ASSESSING THREATS AND OPPORTUNITIES OF 2-4 UNIT RENTAL PROPERTIES IN FIVE CITY OF MADISON NEIGHBORHOODS

MARIA JOSE DAVILA MARTINEZ

DEPARTMENT OF PLANNING & LANDSCAPE ARCHITECTUREUNIVERSITY OF WISCONSIN - MADISONSPRING 2021

ACKNOWLEDGEMENTSThank you to everyone in the Department of Planning and Landscape Architecture for the knowledge and training that culminates in this project and will reflect in my professional career ahead. I would like to give my fullest appreciation to my academ-ic advisor Dr. J. Revel Sims, second committee member Prof. Brian Ohm, and Exec. Dir. Justice Castañeda for their time and support, knowledge, and previous work that laid the foundation for this project. Thank you to Common Wealth Development for the professional expertise that oriented my thinking framework and charted a path for my interest in affordable housing and household stabilization. Thank you to Dr. Edna Ledesma and Dr. Alfonso Morales for your mentoring and assistance through-out my time in this program.

CONTENTSEXECUTIVE SUMMARY

RECOMMENDATIONS + CLOSING STATEMENT

INTRODUCTION + CONTEXTMADISONS’ TIGHT RENTAL MARKET

TWO-TO-FOUR UNIT PROPERTIES

ROLE OF THE LANDLORD

RISK OF SALE

METHODOLOGY + DATADATASPATIAL ANALYSIS

FINDINGSDEMOGRAPHIC TRENDS

HOUSING CHARACTERISTICS

OWNERSHIP

HOUSING QUALITY

0102

0809

15APPENDIXBIBLIOGRAPHY18

EXECUTIVE SUMMARYThe current median gross rent in the Madison MSA is $1,088, meaning that a household must earn $43,250 annually to afford median monthly rents while allocating 30% of income to housing costs. About 30% of Madison house-holds are unable to afford this cost (1-Year 2019 ACS). Lack of affordability reduces housing choice and introduces housing instability and its adverse impacts on health, education, and employment, contributing to poverty.

Although some renters benefit from subsidies (tenant or project-based), most low-income renters live in “naturally occurring affordable housing,” (NOAH). The importance of looking at small buildings with 2-4 units in this discussion relates to their prominence in the affordable housing ecosystem. The characteristics of landlords and tenants of 2-4 unit properties make them vulnerable to economic shocks such as the pandemic disruption. With increased vacancies and decreased rent collection, landlords are experienc-ing more pressure to sell their properties. Although a tenant with an active lease during the transfer of ownership is still protected, and owners like ten-ants are bound to that contract, landlords have tools other than evictions to displace tenants. Non-renewals, tightened screening criteria, increased rent, and “cash for keys” are possible “hidden” and legal displacement process-es that may occur during or as a result of property ownership transfer.

Allied-Dunn, Burr Oaks, Bram’s Addition, Carpenter-Ridgeway, and Worth-ington Park neighborhoods were selected because they are undergoing multiple stressors that when compounded make displacement through transfer of ownership more likely. This paper focuses on stabilizing house-holds by assessing risk factors of 2-4 rental unit property displacement through sale or change in ownership. This paper concludes by providing policy recommendations to protect, preserve, and expand in these types of rental properties as we emerge from the pandemic.

1

INTRODUCTION + CONTEXTHouseholds within the City of Madison face a tight rental market. Lack of affordability reduces housing choice and introduces housing instability and its adverse impacts on health, education, and employment, contributing to poverty. This paper examines displacement threats through the transfer of ownership of 2-4 unit rental properties in five City of Madison neigh-borhoods. Using Neighborhood Association boundaries, the communities explored are Allied-Dunn, Bram’s Addition, Burr Oaks, Carpenter-Ridgeway, and Worthington Park (Fig. 1).

Figure 1. Selected neighborhoods’ proximity to towns and villages within City of Madison boudanries. The Town of Madison is approved for annexation in 2022 and the Town of Blooming Grove is approved for annexation in 2027.

Town of MadisonTown of MiddletonTown of Blooming GroveTown of Monona

Village of Shorewood HillsVillage of Maple BluffCity of Madison

Lake Mendota

Lake Monona

Allied-Dunn Burr OaksBram’s AdditionCarpenter-RidgewayWorthington ParkLake Mendota

Lake Monona

These neighborhoods were selected because they are undergoing multiple stressors that when compounded make displacement through transfer of ownership more likely. These contributing factors include:1. High concentrations of residents with occupations in industries disrupted

by COVID-19, normally deemed as insecure jobs. (Figure 2)2. High concentrations of 2-4 unit properties. These properties have unique

challenges that make them more predisposed to sale, especially with the added economic disruption of COVID.

3. Existing signs of early-stage gentrification.4. Proximity to planned city annexations of the Town of Madison (approved

for 2022) and the Town of Blooming Grove (approved for 2027) triggering land speculation.

