A focus on affordable living considers both housing costs and commuting costs, an element the federal government now says it is serious about using as a benchmark.

Architects, developers, nonprofit executives, bankers, housing activists, and public officials explored the role of housing and transportation costs in making new workforce housing projects affordable at the ULI Terwilliger Center’s third annual Workforce Housing Forum held in February in Manhattan. “We know the problem of affordability has not been solved by the real estate downturn,” said

J. Ronald Terwilliger, the center’s founder, and he challenged participants to find creative solutions.

America’s workforce faces runaway housing expenses and rising commuting costs. Most of the people who provide essential services and nurture small businesses in cities—constituting up to 30 percent of potential buyers or renters in some cities—have great difficulty finding affordable ways to live in those same cities. Federal standards traditionally define affordable housing as that which requires 30 percent or less of the occupant’s income for rent or mortgage payment. “But if you look at housing and transportation, which is up to 60 percent of some families’ incomes, then we should redirect the conversation,” Terwilliger maintained. The combination of volatile gasoline prices and traffic congestion obliges policy makers and practice leaders to develop a new standard, he added.

Alicia Glen, a managing director with Goldman Sachs’s Urban Investment Group in New York City, emphasized the value in finding a mix of housing prices that fits a project’s context. One successful Harlem project, the Kalahari, targeted three levels of income. The modest sales prices that the collaborative financing required despite the boom helped the project sell units during the bust, she said.

“The tradeoff for limiting upside with some more affordable units is that we protected our downside by having much more absorption on the lower-priced units,” pointed out Glen. Mixing in more income levels can help a project thrive. “Early on, we felt that people will buy an $850,000 unit and a $200,000 unit in the same building, which was a very powerful and progressive hypothesis,” said Glen.

Mixed-income rentals are also an important category for working families, especially since the mortgage market remains tentative. “The next few years will be very strong for financing, retrofitting, and leasing apartments,” said Henry Cisneros, executive chairman of Los Angeles– based CityView and secretary of Housing and Urban Development (HUD) during the Clinton administration. He cited research that projects effective rents rising an average of 6 percent this year and 9 percent in 2011.

Doug Duncan, Fannie Mae’s chief economist based in Washington, D.C., said he foresees a stubborn oversupply of for-sale housing, especially in subdivisions in the western United States, and overall growth this year tracking at about half the historical average for a year after a recession. An excess supply of 6 million to 7 million homes remains as a result of delinquent mortgages and overbuilt rentals, he said. But job numbers and output are rising, Duncan noted, and consumers are reducing their overall debt and seeking housing closer to work and services.

Financing remains an area of concern, however. “We’re missing an opportunity to develop a better debt product,” said Todd Gomez, a senior executive for multifamily lending at Bank of America in New York City, referring to the gymnastics required for developers to assemble capital for workforce-appropriate deals.

“Every deal is always creative, so we can find deals by following demand,” noted Al DelliBovi, president of the Federal Home Loan Bank of New York. Steve Preston, HUD secretary during the second Bush administration, found encouragement in other panelists’ take on consumer creditworthiness. “Treasury is beginning to pull back, and if you’re seeing deals of that quality over the next 18 months, isn’t it a prime time for the private sector to enter?” he asked.

Gadi Kaufmann, head of the real estate advisory firm Robert Charles Lesser & Co. in Washington, D.C., pulled together the various market elements. There is reason to try new income mixes, as at the Kalahari in New York City; there is a relatively bullish outlook for rentals; and, he noted, projects near transit and services command a significant price premium. The conclusion, said Kaufmann, is that developers and public agencies can do well by refurbishing properties in central cities. “We have a reservoir of poorly maintained housing in great places,” he pointed out.

But for mortgages and rentals, the government still needs to sustain affordable opportunities “where people really want to live,” Terwilliger said. A focus on affordable living considers both housing costs and commuting costs, an element the federal government now says it is serious about using as a benchmark.

“Every region of the country should have a business plan and every federal investment should be driven by that plan,” observed Adolfo Carrion, Jr., director of the White House’s Office of Urban Affairs, who described the administration’s ambitious effort to align cabinet agencies around consonant goals. The plans he cited in Seattle and Denver, for example, encourage development of housing and sector-driven businesses near transit. Carrion promised a new standard of collaboration among HUD and its colleagues at the U.S. Transportation and Labor departments and the Environmental Protection Agency.

New Hampshire in January enacted a law, S.B. 342, enabling towns to create zoning for units that families earning the area median income (AMI) can afford to buy or that families at 60 percent of AMI can afford to rent, said Ben Frost, a land use lawyer for the New Hampshire Housing Finance Authority. The state built a coalition of business interests in its cities and towns and persuaded vocal environmental groups that the ordinance would address sprawl, he said. The measure gives developers seeking to create workforce housing the right to go to court and cite the law if local officials try to block their plans. This provision is known as a “builder’s remedy,”

The approach seems to be effective. The nonprofit NeighborWorks received approvals for a $3.35 million, 16-unit rental project that provides some workforce units. “If not for the legislation, this project would not be happening,” commented Robert Tourigny, Neighbor-Works executive director. “This will be built on a 1.67-acre [0.68-ha] site. That’s ten units per acre [15 units per ha]. High density in these towns is usually considered three or four units per acre.”

However, Florida’s Community Workforce Housing Investment Program has had a different experience. The program, which grew as a carve-out from a fund on housing-sale subsidies—and required public/private partnerships—stalled due to state budget shortfalls. “We ended up not being able to spend all $111 million,” said David Westcott, director of the Florida Housing Finance Corporation. “The state clawed back money for projects that were fighting zoning or environmental issues. We went from 24 funded projects to about eight, and that has caused lots of litigation.”

In the next real estate boom, as urban hubs become more popular, broad rules such as inclusionary zoning—a practice tried by such cities as Boston that obliges developers to provide for different income levels if they want to build above a certain size—may become necessary to protect workforce housing. “I prefer that inclusionary zoning be voluntary,” said Terwilliger. “But if not, it should be mandatory to make sure that it gets done.”