The Innovative Housing Institute (IHI), which conducted this study, is a non-profit organization providing technical assistance to local governments and the private sector, helping them to develop subsidized housing in a mixed income environment. IHI was formed in 1996 by Bernard Tetreault, former Executive Director of the Montgomery County Housing Opportunities Commission.

IHI teamed with the respected demographers and statisticians Eunice and George Grier to thoroughly and objectively analyze data collected from the County's assessment records of sales. The goal of the study was to find out if there is an impact on the value of market rate housing that is in a mixed income environment.

Both Montgomery County, Maryland and Fairfax County, Virginia have mixed income housing programs that have been in place long enough to have a record of sales over a period of several years. Subdivisions in each of these jurisdictions were subjects of this study.

In 1988 there was a study of property values in relation to mixed income housing in Montgomery County, Maryland conducted by Washington area developer, William Berry. He looked at 14 communities in Montgomery County : seven with MPDUs (Moderately Priced Dwelling Units, the subsidized units required in Montgomery County) and seven somewhat similar communities without MPDUs. He found the communities with MPDUs increased in value slightly more than those without. We felt his study needed to be updated and the subject addressed in a more thorough manner.

To be rigorous, we looked at every real estate transaction from 1992 through 1996 in the fourteen communities we studied using the records of the Montgomery County and Fairfax County assessment offices. We measured distances from the subsidized housing units to the market rate houses in the same (or, in several cases the same and immediately proximate) subdivisions that had been sold during those years. We recorded the house sale price from records in each County’s assessment office and analyzed them as they related to real estate values reported in each zip code as periodically reported by the Lusk reports published in The Washington Post.

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ACKNOWLEDGEMENTS

This study could not have been conducted without the support of a grant from the Eugene and Agnes E. Meyer Foundation supplemented by a donation from Sandy Spring National Bank.

We greatly appreciate the assistance of staff from Montgomery County's Office of Housing and Community Affairs, The Montgomery County Planning Board and the Fairfax County Redevelopment and Housing Authority. In particular, we want to thank Eric Larsen, Terry McKinney in Montgomery County's Housing Office, and Sally Roman, on the research staff of the Montgomery County Planning Board and Mary Stevens of the Fairfax Redevelopment and Housing Authority. And Jo Reynolds, a Montgomery County Realtor. We are also indebted to the patience and assistance of the staff of the Assessment Offices in both counties and the data collection and report compilation by Joyce Siegel and we are deeply indebted to the thorough and tireless efforts of Eunice and George Grier who analyzed the data collected from the assessment, planning and housing offices.

Many people believe that if "subsidized" housing (lower-than-market-priced housing) is present in a neighborhood, it will lower the value of the "regular" or non-subsidized homes in its vicinity. This study tests the validity of that assumption in two of the nation's most affluent suburbs -- Fairfax County, VA and Montgomery County, MD. In both of these counties, several governmental programs to promote subsidized housing have placed subsidized units or units specified for low and moderate income households in the midst of or adjacent to subdivisions of medium- to high-priced homes.

The study examined trends in resale prices of 1,012 non-subsidized or "market rate" dwellings sold between 1992 and 1996 either within or next to 14 subdivisions with subsidized housing that had been built in compliance with local laws. Six of these subdivisions were located in Fairfax County and eight in Montgomery County. The maps on pages 11 and 12 show the locations of each of the tested subdivisions, which were widely scattered within their respective counties.

In communities with MPDUs ( all Montgomery County subdivisions in the study except Timberlawn Crescent) and ADUs (Affordable Dwelling Units in Fairfax County) the county laws that require developers to incorporate "subsidized" housing in their subdivisions applied only to those of 50 units or more. However,, there are several subsidized housing programs in Fairfax County that are not subject to the 50 unit or more rule and recent adjustments to the ADU ordinance allow some flexibility. In most cases, if mixed income, economically integrated housing is the goal, the subdivisions containing subsidized units tend to be larger ones that usually contain market rate housing in a mix of types and prices, including townhouses, rather than higher-priced detached homes only. This mix of housing tends to lower the overall price level of these subdivisions compared to subdivisions with no subsidized housing and where single family detached building types predominate.

