August 2003

Ask the Author

Copyright by American Planning Association

Ask the Author About Zoning Affordability

Here are reader questions answered by Lynn M. Ross, author of the August Zoning News article, "Zoning Affordability: The Challenges of Inclusionary Housing."

Question from Andy Schiffrin, Santa Cruz, California:
Is there any decent data comparing the success of inclusionary housing programs that allow in-lieu fees versus those that don't in producing affordable units over time, and particularly units for lower income people? If there is such data, what does it show?

Answer from author Lynn M. Ross:
That is an excellent question. Unfortunately, I am not aware of any data of that nature. As I mentioned in the article, there is no definitive study of inclusionary programs across the country.

What I can say from my own review of a variety of ordinances is that many jurisdictions do allow for in-lieu payments albeit usually with restrictions. There are benefits to having an in-lieu option available. Some developers may prefer to make in-lieu payments rather than build the affordable units on-site. A jurisdiction may also find it easier to build political support for regulations that include a cash payment in-lieu option. In-lieu payments can, in some cases, help generate more units than building on-site. For instance, the in-lieu fee generated by an affordable unit in a high-end development might be leveraged to create several units elsewhere in the community. A cash payment can also make sense for small developments that will not yield a significant number of affordable units.

However, the decision to allow for payment instead of construction should not be taken lightly. Keep in mind that in-lieu payments are often made at the time building permits are pulled for individual lots within a development. It may take a few or even several years depending on the size of the development for all of the in-lieu fees to be paid. Once the fees are collected, the task of actually building the affordable units still remains. Also, allowing developers to cash out might hinder your ability to integrate affordable units throughout the community. If you do decide to include an in-lieu option, be sure that fee is set at an amount that will fully cover the development of affordable units at another location. You will also need to ensure that you have a mechanism, such as a housing trust fund, in place to collect, manage and administer the funds.

Question from Shawn Woodin, Alachua County, Florida:
Are there examples of inclusionary housing programs that have been targeted to specific geographic areas within a jurisdiction ... rather than being required throughout an entire jurisdiction?

Answer from author Lynn M. Ross:
The only program I am aware of that targets a particular area of the community is in San Diego. The regulations require that 10 percent all new housing be affordable at 65 percent AMI, but in the Future Urbanizing Area the set-aside doubles to 20 percent. Because inclusionary zoning typically applies to new residential development, the program in essence targets a jurisdiction’s growth areas. There are inclusionary zoning ordinances that apply to substantial rehabilitation (New York City), condominium conversions (Santa Monica, California), and adaptive reuse (Burlington, Vermont). In such cases, the jurisdiction guides the development of affordable units to previously built-up areas of the community which may or may not be a part of some larger redevelopment strategy.

Question from Kori Schneider, Milwaukee, Wisconsin:
Affordable Housing advocates in my city are currently working on gathering support for an inclusionary zoning ordinance here. One challenge that we are having is that ... developers tell us that the structure of the LIHTC [Low-Income Housing Tax Credit] program does not work well with a 20 percent set aside. What have other municipalities to done to address this? Have other communities been able to modify the LIHTC program to incorporate it successfully into their inclusionary zoning? Also a challenge that was brought up by a ... developer is that a 20 percent set aside turning all developers into affordable housing developers will lower the quality of affordable ... housing developments. Has this been a legitimate concern for other communities?

Response from author Lynn M. Ross:
For those of you not up on the federal tax code, let me provide a brief overview of LIHTC. Please note that I am not a LIHTC expert. The Low Income Housing Tax Credit program is a housing subsidy for rental housing created within Section 42 of the federal tax code. LIHTC applies to new construction, rehab of existing units and, in some cases, the purchase of existing units. The tax credits may be used to provide affordable rental units for families, the elderly, special needs populations. LIHTC can also be used for SRO housing. The program requires that the units remain affordable for a minimum of 15 years, although some developers volunteer longer periods of affordability in order to win the very competitive credits.

I contacted Eric Larsen, Program Administrator for the Montgomery County, Maryland MPDU program. Eric graciously shared some insights regarding the use of LIHTC in the county. He noted very few developers have used LIHTC financing to meet the MPDU requirements. In fact, most of the projects utilizing LIHTC have been for the rehabilitation of existing rental properties and not for new construction.