2

MADISON’S TIGHT RENTAL MARKET

ALLIED DUNN

BURR OAKSBRAMS

ADDITION

WORTHINGTON PARK

CARPENTERRIDGEWAY

16+ Employed in the Arts, Entertainment, Recreation, Acommodation, and Food Services

CARPENTERRIDGEWAY

WORTHINGTON PARK

BRAMSADDITION

BURR OAKS

ALLIED DUNN

16+ Employed in Retail Trade

<1%1% -5%5% -10%15% -20%20% -30%30% -40%40% -60%60% -75%75% -90%>90%

Figure 2. Civilians over the age of 16 employed in arts, entertainment, recreation, accomodation, food services, and retail trade. These have been the industries most economically disrupted by COVID. Source: Social Explorer, 2019 5-Year American Community Survey.

Since 2011, Madison is a ma-jority renter community—53%.1 Rents have increased annually by 6-8% on average (City of Mad-ison Biennial Housing Report, 2016), and last year, vacancy rates averaged below 4% (Table 1, MGE).2 The bulk of the hous-ing production in the recent boom has been for households within 50%-120% Area MedianIncome (AMI) despite households below 50% AMI dominating Madison’s rental market (Wachter, 2016; Paulsen, 2019). Table 2 provides the number of available units with “affordable” rents, revealing that affordability and choice are more readily available and attainable for households earning 50%-120% AMI than those at less than 50% AMI. Even more startling, of those house-holds at less than 50% AMI, the housing gap is predominantly concentrated for those below 30% AMI (Paulsen, 2019).3

3

TWO TO FOUR UNIT PROPERTIES

0 - 5% 5 - 13% 14 - 21% 21 - 47%

Village or Town Study Neighborhood Boundary

Although some renters benefit from subsidies, most low-income renters live in unsubsidized and low-cost 1-4 unit properties, known as “Naturally Oc-curring” or “Unsubsidized” affordable housing.4 The importance of looking at small buildings with 2-4 units relates to their prominence in the affordable housing ecosystem. Two-to-four unit properties tend to have much lower

and slower rising rents than all other rental types (Goodman & Zhu, 2016).5 The reasons for this include their poor quality or low-demand location6 and to the fact that individual owners “knowingly set rents below market, often substantially so” (Decker, 2021, p. 2).7 These properties comprise 19% of all rental stock in the United States—roughly 5.6 million units (Goldstein et al., 2019).8 The majority of renters in Madison reside in 2-19 unit buildings (Table 3) with clusters on the isthmus, near campus, and out in the City’speripheries (Fig. 3).

The rental stock has shifted towards single-family homes and large multi-family buildings where rents have risen most. Simultaneously, the supply of 2-4 unit buildings nationwide fell by 38,000 (Joint Center for Hous-ing Studies, 2020). Identified risk factors for preserving these units include deferred maintenance, lack of conventional financing products,9 unmet capital needs, variable operating costs and market-rate conversion, and lack of units in high-cost neighborhoods (Reynolds et al., 2019).

Figure 3. City of Madison’s 2-4 unit housing stock.

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ROLE OF THE LANDLORDExisting imbalanceIn the past decade, literature has brought attention to the importance of the landlord and their behavior as intermediaries in the supply side of hous-ing. As Reosti (2020) puts it, “landlord behavior [shapes] patterns of urban disadvantage, precarity, and inequality.” In 1999 with the launch of CCAP10 and escalating from 2011 onward, Wisconsin’s legislature has passed nu-merous changes to landlord-tenant law heavily favoring the landlord. The laws have pulled back local control on rental property regulation and erod-ed existing and prospective tenant protections.11 With more than 80% of 2-4 unit properties owned by individuals (not corporations or partnerships), these small properties’ ownership profile presents a unique set ofchallenges to tenants and landlords alike (Garboden & Newman, 2012).

The characteristics of landlords and tenants of 2-4 unit properties make them vulnerable to economic shocks such as the pandemic disruption (Fig 4). Choi & Young (2020) reported that landlords of 2-4 unit properties earn less than those who own single-family homes or large multi-family buildings; have the largest share of owners of color (with COVID-19 disproportion-ately affecting people of color), and 34% are older than 65 (most likely to retire and sell).12 As for tenants, the median household income is lower than other types of rental units, and they are more likely to be working in low-wage jobs and industries that are vulnerable to COVID-19 shocks.13 The State of the Nation Housing Report uncovered that 14% of renters in small multi-family rentals werebehind on rent.14

Signs of early stage gentrification

High concentration

of 2-4 unit properties

High concentrations of residents in insecure jobs

Planned city annexations of

towns triggers land speculation

FOR SALENon-renewal

Tightened ScreeningCriteria

Increased Rent

Cash for keys

Owners of 2-4 rentals indicated that their principal reasons to acquire and hold these properties were income and wanting to reside in the property (Savage, 1998). Most small-scale owners are unlikely to have positive re-turns, leave little to nothing for reserves, do not benefit from economies of scale for property management, and often lack the knowledge to apply for government funding (Newman, 2005). These types of units are regularly exempt from local to federal legislation like rent control, the Fair Housing Act (the Mrs. Murphy Exemption (42 U.S. Code § 3603), not applicable in Wisconsin (Wis. Stat. § 106.50) and most recently CARES funding. Coverage

Figure 4. Multiple stressors are present in the selected neighborhoods that when compounded increase the risk of sale bringing about hidden and legal forms of displacement.

