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8. It Is Still Difficult to Sell Inclusionary find themselves facing a much smaller buyer pool for Ownership Units in Some Places inclusionary units than in previous years. During the downturn, developers and homeowners • FHA unwillingness to insure loans for homes struggled to sell(or re-sell)inclusionary homes in many whose price restrictions will survive foreclosure. communities, leading to pressure on local governments This issue has become prominent it the past five to ease policies and resale restrictions. As discussed years, and has had a marked impac: on the initial earlier, this was the primary reason that a handful of sale of inclusionary homes, especially in places with municipalities discontinued their policies during the relatively new programs, such as Washington, DC, housing downturn.This issue has also been a challenge and localities in Washington State. Because other in jurisdictions that still have inclusionary policies.61 The sources of financing have dried up in many locations, reasons for these difficulties vary, however. few lending products may be available for applicants in these areas. The concern for FI-A (and others One of the chief reasons that many "affordable" units such as Freddie Mac) is that resale restrictions on produced through inclusionary housing policies are inclusionary units may impede the resale of homes failing to sell is that market-rate home prices in many should they be foreclosed upon, preventing the lender neighborhoods have dropped to levels comparable to from fully recouping its loan. Some jurisdictions seek inclusionary prices.Owners struggle to sell inclusionary to get around this problem by allowiig affordability units that are even slightly lower in price than comparable restrictions to expire upon foreclosure, thereby market-rate homes,because resale restrictions that cap obtaining an FHA waiver, while taking proactive future equity gains make the inclusionary units less steps to intercept units before foreclosure occurs attractive.62 As a result,some inclusionary homeowners (or by working to prevent foreclosure through better and developers have had to accept losses to sell their monitoring and homebuyer education).However,some homes, or even face foreclosure — similar to other jurisdictions find it challenging to get lenders to notify homeowners and developers whose homes are not inclusionary administrative staff of imminent defaults, restricted. and not all jurisdictions have the resources to acquire units that have gone into default.63 It remains to be seen whether this problem is a one-time • Restrictions on renting out ownership inclusionary issue related to the historic and mostly unprecedented homes. Some jurisdictions prohibit inclusionary housing market crash. If so, market-rate competition homeowners or developers from easing their financial may be less of a problem going forward as the market situation by renting out their homes. recovers. This problem also may be the product of unrealistic expectations as much as a problem with underlying policies.After all,homeowners of all incomes Effectively addressing the challenge of selling lost money and experienced difficulty finding buyers inclusionary units requires clarifying what factors during the housing crash and foreclosure crisis. While most impact salability and working to address these the below-market purchase prices of inclusionary units problems. To rectify the issue of competition from provide some protection from modest housing price market-rate units, a possible solution would be to downturns, there are still risks involved in purchasing require a lower initial pricing of inclusionary ownership these units and one can argue that the purchasers of units by future developers, while at the same reducing affordable homes have experienced significantly fewer the set-aside requirement. But this does not address — problems than purchasers of market-rate homes. and may in fact compound — the problem of a limited pool of qualified applicants. To broaden the pool of There are also some challenges, however, that affect eligible buyers, it may also be necessary in some the sales of inclusionary homes more than market-rate places to raise income restrictions for prospective homes: buyers (while keeping prices still affordable for lower- income households), as Montgomery County does for • Tightened mortgage standards. Multiple jurisdictions developers who are unable to find qualified buyers report difficulty in finding lower-income buyers that can within 90 days.64 Alternatively a jurisd ction may wish qualify for mortgage financing. Following the onset of to consider changing its inclusionary requirements the housing downturn, banks now require much strop- to allow developers or owners to rent out the homes ger credit and larger downpayments than in the past, in the event they try but are unable to sell them after leading many applicants to fall short of qualifying for a a reasonable period of time. Jurisdictions also may loan. This has been reported as a major problem even wish to allow developers to convert ownership units to in strong markets, such as San Francisco, Montgomery rentals on a more permanent basis in th.event a sale at County(MD),and Fairfax County(VA).Sellers therefore the target price is infeasible. 13