Association for Public Policy Analysis & Management

The Montgomery County Moderately Priced Dwelling Unit (MPDU) program has served as an affordable housing model to over 500 local jurisdictions in the United States. As the longest running inclusionary zoning policy in the country, the MPDU program has produced over 14,000 owner-occupied and rental units since enacted with over half of these properties sold to low and moderate-income households at below-market price. The units are under price controls with restrictions limiting buyers’ potential capital gains from resale. Applicants of the MPDU program must attend a prepurchase certified classroom-based counseling program prior to participation. In addition, housing properties are sold through a random selection process to ensure fairness but applicants must be preapproved for a mortgage equal to or greater than the price of the units being sought in order to enter the lottery. Using exhaustive data from the MPDU program and loan originations from Fannie Mae between 1995 and 2015, this paper investigates the impact of being an MPDU borrower on default propensity and prepayment probability. Using a logit model, I find that MPDU borrowers are conditionally less likely to be ninety-day delinquent compared to non-MPDU borrowers when controlling for zip code of residence and year of purchase. Additionally, I find that the duration of the price control period does not have an effect on default or the likelihood of refinance or payoff. However, when I isolate those who prepay, I find that MPDU borrowers have slightly longer loan durations than non-MPDU owners.