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for the CARES Act eviction moratorium applied only to 12% of units in small rentals (1-4 units) due to criteria stipulating properties must be financed by federally backed mortgages (Airgood-Obrycki & Hermann, 2020).

RISK OF SALE With increased vacancies and decreased rent collection, landlords are ex-periencing more pressure to sell their properties. Mosiman (2016) highlights that when there is transfer of ownership, leases are terminated, units are upgraded, rent is increased, and leasing standards tightened, resulting in displacement, and further limiting housing choice. Although a tenant with an active lease during the transfer of ownership is still protected, and own-ers like tenants are bound to that contract, landlords have tools other than evictions to displace tenants. Non-renewals, tightened screening criteria, in-creased rent, and “cash for keys” are possible “hidden” and legal displace-ment processes that may occur during or as a result of property ownership transfer.

Non-Renewals In the case of non-renewals, the landlord does not need cause. New owners can impose on existing tenants the requirement of reapplying under new stringent criteria, deny them, and displace them. Owners reported tighten-ing their screening criteria, even foregoing vacancy loss in order to secure a “more financially stable tenant,” (Choi & Goodman, 2020).15 Even in the case for tenants offered renewal, most are unable to afford the new rent.

Screening criteriaUnderstanding small landlords’ screening practices is crucial because they tend to employ informal practices and screening procedures that either open homes to renters who face significant barriers to housing elsewhere or push renters into exploitative situations. The methods for marketing and tenant selection for these units are more subjective than other types of units. In the “landlord’s market,” we must consider in-depth the increased likelihood of discriminatory actions and exclusionary displacement (Reosti, 2020; Marcuse, 1985, p. 206). Seemingly, landlords can use nondiscrimina-tory rental criteria as proxies in rejecting an application based on a protect-ed class. Reosti explains that although the increased vetting and stringent screening criteria raise the entry for all renters, the “exclusionary impacts of this trend are disproportionately felt by racial minorities” (p. 622). Here we witness the interplay of CCAP, a tight rental market, disparities in crim-inalization, and landlord discriminatory and discretionary tenant selection behavior resulting in neighborhood sorting by income and race (Sims et al., 2016).

6

EvictionsRaymond et al. (2018) showed that corporate landlords were 68% more like-ly than small landlords to file evictions.16 However, a recent study conducted in Philadelphia reveals contradictory evidence of smaller landlords engag-ing in fewer eviction filings (Balzarini & Boyd, 2020). Landlords engaged in various tactics with tenants to remedy unpaid rent (i.e., payment plans, adjusting rent, accepting services in lieu of rent) to avoid the perceived burdens associated with evictions. Some landlords practiced a technique of paying tenants to vacate known as “cash for keys” – an informal off-the-books eviction—without the legal ramifications. Balzarini & Boyd found that off-the-books evictions were far more prevalent than is tracked in eviction data.

In Wisconsin, the process of eviction begins with a 5-day notice to cure or quit. If the tenant takes reasonable steps to remedy, the 5-day is void (Wis. Stat. § 704.17(2)(a)). However, if the tenant was previously served a 5-day no-tice and carries another lease violation within the year, the landlord can file a 14-day eviction notice without the opportunity to cure. A landlord notified by law enforcement of drug-related activity by tenants or their guests (arrest or conviction not necessary) (Wis. Stat. § 704.16) can issue a 5-day notice to quit without an opportunity to cure. Recent literature has brought attention to disassociating eviction from gentrification. Instead, it looks at forms of eviction displacement that are precarious, cyclical, and highly motivated by race and landlord behavior in what Sims (2021) identifies as “continuous high risk” neighborhoods. Two neighborhoods in this report have tracts that fall under this classification (Sims, 2016).

7

METHODOLOGY + DATAThis paper aims to answer the following questions through a spatial analysis approach:

1. What are the demographic trends in the Allied-Dunn, Burr Oaks, Bram’s Addition, Carpenter-Ridgeway, and Worthington Park neighborhoods?

2. Who owns 2-4 rental unit properties within stated neighborhoods?3. What physical conditions are 2-4 rental units in?

This report uses demographic and housing data from the National Historic Geographic Information System (NHGIS) to examine change within each neighborhood’s composition using 2013 and 2019 American Communi-ty Survey 5-year estimates. Data is studied at the neighborhood scale as defined by neighborhood association geographic bounds. Census block group data increases accuracy for neighborhood-scale observations. Block groups were excluded if most of their geography fell outside of the neigh-borhood bounds. Table 4 below lists the census block groups within each neighborhood association. Block group data was aggregated to represent the neighborhood extent.