In addition, in many such developments, the subsidized housing units have been placed closer to the lower-priced townhouses or smaller single houses rather than to the larger and more expensive detached homes. In some subdivisions, the subsidized units are mixed in with the townhouses, or other lower-priced market rate houses, with little visible difference between the two. Thus the market rate houses that are located closest to the subsidized dwellings are most often intrinsically lower in value than those farther away for the reason that they are differently constructed.

To keep these differences from confusing the results, we have compared changes in price rather than absolute prices. If the presence or proximity of subsidized housing had a negative effect on values, we would expect that price trends in the context of a dynamic market would reflect this fact in the following ways:

1. The prices of the market rate (non-subsidized) homes sold in each of these subdivisions would generally gain less in a rising market, or would lose more in a falling market, than would all units sold in the zip codes in which they were located during the same time period.
   
2. The combined prices of the dwellings sold in all the tested subdivisions of each county would rise less or decrease more than those of all houses sold within that county during the same year.
   
3. The sales prices of the non-subsidized homes located close to the subsidized units would gain less or decline more than those of units located farther away.
   
4. Market rate dwellings located immediately adjacent to subsidized housing would receive the least favorable market treatment of all.

We analyzed changes in median prices (the middle prices when all were arranged in order from high to low), rather than arithmetic averages. We did this to minimize the possibility that "outliers" (occasional prices that were either exceptionally high or low) might impair the reliability of the results.

Furthermore, because the period studied was one in which housing prices in both counties fluctuated both upward and downward from one year to the next, we analyzed the price changes on a year-to-year basis rather than for the entire period.

We obtained the selling prices of all non-subsidized homes sold in the 14 subdivisions during the five-year study period from public records. The distance of each unit from the nearest subsidized dwelling, in feet, was next determined by measurement from the plot map of the subdivision.

We then compared the trends in median selling prices of all non-subsidized houses with those homes located at different distances from subsidized units, and with the prices of all units sold in the same year within the zip codes in which the subdivisions were located. These zip code prices were obtained from the Rufus Lusk price listings published regularly in The Washington Post.

None of the expected price effects were found to have occurred. Instead:

• Overall, there was no significant difference in price trends between non-subsidized homes in the subdivisions with subsidized units and the market as a whole -- whether measured at the zip code or county-wide level.
  
• Furthermore, there was no difference in price behavior between non-subsidized houses located within 500 feet of subsidized housing and those farther away in the same or an adjacent subdivision.
  
• Even the price trends of those non-subsidized homes located immediately adjacent to a subsidized dwelling (either next door, back-to-back, across the street, or within 25 feet) were unaffected by their proximity.
  
• In sum, the presence or proximity of subsidized housing made no difference in housing values as measured by relative price behavior in a dynamic market.
  
• Finally, there was no significant difference between the two counties in these respects.

In addition to this quantitative analysis, we conducted structured interviews with 56 residents of non-subsidized homes in both Fairfax and Montgomery Counties whose homes are located close to subsidized units, three MPDU homeowners in units that were no longer under price control regulations, one MPDU homeowner who had made extensive improvements, and with six Realtors with extensive experience selling in communities with subsidized units.

The results of the neighborhood survey and a copy of the survey instrument are in Appendix D. The survey found 28 households "very satisfied" with their neighborhoods, 25 "satisfied" and 4 "a bit" or "very dissatisfied." Fourteen of the sixty households specifically mentioned the subsidized units. Of these, six had negative comments. The most frequently mentioned negative comments (whether or not the respondents were satisfied or not satisfied with their neighborhoods) were congestion, traffic and over-development; unsupervised children; behavior of teens; trash collection and Homeowner Associations. When asked about what they liked best about their neighborhoods 38 spoke of neighbors, safety, peace and quiet. Location, amenities and maintenance were mentioned by 24 respondents. Of the 60 persons interviewed ten were renters and 50 were owners. Length of residence varied from four months to fourteen years with the majority in their homes for more than three years.

Regarding the Realtor interviews: Three Realtors said they saw no effect on property values related to proximity to "subsidized housing." However, one specified location of the subsidized units within the subdivision as sometimes the least favorable and said it would therefore affect value. Another said "as long as houses are well maintained it’s a non-issue," and another said sometimes appraisers don’t understand the program and unrelated comparable affect the appraisal given. Two Realtors said they felt there was a correlation between lower house price and proximity to subsidized units (that proximity lowers house value) and the other Realtor said, "We expect diversity in our communities, as long as there’s a reasonable mix."

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