While the market for transit-oriented development (TOD) is gaining steam, few federal, state or local funds exist to help make TOD units affordable to the workforce.

There are currently about 6 million households living within a half-mile of transit stations, but over the next 20 years, that figure is likely to soar to 14.6 million, according to a report by the Center for Transit-Oriented Development that analyzed immigration, Echo Boomer, and urban migration trends.

U.S. Department of Housing and Urban Development Secretary Shaun Donovan has strongly signaled his support for TODs as part of a larger “smart growth” initiative that will see increasing federal resources made available for communities located near transit.

One of Donovan’s first moves was to strike up a partnership with the Department of Transportation to work on spurring such developments. And Donovan selected Shelly Poticha—formerly CEO of Reconnecting America, a nonprofit that focuses on the link between transit and community development—to serve as his senior advisor for sustainable housing and communities.

Still, providing housing that is affordable to those who would benefit the most from TODs has been difficult for many developers, a fact known all too well by Melinda Pollack. Pollack leads the Enterprise/Urban Land Institute's Workforce Housing Initiative in Denver. Since Denver is undergoing the largest public transportation system expansion in the country right now, the initiative started by working with TOD developers on adding more workforce housing units.

In Denver, households earning $55,000 or less spend almost 60 percent of their income on housing and transportation costs. “So it’s natural, if you’re going to support the creation of workforce housing, to focus on how they can control their transportation costs as well,” Pollack says.

Pollack and her team started a site-modeling program, which worked with three market-rate developers to show how workforce-housing units could pencil out in the capital stack of their upcoming TODs. The only problem was, the units weren’t penciling out. “When the market really fell out from under us toward the end of last year, we decided to suspend the program because we were finding that nothing really worked,” Pollack admits. “Everything was so contingent on the market turning around to be feasible.”

A few states and cities are taking steps to spur workforce housing in TODs. California allocated $285 million from 2007 to 2009 to a TOD Housing Program, which uses loans and grants to encourage housing development within a quarter mile of transit stations (a 15 percent set aside of units is required). In Portland, Ore., a TOD property tax abatement helps to reduce operating costs for affordable housing owners and developers through a 10-year property tax exemption. And earlier this year, the city of Denver created a TOD fund with a goal of creating or preserving 3,000 affordable units along its mass transit corridors over the next decade. 

Alexandria, Va.-based REIT AvalonBay Communities often partners with transit agencies, counties, and redevelopment agencies on its TOD projects. At Dublin Station, and another development under construction in Pleasant Hill, Calif., AvalonBay was tapped to build out the infrastructure and replacement parking structures.

“Many of these agencies are financially challenged right now, and they’re looking for the private sector to do a lot of heavy lifting,” says Stephen Wilson, senior vice president of development at AvalonBay. “It’s a high-barrier, long-term process. You’re building for two years before you lift a shovel on the apartments.”

The involvement of municipalities often means that a portion of the units will be set aside as affordable housing. At its Pleasant Hill development, AvalonBay is reserving 20 percent of its stock (about 85 units) for those earning up to 30 percent of the area median income (AMI). But the affordability requirements vary by city: At Dublin Station, only 2 percent of the 305 units needed to be affordable to those earning up to 60 percent of the AMI.

Affordability requirements can also be a deal-breaker. “It’s important for any city, and it’s a big issue for HUD, but how that translates into the development is a lot tougher,” says Art Lomenick, managing director of Dallas-based High Street Residential, which has developed about a dozen TODs in the past six years. “If they try to force an unrealistic set-aside, a lot of times we won’t do the project."

While TODs can lower a renter’s transportation costs and offer several environmental benefits, one of the best reasons to consider TODs is long-term value. Multifamily buildings in close proximity to transit are more valuable than non-TOD developments, according to a report by the Center for Transit-Oriented Development, which distilled the findings of dozens of research reports done over a 30-year period.

Each study showed higher property values for multifamily buildings near transit, though the increases ranged wildly. A 2002 study by UC Berkeley found a 45 percent increase in multifamily property values for apartments located a quarter mile from Santa Clara County’s light-rail system. On the lower end, a 2002 study by ULI found a 4 percent value increase for apartments located within a half mile of San Diego’s trolley system.