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This analysis draws from publicly accessible City of Madison’s Open Data Tax Parcels and Dane County’s building footprints to identify individual 2-4 unit properties. For ownership identification, data was pulled from the City of Madison Assessor’s Office property database.

Additionally, this report drew housing violations data from the City of Mad-ison’s Building Inspection and Code Enforcement Department and was acquired by request. This data communicates information on the type of violation and location. Housing violations were separated from building construction violations. A rate was created dividing counts of violations to the total number of dwelling units at the block group scale for 2019 and 2020 to better compare and normalize violations counts to density.

FINDINGSThis section explores how the characteristics of the five neighborhoods fac-tor into the conversation of 2-4 unit rental properties.

DEMOGRAPHIC TRENDSThis section reviews demographic changes within the five neighborhoods between 2013 and 2019. Tables D1-D5 in the appendix provide detailed demographic data for each variable and neighborhood.

Population SizeThe neighborhoods that experienced population growth were Carpen-ter-Ridgeway (56%), Burr Oaks (21%), and Allied-Dunn (19%), with Bram’s Addition (1%) remaining stable. Worthington Park was the only neighbor-hood that underwent a population decrease (-26%).

Race and Household Make-Up (Fig. 5)Interpreting data for race was complicated by the presence of the cate-gories “some other race” and “two or more races,” which may indicate a preference in racial identification rather than substantial migration out of the neighborhood by other races. All neighborhoods saw a decrease in the proportion of the non-white population (Fig. 6). In 2013, Allied-Dunn, Bram’s Addition, and Burr Oaks were majority non-white, while Worthington Park and Carpenter-Ridgeway were majority white. By 2019, Burr Oaks and Allied Dunn closed the non-white lead, Bram’s Addition shifted to majority white, but Carpenter-Ridgeway and Worthington Park continued to widen the gap. The Black population decreased across all neighborhoods (most

Figure 5. Racial proportions and composition for the five neighborhoods (2013 and 2019).

9

46%

18%

26%

23%

60%

51%

52%

44%

53%

50%

ALLIED-DUNN

BRAM’S ADDITION

BURR OAKS

CARPENTER-RIDGEWAY

WORTHINGTON PARK

2013

2019

remarkably in Worthington Park where nearly all the population loss can be accounted by this loss) except for Burr Oaks. Latinx saw increases in Burr Oaks, Carpenter-Ridgeway, and Worthington Park. The last notable point is that the Asian population substantially increased proportionally in Allied-Dunn, Carpenter-Ridgeway, and Worthington Park, with losses in Bram’s Addition and Burr Oaks.

With the noticeable increases in the proportion of the white population, we see that many of the neighborhoods are skewing towards family house-hold types. Burr Oaks saw a continued increase in the number of family households, with Carpenter-Ridgeway transitioning into a majority family household neighborhood; accordingly, seeing average household sizes increasing. In contrast, Worthington Park and Bram’s Addition saw increas-es in non-family households, consequently seeing decreases in average household size. Allied-Dunn was a rarity, seeing increases in non-family households with increases in average household size.

Figure 6. Percentage of non-white populations (2013-2019). All five neighborhoods saw a decrease in the non-white population, despite all witnessing population growth.

Education All the neighborhoods showed increases in the proportions of individuals with college or graduate degrees that outpaced the growth in the popula-tion of those 25 years and older within each neighborhood. Concurrently, the prevalence of the population without a high school diploma decreased in all neighborhoods except for Carpenter-Ridgeway. Increases in the educational attainment of the neighborhood has long been an indicator of gentrification (Freeman, 2005).

Median Household IncomeAs expected, all neighborhoods experienced some degree of growth in me-dian household income. However, the ones that saw considerable changes were Bram’s Addition (48%), Burr Oaks (55%), and Worthington Park (43%), with lesser increases by Allied-Dunn (2%) and Carpenter-Ridgeway (9%).

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HOUSING CHARACTERISTICS

Figure 7. Number of housing units lost or gained (2013-2019).

This section reviews changes in housing characteristics within the five neigh-borhoods between 2013 and 2019. Tables H1-H5 in the appendix provide detailed housing data for each variable and neighborhood.

Only two neighborhoods gained units (Allied-Dunn and Carpenter-Ridge-way) while the rest lost, with Worthington Park incurring the highest loss (Fig. 7). Regarding the types of units lost, Allied Dunn, Worthington Park, and Carpenter Ridgeway all saw decreases in properties with less than five units. Burr Oaks was the only neighborhood to have increased the number of 2-4 unit properties. Bram’s Addition presented an interesting case with losses in 2-4 unit properties and increases in single-family and 5-19 unit structures. Spatially we see that most of the 2-4 unit properties are clustered in each neighborhood, opening the prospect for consolidated ownership by a responsible housing provider, property management company, or a knowledgeable and trusted owner (Fig. 8).

