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How jurisdictions structure inclusionary zoning (IZ) policies depends on development patterns in the community, the affordable housing needs of residents, and political feasibility. Indeed, there are trade-offs between different components of an IZ policy. Tailoring it to meet local needs is the hallmark of its effectiveness.
Mandatory vs. Voluntary. Inclusionary zoning can be mandatory, requiring developers to build affordable units in exchange for development rights, or incentive-based, allowing developers to voluntarily "opt-in". While voluntary programs receive less opposition from developers, mandatory policies have produced far more affordable units. Indeed, an analysis of programs nationally reveals voluntary programs only produce affordable units if they offer substantial subsidies to the developer, or function as a mandatory policy by making it difficult for developers to obtain discretionary building permits without including affordable units in their projects.
California programs are illustrative. Of the 107 jurisdictions in California employing inclusionary zoning, 101 are mandatory, according to a 2003 report by the Nonprofit Housing Association of Northern California (http://www.nonprofithousing.org/index.atomic). The six voluntary programs have produced little affordable housing. Two locales, Los Alamitos and Long Beach , "blame the voluntary nature of their programs for stagnant production despite a market rate boom." Three other voluntary programs reported that no units had been built. The one "voluntary" program that had produced ( Morgan Hill - 300 units in 26 years) is functionally mandatory because it uses a tight growth management policy to make it difficult for developers to obtain building permits without including affordable housing.
In sharp contrast, the 15 top producing jurisdictions in California , including Santa Barbara County , Monterey County , and Roseville , have produced over 16,000 units of affordable housing-all through mandatory requirements.
The different outcomes of voluntary and mandatory IZ are steering many jurisdictions away from voluntary programs. Jurisdictions with once voluntary programs (e.g., Cambridge , Massachusetts and Boulder , Colorado ) have found it necessary to amend their ordinances to mandatory requirements in response to low production.
Developer Compensation. Effective inclusionary zoning programs usually offer developers a range of cost offsets to achieve a double bottom line: affordable housing for residents and a reasonable, overall return for developers. Minimum profitability is important to ensuring private developers and their investors actually build. To determine the need for cost offsets, in relation to other program parameters, jurisdictions typically conduct an economic feasibility analysis that takes into account various aspects of development (e.g., cost of land, normal profit margins, construction costs, fees, etc.) and the jurisdiction's housing needs and goals.
Cost-offsets rarely take the form of subsidy, as illustrated in Table 1. Nonetheless they can have a substantial impact on reducing the overall cost of construction.
Examples of Cost-Offsets Utilized by Jurisdictions with Inclusionary Zoning
| Type of Cost-offsets |
What It Does and Why It Helps Developers |
Example |
| Density bonus |
Allows developers to build at a greater density than residential zones typically permit. This allows developers to build additional market-rate units without having to acquire more land. |
Most jurisdictions offer density bonuses. Typically they are equivalent to the required set-aside percentage. For example, Santa Fe , which varies its set-aside from 11 to 16 percent depending on the character of the market-rate units, matches its density bonus accordingly. |
| Unit size reduction |
Allows developers to build smaller or differently configured inclusionary units, relative to market rate units, reducing construction and land costs. |
Many programs allow unit size reduction while establishing minimum sizes. Burlington, Vermont, requires that inclusionary units be no smaller than 750 sqft. (1-bedroom), 1,000 sqft. (2-bedroom), 1,100 (3-bedroom) or 1,250 sqft. (4-bedroom). |
| Relaxed Parking Requirements |
Allows parking space efficiency in higher density developments with underground or structured parking: reducing the number or size of spaces, or allowing tandem parking. |
Denver, Colorado, waives 10 required parking spaces for each additional affordable unit, up to a total of 20 percent of the original parking requirement. |
| Design Flexibility |
Grants flexibility in design guidelines-such as reduced setbacks from the street or property line, or waived minimum lot size requirement-utilizing land more efficiently. |
Boston, Massachusetts , grants inclusionary housing projects greater floor-to-area ratio allowances. Sacramento, California , permits modifications of road width, lot coverage, and minimum lot size in relation to design and infrastructure needs. |
| Fee waivers or reductions |
Reduces costs by waiving the impact and/or permit fees that support infrastructure development and municipal services. A jurisdiction must budget for this, since it will mean a loss of revenue. |
Longmont, California, waives up to 14 fees if more affordable units (or units at deeper levels of affordability) are provided. Average fees waived are $3,250 per single family home, $2,283 per apartment unit. |
| Fee deferrals |
Allows delayed payment of impact and/or permit fees. One approach allows developers to pay fees upon receipt of certificate of occupancy, rather than upon application for a building permit, reducing carrying costs. |
San Diego , California , allows deferral of Development Impact Fees and Facility Benefit Assessments. |
| Fast track permitting |
Streamlines the permitting process for development projects, reducing developers' carrying costs (e.g., interest payments on predevelopment loans and other land and property taxes). |
Sacramento, California, expedites the permitting of inclusionary zoning projects to 90 days from the usual time frame of 9-12 months. The City estimates an average savings of $250,000 per project. |
The Set-aside. Inclusionary zoning programs require that a specific percentage of units be earmarked as affordable. The percentage can vary but is typically in the range of 10-25 percent. Some jurisdictions have set-asides that vary based on the incomes targeted. In California redevelopment areas, for example, six percent of units must serve very-low-income households, three percent low income, and six percent moderate income. Because the size of the set-aside percentage impacts the affordability costs born by developers, the set-aside percentage should be considered together with other program parameters, such as the income target.
