information on Consumer Reports, go to www.ConsumerReports.org. Governor Holden's veto message is available on the RBC database. Please remember that, as a government clearinghouse, RBC does not 'take sides' on issues such as this, but instead, makes a good-faith effort to present potentially divergent views on a given subject. We believe this affords our readers the opportunity of drawing your own conclusions, and fosters a healthy atmosphere of discussion and debate.

Back in October, we began a three-part series on how local governments are creating housing task forces to address regulatory reform. In the first article we described how task forces in Burlington, Vermont; Pasadena, California; Columbus, Ohio; Minneapolis-St. Paul, Minnesota; and Dallas, Texas are addressing issues such as administrative streamlining, building codes affecting rehabilitation and infill, and fees and exactions. This article describes how these same five task forces differ in their approaches to zoning and tax issues. In addition, two of these task forces have gone beyond the local setting and have asked their respective state governments for regulatory reform in the effort to promote affordable housing.

Zoning

All of the task forces under consideration in this series examine various land use development regulations and how they affect housing affordability. In most of the task forces' reports, the greatest number of recommendations and suggestions involve zoning and land use regulations.

In Burlington, task force members offer a number of suggestions for reforming the city's zoning ordinance in ways that more actively promote the development of affordable housing. Their first recommendation is to enact reforms suggested by a prior (1990) task force. These earlier proposed reforms include: zero lot line zoning; performance-based zoning; and floor-area ratio zoning. The new task force also urges the city to consider other reforms, such as evaluating the impact of the inclusionary zoning ordinance on the production of affordable housing, and developing an in-lieu payment alternative as part of the inclusionary ordinance. The task force supports allowing accessory apartments if the apartment does not exceed 25 percent of the total square feet of the building. While the task force acknowledges the difficulty of implementing such an ordinance at the local level, they ask the city to explore creating a process to appeal restrictive zoning decisions at a higher level of government.

Back on the West Coast, the Pasadena task force proposes that the city allow second unit or 'granny flats' on lots of at least 10,000 square feet. The task force also suggests strengthening the city's inclusionary zoning ordinance by increasing the inclusionary percentage near certain transit corridors, increasing the overall percentage for any residential development, and including commercial development in the ordinance.

Meanwhile, the Columbus task force suggests that the city adopt a density bonus program for new construction projects that meet affordability and geographic targeting criteria. Task force members in Columbus have also created a list of changes to the City's development standards.

The Minneapolis-St. Paul task force encourages cities within the region to review their land use ordinances to ensure that they are assisting in (rather than hindering) the development process. One task force recommendation is that the local government require only a majority (rather than a supermajority) of the local governing body to approve increases in residential density. In addition, the task force describes a number of examples where local governments are reforming their land use ordinances.

Dallas task force members recommend that the city should undertake a comprehensive review of zoning practices and building codes, and modify those which have a negative impact on affordable housing development. They urge the city to authorize a few projects that use innovative zoning approaches and to zone 40 to 50 percent of available residential land at higher densities as a means of encouraging affordable housing development.

Taxes

Another regulatory reform issue addressed by most of the task forces is the impact that the property tax has on housing affordability. Most of the task forces realize that tax policies have a direct impact on housing affordability, and so have made specific recommendations for revising or amending local tax laws in ways that promote affordable housing. For example, the Columbus task force recommends that the city set strict guidelines before granting property tax abatement. It suggests several types of abatement for new single-family homes located in the city's Neighborhood Revitalization Service Area (NRSA). Affordably priced properties would receive greater benefits for a longer period of time than would other types of housing. It suggests not counting part of the increased value that might result from improvements to owner-occupied homes in this neighborhood when the property is assessed for property tax purposes. It also recommends providing limited tax benefits to both affordable owner-occupied housing outside the NRSA and affordable multifamily housing.

The Minneapolis-St. Paul task force cites previous accomplishments where the state changed the property tax class classification for rental properties from commercial to homesteaded properties. These rate changes reduced the operating costs for these properties and lessened the pressure on landlords to increase rents and, consequently, reduce affordability of rental units. The task force suggests supplementing this effort by increasing the amount of the mortgage registry and/or deed transfer tax to provide additional funding for affordable housing developments.

In Dallas, the task force recommends that the city establish a nonprofit land bank to acquire and hold land for future housing development. Property owned by the land bank would be exempt from property taxes during the time the land bank holds title to the property. These tax savings could then be passed on to the new buyers of the property.

State Issues

The Burlington and Minneapolis-St. Paul task forces see a need for state reforms to coincide with local efforts, and so have requested their respective states to assist in promoting changes to local policies. Burlington authorities have requested that the State of Vermont implement recommendations from a 1990 task force. Recommendations include giving priority to communities that request HUD discretionary funds or transportation resources to revise their land use policies to promote affordable housing development.

The task force also asks the state to address redundancies between local and state land use permitting and the lack of a predictable permit process. They also request that the state make it more difficult to appeal land use decisions in court in order to reduce the land use decision approval process and reduce development costs.

Those in Minneapolis-St. Paul have requested that the legislature review the effectiveness of the allocation of private activity bonds and to increase the proportion of the tax cap assigned to affordable housing.

Conclusion

In the October, we identified a number of reforms that five local government task forces were examining in order to reduce regulatory barriers to affordable housing. In this issue, we've described how these five local task forces are addressing zoning and property tax reforms, and are promoting the development of affordable housing. We've also examined how two of these task forces are encouraging their respective states to support local reforms by changing state regulations. In our February issue, we will examine how these task forces intend to monitor implementation of the recommendations. If your community has undertaken similar reforms, we'd like to hear about them. Send us an email at rbc@huduser.gov and be sure to read our February 2005 issue to see how these groups suggest monitoring progress toward implementing these recommendations.