Renter to owner occupancy widened with increases in renter population for Bram’s Addition and Carpenter-Ridgeway; the reverse is true for Worth-ington Park and Burr Oaks; Allied-Dunn remains stable. Overcrowding for owner-occupied households was highest in Bram’s Addition compared to the others. First signs of owner-occupied overcrowding are surfacing in Worthington Park. Renter occupied overcrowding was still prevalent in Car-penter-Ridgeway and Burr Oaks—although decreasing. Allied Dunn has not seen overcrowding for either tenure type.

All neighborhoods observed a decrease in the proportion of households considered “severely cost-burdened.” The same does not apply for pro-portions of households considered “cost-burdened.” All but Worthington Park (who retained the same proportions despite lower median rent) saw increased proportions of households deemed “cost-burdened,” with Car-penter-Ridgeway facing the greatest increase.

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Figure 8. Two-to-four unit properties’ building footprints identified in black for each neighborhood. Hatched lines indicate a town or village.

OWNERSHIPI identified 2-4 unit properties by joining tax assessor parcel and building footprint shapefiles to produce this owner analysis. Once each parcel was identified, individualized data was pulled from the City Assessors database, including sale and conveyance details (to identify previous owners and last sale) and current owner and address. With limitations of publicly available data and the limited scope of this project, identifying owners within LLCs and individual owners’ portfolios was not possible.

The type of legal ownership changes the landscape of housing stability. Within the five neighborhoods, unincorporated owners and LLCs makeup varied with the bulk being individual owners (Table 5). Nonetheless, there

12

The only neighborhood that did not benefit from home appreciation was Burr Oaks; the rest appreciated between 6% and 46% (Bram’s Addition had the highest appreciation).

was an uptick in the number of LLCs, most notably in Burr Oaks and Car-penter Ridgeway. Many of the LLCs showed signs of the same owner now under the protection of LLCs.17 The majority of the owners were local, nearly all residing in-state, but only 16 of the 181 properties were owner-occupied. There was an increase in the change of ownership in 2020, more than dou-bling all previous years (Fig. 9). As of March 2021, nine changes in ownership had been reported, corroborating the literature. This will not end when COVID ends, rather it has implanted in the mind of owners that market re-bound will provide better sale opportunities. Additionally, with arrears paid with COVID funding, the likelihood of sale remains, it just buys more time, not only for the owners but for the City to prevent rapid displacement.

Figure 9. Change in Ownership of 2-4 Unit Properties (2010-2021).

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HOUSING QUALITYThis report uses the age of stock and code violations rate to gain insight into the condition and quality of these properties. We find that nearly all the properties were built between 1950-1970, which will require significant rehabilitation to meet Madison’s minimum building standards (Fig. 10). Estimates for rehabilitation can range from $7,500 for repairs to $25,000 for moderate rehab, and up to $75,000 for a gut rehab (Listokin, 2001) with life-cycle costs for new construction at $71,000 more per unit than those in acquisition rehab properties (Brennan et al., 2013).

Code violations rate were higher in areas where non-white populations were of a greater percentage (excluding student housing areas). Within the neighborhoods, code rates were not severe (Table 6). This is spatially visualized citywide in the map below (Fig. 11). However, the code violation rates reflected in this report are of limited value. We must consider that the adminis-trative records only address the reported housing issues, with many problems going

unreported due to the tenant’s fear of retaliatory eviction18 or unawareness of complaint procedures. Effective 2018, Wisconsin Act 317 preempts local jurisdictions from engaging in annual scheduled inspections,19 relying solely on complaints. With tenants not submitting complaints and scheduled inspections not happening, tenants are forced to live in potentially unsafe, inadequate conditions.

Figure 10. Year structure was built for 2-4 unit properties in each study neighborhood.

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2020 Building Code Violation Rate

0.0 - 0.05

0.051 - 0.10

0.101 - 0.25

0.251 - 3.5

2019 Building Code Violation Rate

0.0 - 0.05

0.051- 0.10

0.101 - 0.25

0.251 - 11.50

Percentage of Non-White Population

Less Than or Equal to 10%

Less Than or Equal to 20%

Less Than or Equal to 30%

Less Than or Equal to 40%

Less Than or Equal to 65%

15

Figure 11. Housing Code Violations for 2019 and 2020 by block groups within the City of Madison. A superceding orange circle displays more housing code violations in 2020.

RECOMMENDATIONSBelow are recommendations that planners should consider for preserving and expanding these types of units and protecting and stabilizing house-holds as we emerge from COVID-19.

TO PROTECTReframe eviction prevention programs as housing stabilization programsCOVID-19 has underscored renters’ perilous position; however, renters were facing financial hardship even before the pandemic and will continue to struggle despite the policies in place during this public health emergency. For example, in 2019, the Tenant Resource Center reported receiving 1,028 financial requests nearing $1 million, which due to funding constraints, only fulfilled 245 requests ($100,000). As such, Madison will need to devise a more effective stabilization funding program to keep renters stable as they weather hardships post-COVID. Brennan et al. (2020) provides guidance on establish-ing rental assistance programs that respond to different hardships (Fig. 12).

