Kleinman Wants to Use Building Permits and Free Markets to Boost Low-Cost Housing

Dallas has an affordable housing problem. The city has too little of it and what it does have is largely contained to southern Dallas. Affordable housing doesn't venture north of Interstate 30 in Dallas unless it's coaxed. For example, when the city wanted the Trammel Crow company to put 10 affordable units in a proposed luxury apartment development near Klyde Warren Park in exchange for a zoning variance, Crow reluctantly agreed to put in four and fund a study by the Urban Land Institute. It never comes easy, but Dallas City Council member Lee Kleinman has a new plan that, he hopes, will get the city's developers on board with fixing the problem themselves.

Kleinman starts by trying to fix one of the essential flaws of Dallas' tax increment financing (TIF) district system. Part of the property taxes collected in a TIF is used to reimburse developers for projects they build or renovate in the district. If a developer like Crow wants TIF money for a residential project, it supposedly has to make 20 percent of the homes qualify as affordable housing. (That rule is often ignored, as Jim Schutze reported here yesterday.) Commercial projects don't have a similar requirement, and Kleinman says that gives developers a incentive against building residential units with TIF money. Instead, Kleinman says, developers take TIF money for the retail part of a project but build residences without incentive money or affordable housing.

Kleinman's idea is that the city create "marketable housing certificates." Developers who build affordable housing would be given the certificates, which would in turn be required for anyone getting a construction permit. The affordable housing builders could then sell their certificates.

"Anybody that builds affordable [housing] would earn certificates. Anybody that pulls any construction permit in Dallas — I'm sure there's going to be a few carve-outs — but whether it's residential, commercial, restaurant, retail, warehouse, it doesn't matter what it is, they're going to be required to present certificates. What that does is, it moves away from this bias against residential [development]," Kleinman says.

As far as Kleinman knows, and as far as the Observer could find out, his idea is unique. There isn't another city in the United States trying to get affordable housing with Kleinman's suggested market-based approach. Assuming Dallas institutes the plan, there is one glaring issue that needs to be addressed: What's to stop developers from building affordable housing in the same areas where affordable housing is now, collecting certificates as they go and making off like bandits?

Kleinman says that when people first asked him the question, it gave him a lot of trouble. Now he has a solution. Builders who provide affordable housing in census tracts with higher land values will get more certificates.

The certificate-trading plan will be presented to the City Council's housing committee on April 18.
Clarification: This reason the city wanted affordable units in the Crow development near Klyde Warren has been clarified. The city wanted the units in return for issuing a zoning variance. No TIF money was involved.