Project Trigger. The trigger determines what size developments are subject to inclusionary requirements (e.g., 5, 10, 20 unit buildings). Some jurisdictions apply inclusionary zoning policies to all new developments within the community, requiring that larger developments provide units while smaller ones pay a fee in-lieu of construction.
Income Targets. There are two ways in which an IZ policy ultimately achieves affordable housing. First, the policy defines the income target(s) at which the developer must produce housing. Second, some jurisdictions identify the programs that will allow the municipality to subsidize those units to reach even deeper affordability needs. Montgomery County , for example, asks developers to produce units at 65 percent of AMI and then authorizes its housing authority to purchase up to a third of those units to serve even lower-income families.
Where the income target is set determines who benefits from the inclusionary zoning policy. For example, a jurisdiction that wants to provide housing for moderate-income households, such as public sector employees, might set an income target at 80 percent of the AMI. Jurisdictions seeking to create affordable units for lower-income wage earners might choose an income target of 50 percent of AMI. Jurisdictions with affordability challenges across income categories often tier their income target to serve diverse needs (e.g., half the units at 50 percent of AMI, half the units at 80 percent of AMI).
Target income levels should be guided by housing needs and goals in the jurisdiction, but must be balanced with maintaining developer profit. Nationally, inclusionary zoning has demonstrated success when requiring developers to deliver affordable housing units at 50-120 percent of the AMI, and when in combination with public resources, those units can be made available to households between 0-50 percent of AMI.
There are three ways that jurisdictions utilize public resources to achieve deeper levels of affordability:
Cambridge , Massachusetts achieves deep affordability through its IZ program by mandating that a portion of inclusionary units go to housing choice voucher holders. The Housing Choice Voucher Program (HCVP), also known as Section 8, is a rental assistance program that increases affordable housing choices for very low and extremely low income households. Typically, the local housing authority pays the gap between what the Housing Choice Voucher-holder can afford (30 percent of household income), and the cost of the private market rent (up to 110 percent of fair market rate). By placing HCV holders in inclusionary units priced lower than market rents, HCVP saves money that, in turn, allows it to serve more families. It also addresses key challenges for the HCVP program-insufficient units available for the number of voucher-holders, and discriminatory screening out of voucher holders by landlords.
Many cities and counties offer homebuyer assistance to families purchasing inclusionary units. The additional assistance of the programs allows households earning less than the AMI target to be eligible for IZ units. Some programs offer homebuyer assistance on a first-come, first-serve basis, while others prioritize inclusionary homebuyers.
Granting public agencies or nonprofits first rights of refusal to purchase and manage inclusionary units is another way to achieve deeper affordability. The designated entities can further subsidize the unit below the affordability level at which it was produced, and can target it to special needs populations.
Onsite vs. Offsite Construction. Some IZ programs require developers to construct affordable units within the larger development, while other programs allow developers to build the units offsite. Historically, affordable housing had been concentrated in certain neighborhoods, contributing to the concentration of poverty. This concentration of poverty often isolates poor families from social and economic opportunities in the region. Building affordable units onsite, within the larger development, leads to greater economic and racial integration, helping to connect low-income communities to regional opportunity.
However, if construction is proposed in an area with very expensive land, it may create a greater economic burden on developers (and greater political resistance) than offsite construction. Assessing the political climate and the costs associated with onsite vs. offsite construction is critical to making the case for onsite development of affordable units.
Mandating Affordable Units vs. In-Lieu Fees. Some jurisdictions require developers to construct affordable housing units while others allow developers to pay into a fund that supports affordable housing. Deciding between requiring developers to construct units or pay an in-lieu fee is a complex one. It will be easier to garner political support for a policy that allows in-lieu fees. However, in many jurisdictions the in-lieu fees are insufficient and do not produce the resources to construct affordable housing units. Therefore, it is more productive to require developers to construct the units themselves. If in-lieu fees are part of an IZ policy, they should be set at a level comparable to the costs associated with producing affordable housing units. Otherwise, the IZ policy is seriously weakened.
Similarity/Compatibility In Outward Appearance. Many IZ policies require developers to construct affordable units that are similar or compatible in outward appearance to market rate units. This requirement contributes to cohesiveness in the physical appearance of a neighborhood helping to overcome negative perceptions of what constitutes "low income" housing. Developers generally have a vested interest in adhering to this requirement since units that are disparate in outward appearance can lower the market value of the development.
Term of Affordability. Inclusionary zoning ordinances housing units must remain affordable. Many programs have moved to requiring a minimum of 30 years for ownership units, and 45 or more years for rental units. Long affordability terms keeping housing units affordable for future generations. Some programs, including Boulder , Cambridge and Newton , Massachusetts , require affordability in perpetuity. Programs with long affordability terms can build in a limited equity requirement for homeownership units. This limits the return when someone sells an affordable unit yet allows the owner to build equity.
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