Figure 12. Matching hardship with assistance from Brennan et al. (2020).

TO PRESERVECreate a holistic committeeUnderstanding the landscape of these properties across Madison is key to identifying proactive approaches. Given that not much is known about landlords or tenants in these types of units due to the statutory prohibition against landlord registries20 (Wis. Stat. § 66.0104(2)(e)4)), creating a holistic committee with secondary knowledge on the owner, tenants, and quality of property can substantiate this void. This committee should be composed of planners, social workers, educators, landlords, and tenants. The committee can then create a preservation catalog of at-risk property that informs deci-sions of acquisition.

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Introduce right of first refusal The Tenant Opportunity to Purchase Act (TOPA, 1980) in Washington, D.C. and the Community Opportunity to Purchase Act (COPA, 2019) in San Fran-cisco are two ordinances that enact the right of first refusal. Right of first refusal gives priority consideration to specified entities when an owner of a property decides to sell. COPA compliments S.F.’s Small Sites Program, giving qualified nonprofits the right of first refusal on for sale property that is at least three units or is zoned to accommodate at least three units. Even when provided this advantage, nonprofits cannot compete with private buyers ready to pay more and in cash, making incentives to landlords or ad-ditional financing to nonprofits vital.21 Landlords are selling rapidly in these neighborhoods, and intervention is dire. The City should prioritize enacting a comparable ordinance swiftly given the speed by which owners are selling and will continue to sell after considering personal and speculative opportu-nities to capture profits.

TO EXPANDAccelerate the acquisition of these properties through land bankingUnder the Equitable Development Report (2019), these neighborhoods were identified as undergoing Early Type I and Dynamic gentrification. They are also “affordable” areas for land banking (with average assessed values below $250,000, Table 5) thereby maximizing the potential of preserving units. The extended eviction moratorium will place more property owners in a bind to sell. Madison’s Land Policy is under revision following a Capital Budget increase to the fund of $3 million. The revision language includes NOAH and areas facing gentrification as a target priority for acquisition. However, regarding the disposition of property, there are many loopholes related to transfer of ownership and recapture restrictions that prevent permanent affordable housing’s achievability. Likewise, part of the strategy includes Land Use Restriction Agreements with private entities, which tend to preserve affordability for 15-30 years—not permanently. As such, it is dire that the land banking policy include such terminology.

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CLOSING STATEMENTLittle information is available around 2-4 unit properties within the City of Madison and the jump start is laid out here. It would be necessary to begin with more data collection and proceed as necessary, given new insight. Moreover, equity concerns arise accounting for the unique landlord, tenant, and property characteristics dis-cussed in this report. Although this paper’s focus was on neighborhoods within city boundaries near future city annexations, rather than the towns (where displacement and capital accumulation will occur more intensely), the effects will reverberate into the neighborhoods explored here.

Studies on the effects of housing instability on children show reduced academic performance, greater dropout rates, and worse emotional and behavioral outcomes (Ziol-Guest & McKenna, 2014; Ingersoll et al., 1989). Despite these units often being the site for exploitive conditions and landlords, they also have been the source of affordable, safe, and stable homes for low- and moderate-income households. As such, it is critical to focus on preserving and creating safe and affordable housing and protecting the households that live in them.

EXPAND PROTECT

PRESERVE

Housing stablization

program

Holistic Commitee

Right of first refusal

Land banking policy language

Accelerate acquistion

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BIBLIOGRAPHYAirgood-Obrycki, W. & Hermann, A. (2020, May 26). COVID-19 Rent Shortfalls in

Small Buildings. Joint Center for Housing Studies of Harvard University. https://www.jchs.harvard.edu/blog/covid-19-rent-shortfalls-in-small-buildings

Aurand, A., Emmanuel, D., Threet, D., Rafi, I., Yentel, D. (2020). Out of Reach 2020. National Low Income Housing Coalition. https://reports.nlihc.org/sites/de fault/files/oor/OOR_2020.pdf

Balszarini, J. & Boyd, M. (2020). Working with them: Small-scale Landlord Strategies for Avoiding Evictions. Housing Policy Debate. https://doi.org/10.1080/105114 82.2020.1800779

Bennett, S.D. (2020). Making the second pandemic: The eviction tsunami, small land lords, and the preservation of "naturally occurring" affordable housing. Jour nal of Affordable Housing and Community Development Law, 29(2), 157-178. https://www.americanbar.org/digital-asset-abstract.html/content/dam/aba/ publications/journal_of_affordable_housing/volume29number2/bennett.pdf

Brennan, M., Deora, A., Heegaard, A., Lee, A., Lubell, J., Wilkins, C. (2013). Com paring the Costs of New Construction and Acquisition-Rehab In Affordable Multifamily Rental Housing: Applying a New Methodology for Estimat ing Life-cycle Costs. Center For Housing Policy. http://media.wix.com/ug d/19cfbe_c9c547fac0d343b69203a00731352c04.pdf

