How this sleek affordable housing project in Maryland became a reality

A sleek new apartment building in a D.C. suburb doesn’t look like public housing. There’s an onsite yoga studio, a theater room, and a pet spa for washing your dog. If you want to work remotely, there are coworking nooks next to a fireplace. The 268 apartments are filled with light and designed to look like boutique hotel rooms.

But the building, called the Laureate, is owned by a local government agency, and nearly a third of the units are set aside for affordable housing, with rent based on income. For a one-bedroom apartment with a market rate of around $2,000 a month, a moderate-income tenant might pay $1,300.

The building, which opened last year in a former industrial area in Rockville, Maryland, was the first to be financed with a $100 million fund created by the county government. “It is designed to solve the inability to produce sufficient housing in certain markets,” says Zach Marks, senior vice president of real estate at the Housing Opportunities Commission or HOC, the housing authority in Montgomery County, Maryland, that owns the building and worked with the county to create the fund.

Like other parts of the U.S., the area has struggled to fill its housing shortage through typical development—either by private developers or by nonprofits using federal tax credits to build affordable housing. The HOC has previously used those low-income tax credits to add to the affordable housing stock by acting as a developer itself. But the combination of private and subsidized development hasn’t moved quickly enough to meet demand, and the county recognized that there was an opportunity to fund construction without using typical sources.

Through the program, the HOC partners with private developers who would normally use private equity to help fund construction and pay steep interest rates. The county offers a large discount on those rates. Developers get more certainty about cost; since any large construction project takes time to get permits, private interest rates can easily change significantly by the time approval happens.

In exchange, HOC gets a 70% stake in the building, and at least 30% of the units are reserved for affordable housing. Despite the county’s majority ownership, the structure still makes it possible for developers to make a profit.

It’s helpful for the government to have control. “If there’s some policy you’re trying to advance, particularly around housing, it’s a lot easier to advance that policy by actually just owning the stuff, and implementing it, and demonstrating it,” says Marks. As the owner, the agency can also make sure that residents—whether they’re in an affordable unit or market rate–don’t face steep rent hikes.

The county has a long history of promoting mixed-income housing. It was the first in the country to have a policy, beginning in the 1970s, that requires developers of large apartment projects to set aside some units for affordable housing. The county also built or purchased affordable units itself. But the new fund helps make it possible to build faster. The fund is revolving, so money paid back to it can go into the next project.

Another project backed by the fund is now under construction, and a third is likely to break ground later this year, with more in the pipeline. The system could potentially build around a quarter of the units that the county needs to meet housing demand.

Now, other cities are following Montgomery County’s example, from Atlanta to Seattle. “It’s not one-size-fits-all, and it’s been great to see adaptations happen,” says Marks. “Chicago put forward an idea for a fund that would be larger than ours. So we’re already getting surpassed, and we think that’s great.”