The race to fill the gaping hole in housing in the U.S. continues with developers delivering apartment properties at a rapid pace across the country, from ground-up developments to office-to-residential conversions. The affordable housing market is in particular need of new supply. In many jurisdictions, developers are required or incentivized to include a minimum number of affordable housing units in multifamily development projects. But, some developers are taking it even further to create mixed-income properties that provide a substantial percentage of both affordable and market-rate housing at one location, significantly increasing a city’s pool of options for renters. Think blue-collar workers, public school teachers, and tech engineers all living at the same property and enjoying the same modern amenities commonly found at market-rate residential projects. Mixed-income residential properties appear to be popping up at a growing pace in suburbs and big cities across the U.S. While such projects seem like an equitable solution to the housing shortage, there is an element of the good, the bad, and the ugly.
Building 100 percent affordable housing isn’t the biggest money-making strategy for a developer or landlord. In terms of profit, the big bucks are in market-rate and luxury residential communities. However, sometimes timing is everything, and with regard to developing mixed-income properties, the timing is quite right. With rising demand and increasing rental rates, the multifamily housing market remains strong, providing a climate for mixed-income property developers to make more than enough money on market-rate rents to cover the income gap between market-rate and affordable units. That’s good.
Like timing, location matters too. As Matthews Real Estate Investment Services notes in a report quoting Local Housing Solutions, “Proposals for mixed-income developments that include an affordable component may draw less resistance than proposals for a development that is 100 percent affordable.” Compared to an affordable housing project, a mixed-income property will likely have a higher quality of management and maintenance, which helps alleviate potential community concerns regarding certain stigmas attached to affordable housing. Regardless of the motivation behind developing mixed-income residential properties, builders appear increasingly keen on these projects.
On the site of a former Buca de Beppo restaurant just outside Seattle in Lynwood, Washington, a 200-unit mixed-income residential tower is being built that will sit just across from a new transit center. Fifty percent of the residences at Alderwood will be reserved as affordable housing for households earning 80 percent or less of the average medium income levels, with the remaining 50 percent designated as workforce housing, also referred to as middle-income or moderate-income housing. The development team has been short on details about the project’s amenities. Still, the low-rise building, which is being developed in adherence to Washington State’s Built Green standard, will be a model in sustainability with such features as electric vehicle charging stations.
On the other coast, in Brooklyn, New York, a mixed-income project located at 499 President Street has broken ground. Twenty-five percent of the 350 apartments will be made available as affordable housing. Designed by SLCE Architects, the project should dispel any negative preconceived notions of what mixed-income housing looks like with its ground-level retail space, rooftop deck, and swimming pool. The 8-story building’s amenities will also include co-working spaces, a fitness facility with a yoga studio, and a private dining room. But what the 499 President project won’t have is a little something that’s casually referred to as a “poor door” or a separate entrance for those residents occupying the affordable units. And here’s where the bad and the ugly part of the mixed-income housing equation can come into play.
The “poor door” is an example of what can go wrong with mixed-income housing. It is the practice of relegating affordable housing residents in a mixed-income building to a separate, usually lower-profile entrance. This design has become less popular over the years, but it is still allowed in many jurisdictions. While there have been attempts at the federal level to create national legislation banning disparate entrances in mixed-income housing, there remain no federal laws against the practice. Yet, there’s nothing like bad publicity to help turn the tide. With the national exposure of certain practices at a high-profile property in New York City, the tide began to turn on a greater scale against the incorporation of poor doors and poor floors. This design confines affordable units to the lower floors of a residential tower.
Heads turned when a later-dismissed lawsuit spotlighted discrepancies in benefits between affordable housing tenants and market-rate tenants at Related Company’s upscale residential condominium skyscraper, Fifteen Hudson Yards, located within the company’s $25 billion Hudson Yards mixed-use development. Plaintiffs in the lawsuit accused Related of incorporating designated poor floors at Fifteen Hudson Yards, as well as instituting rules restricting affordable housing tenants from utilizing the property’s luxury amenities and forcing affordable housing units to utilize a different address. The State of New York banned the use of poor doors for developers receiving tax breaks on market-rate residential projects that include affordable housing in 2015. However, Fifteen Hudson Yards, which reached completion in 2019, had already secured planning approval prior to the ban.
Mixed-income residential developments are expected to increase as many cities, and the federal government increase incentives for developers to facilitate such projects. Mixed-income housing has been shown to have a positive effect by creating a more diverse community and providing more opportunities to lower-income residents. The White House’s Housing Supply Action Plan, revealed in late 2022, outlines new regulations, including cross-subsidization, that would ease the process for developers to build more mixed-income projects. Depending on the jurisdiction, developers of mixed-income properties still have the option to separate affordable units from market-rate units in various ways—poor doors, poor floors, restricted amenities—and some of the developers behind high-end residential destinations may be inclined to exercise that option. However, for most developers, the benefits of creating truly inclusionary housing at a property, such as incentives and the avoidance of bad press, are likely to outweigh the inclination to lowball the lower-income tenants.