Brennan, M., Sahli, E., Elliott, D., Noble, E. (2020). Breaking the Link Between Hard ship and Eviction: The Case for a Renters' Housing Stability Program. Urban Institute. https://www.urban.org/sites/default/files/publication/102881/break ing-the-link-between-hardship-and-eviction_2.pdf

City of Madison Land Banking Policy. DRAFT. (2020, November 4). https://madison. legistar.com/View.ashx?M=F&ID=9054808&GUID=442FCAD2-61FE-4A2D- B2FF-71D80BD64200

Choi, J. & Goodman, L. (2020, November 10). Mounting Pressures on Mom-and- Pop Landlords Could Spell Trouble for the Affordable Rental Market. Urban Institute Urban Wire. https://www.urban.org/urban-wire/mounting-pressures- mom-and-pop-landlords-could-spell-trouble-affordable-rental-market

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BIBLIOGRAPHYChoi, J. & Young, C. (2020, August 10). Owners and Renters of 6.2 Million Units in Small Buildings are Particularly Vulnerable during the Pandemic. Joint Center for Housing Studies of Harvard University. https://www.urban.org/ur ban-wire/owners-and-renters-62-million-units-small-buildings-are-particular ly-vulnerable-during-pandemic

Community Development Division. (2019). City of Madison Analysis of Impediments to Fair Housing Choice. https://www.cityofmadison.com/cdbg/documents/ DRAFTFullReport-ImpedimentstoFairHousingChoice4.22.19.pdf

Decker, N. (2021). Affordable Housing Without Public Subsidies: Rent Setting Prac tices in Small Rental Properties. Journal of the American Planning Association, 87(1), 67-72. https://doi.org/10.1080/01944363.2020.1798806

Fair Housing Act of 1968. (1968). 42 U.S. Code § 3604: Discrimination in the sale or rental of housing and other prohibited practices. Retrieved from https://uscode.house.gov/view.xhtml?req=granuleid:USC-pre lim-title42-section3604&num=0&edition=prelim

Freeman, L. (2005). Displacement of Succession?: Residential Mobility in Gen trifying Neighborhoods. Urban Affairs Review 40(4), 463-491. https://doi. org/10.1177/1078087404273341

Goldstein, Ira & Dowdall, Emily & Rosch, Jacob & Reeves, Kevin. (2019). Maybe it Really Does Take a Village: Supporting the Creation of High-Quality Unsubsi dized Affordable Rental Housing in Legacy Cities. 2019 Federal Reserve Community Development Research Conference, Washington, D.C. https://www.researchgate.net/publication/347891867_Maybe_it_Really_ Does_Take_a_Village_Supporting_the_Creation_of_High-Quality_Unsubsi dized_Affordable_Rental_Housing_in_Legacy_Cities Garboden, P. & Newman, S. (2012). Is Preserving Small, Low-end Rental Housing Feasible? Housing Policy Debate, 22(4), 507-526. https://doi.org/10.1080/1051 1482.2012.697909

Goodman, L. & Zhu, J. (2016). Default and Loss Experience for Two-to Four Unit Properties. Urban Institute Housing Finance Policy Center. https://www.urban. org/sites/default/files/publication/80601/2000789-Default-and-Loss-Experi ence-for-Two-to-Four-Unit-Properties.pdf

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BIBLIOGRAPHYIngersoll, G. & Scamman, J. & Eckerling, W. (1989). Geographic Mobility and Stu dent Achievement in an Urban Setting. Educational Evaluation and Policy Analysis,11(2), 143-149. https://doi.org/10.2307/1163781

Joint Center for Housing Studies of Harvard University. (2020). The State of the Na tion's Housing 2020. https://www.jchs.harvard.edu/sites/default/files/ reports/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2020_Re port_Revised_120720.pdf

Listokin, D. (2001). Barriers to Rehabilitation of Affordable Housing. U.S. Department of Housing and Urban Development. https://www.huduser.gov/portal/publi cations/PDF/brahvol1.pdf

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Madison, Wisconsin Municipal Code § 34.03. Records for Inspecting, Testing, and Maintenance of Fire Protection Systems. Retrieved from https://library. municode.com/wi/madison/codes/code_of_ordinances?nodeId=COOR MAWIVOIVCH32--45_CH34FIPRCO_34.03REINTEMAFIPRSY

Marcuse, P. (1985). Gentrification, Abandonment, and Displacement: Connections, Causes, and Policy Responses in New York City. Journal of Urban and Con temporary Law, 28(1), 195-240. https://openscholarship.wustl.edu/cgi/ viewcontent.cgi?article=1396&context=law_urbanlaw

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BIBLIOGRAPHYMosiman, D. (2016, June 8). Landlord walks fine line between 'taking back the neigh borhood' and creating homelessness. Wisconsin State Journal. https://madi son.com/wsj/news/special/homeless/landlord-walks-fine-line-between-taking- back-the-neighborhood-and-creating-homelessness/article_acdb4ec2-493b- 5e6f-b67d-562bc584e616.html

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BIBLIOGRAPHYReynolds, K. & Edmonds, L. & Poethig, E. (2019). Innovative Financing Approaches for Affordable Rental Housing in the Chicago Region. Urban Institute Research to Action Lab. https://www.urban.org/sites/default/files/pub lication/99828/innovative_financing_approaches_for_affordable_rental_hous ing_in_the_chicago_region_0.pdf

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APPENDIX TABLES D1-D5

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APPENDIX TABLES H1-H5

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ENDNOTES1 As of 2020. 2 Affordable rent is 30% of monthly income spent on rent. Rounded to nearest tens. Units available is an approximate based on rent breakdowns provided by 5-year estimates from ACS. Deferred to closest breakdown range with majority. For example, for household size of 2 at 50% AMI, breakdown closest included “less than $500” and “$500 to $999” but not “$1000 to $1,499.”A 5% vacancy rate is considered “healthy” to maintain stable prices and provide in-creased housing choice.3 Paulsen (2019) shows that the widest affordable housing gap exists in households with <30% AMI (8,000+units), followed by 30-50% AMI (1,000+ units), and 50-80% AMI (500+ units).4 Although there is no institutionalized definition for NOAH, they are colloquially understood as rental housing affordable for low- to- very-low-income households with-out subsidies, and are typically at least two decades old (Bennett, 2020).5 64.1% of two unit and 57.6% of three-to-four unit rental properties are affordable to low and very low income renters; a similar pattern is observed when looking solely at affordability for very low income renters: 11.6% (2 unit rentals) and 16.6% (3-4 unit rent-als) versus 5.5 for single family rentals.6 It is important to note that low cost of rent does not mean that households are not cost-burdened.7 Two related rent-setting practices typically found in unsubsidized small buildings are tenure discount and rent stickiness; both meant to reduce costly turnover where the loss of a tenant in a two-unit building can mean 50% loss of income, 100% loss of income if the unit is also owner occupied. Conversely, it is this same rent setting that is utilized as a tool by landlords to force a tenant out by increasing rent.8 The national supply is difficult to pinpoint, but recent attempts by COSTAR esti-mate roughly 5.6 million units. COSTAR used 1 and 2-star categories as proxy for esti-mating NOAH stock. These categories are a composite of age of building, subsidies, and quality.Retrieved from https://data.census.gov/cedsci/table?q=units&g=1600000US5548000&tid=ACSDT5Y2019.B25033&hidePreview=false9 Financing for 2-4 unit properties falls under single family. Since the housing crisis, in 2015 lending for 2-4 unit properties has fallen to 2-3% from 5-6% before 2009. Tighter underwriting of GSE loans and high LTV requirements (85 for two-unit and 75 for three-to-four unit) (Goodman & Zhu, 2016).10 Circuit Court Access, Consolidated Court Automation Program (CCAP) provides a free and publicly accessible database of court records that include evictions (including dismissed evictions) and other small claims court records for 20 years.11 For more details review Sims, J.R. et al. (2016) or Ohm, B. (2018).12 34.2% borrowers taking out loans for two unit and 29.9% for three to four unit having incomes below 80% AMI, compared to only 23.4% for one- unit properties.13 COVID vulnerable industries include food and accommodation, construction, entertainment, retail and other services.

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14 For comparison, the National Multifamily Housing Council’s tracker estimated 5% back rent. However, the National Multifamily Housing Council tracker is used by multi-family properties with management portfolio which small landlord are unlikely to have. Also, the tenants who reside in those buildings are more likely to be of higher income and less likely to miss a rent payment.15 Wherein a survey conducted by Urban, 31% of respondents said they had felt more inclined to sell. Particularly, landlords with lower incomes and mortgages.16 This study controlled for past foreclosure status, property characteristics, tenant characteristics, and neighborhood.17 LLCs offer investors a way to protect their individual assets and mitigate risks and liabilities. Travis’ (2019) study in Milwaukee, Wisconsin found that in the transfer of own-ership of rental property from an unincorporated owner to an LLC, LLC owners were less likely to keep properties up to code.18 Pasque (2018) voiced the position of many tenants who faced retaliation from reporting code violations or do not report complaints in fear of facing retaliation.19 Wis. Stat. § 66.0104(2)(e)1m: Unless the area is a designated district with ev-idence of blight, high rates of building code complaints or violations, deteriorating property values, or increase single family home conversions to rental units.20 Recent attempts to circumvent the statutory prohibition include pressing needs by Building and Code Enforcement (Madison, Wisconsin, Municipal Code § 27.04) Reg-istration of Landlords of Chronic Nuisance Properties (Madison, Wisconsin, Municipal Code § 9.25), the deployment of Neighborhood Resource Teams in Madison, and Land-lord and Tenant Best Practices Certification Program (Madison, Wisconsin, Municipal Code § 32.18).21 S.F. is currently working on a Large Sites Program for buildings with 25-100 units, which would offer greater opportunities and more than likely include soon to expire Section 42 LIHTC properties.

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