Eric also shared the following project example:

"For most LIHTC projects the County has also contributed to the funding through an affordable housing fund called the Housing Initiative Fund. There are two high rise apartment projects that are now under development that are using several funding sources provided through the County's housing authority (Housing Opportunities Commission) I think these use tax credit financing and some public bond financing as their sources of funding. These projects have an affordable housing obligation resulting from an inclusionary zoning requirement. If a project were to have a 20% affordable housing requirement without a density bonus, the project would be very difficult to build. The highest that we normally require is 15% with a density bonus of 22%."

In terms of project quality, Eric had this to contribute:

"We have not experienced poor quality housing in this program since we allowed compensation for design features to make the units compatible with the market priced housing. I think that it could be a problem with a tax credit project if the governing authority doesn't have some control over the design approval process. Before we allowed compensation for architectural compatibility there were some poorly designed and constructed projects."

I think the bottom line here is that LIHTC should not prevent the implementation of inclusionary zoning. The developers are raising some legitimate concerns, however, those concerns simply highlight the importance of including the private sector in the inclusionary zoning discussion sooner rather than later.

Question from Lanier Blum, AICP, Durham, North Carolina:
Have any of the New England states with builders remedy ... gotten substantial participation [in inclusionary zoning programs]?

Response from author Lynn M. Ross:
The Massachusetts Housing Partnership Fund sponsored a study called "Zoning for Affordability," prepared by consultant Philip Herr in 1999. Herr found that in Massachusetts, local zoning for affordability was not as effective as Chapter 40B, the "Anti-Snob Zoning Act." In fact, over the period of 1990-1997 Herr found that local zoning was responsible for only one percent of the total statewide housing production. Herr concluded that "local zoning incentives, even powerful ones, can do little that Chapter 40B can't do even more powerfully to support developers seeking to develop affordable housing."

Connecticut, New Hampshire and Rhode Island were also included in the study and were found to have experience’s similar to Massachusetts. This study is available online at www.mhp.net/termsheets/zoningcomplete.pdf.

For a detailed analysis of Herr's study, please see chapter six of PAS Report 513/514, Regional Approaches to Affordable Housing.

Question from Shawn Woodin, Alachua County, Florida:
Have incentive-based (as opposed to mandatory) inclusionary housing programs been effective in creating new affordable units? If so, what incentives were offered?

Question from Lanier Blum, Durham, North Carolina:
As communities in our region have explored IZ, builders have (predictably) encouraged local officials to make including the moderately priced housing voluntary, with substantial incentives, instead of standards. Have you found any communities that generated substantial production of price-restricted housing in unsubsidized developments without a requirement?

Answer from author Lynn M. Ross:
Typically, incentive-based programs offer the same types of benefits you would find in a mandatory program- density bonuses, fee reductions, etc. However, if the goal of your program is to ensure that affordable housing is actually built, incentive zoning will not necessarily help to achieve that goal.

Incentive-based policies only work if the developer wants what the jurisdiction is offering. These programs offer a choice to developers: choose to build affordable units and we will give you X. Well, developers always have choice to build affordable units and whatever the municipality offers may not always be enough to garner voluntary participation. A mandatory program, on the other hand, ensures that affordable units are constructed in a manner consistent with the needs of the community. This type of ordinance clearly states both the expectations of the jurisdiction and the incentives available to the developer.

Requiring participation says to developers that affordability is an achievable goal not an option. I don't know of any incentive-based programs that have achieved the success of mandatory programs like Montgomery County, Maryland. The bottom line is that if your community is in the position of considering inclusionary zoning, you have already answered the question of whether or not the program should be mandatory. Incentive-based programs simply do not alter the market enough to ensure the regular provision of affordable units. We have ample evidence of what happens to the housing market when left unattended.

Question from Nancy Pekarek, Valparaiso, Indiana:
The City of Valparaiso, Indiana, is considering an inclusionary zoning to help create more affordable housing opportunities. Do you have a recommendation of an ordinance that you think is one of the best?

Answer from author Lynn M. Ross:
This is actually a somewhat difficult question to answer. Certainly, there are inclusionary regulations that are particularly well written or have been successful in practice. However, recommending any ordinance as "one of the best" presents a problem because what is best for community A is not necessarily best for community B. Given the nature of inclusionary zoning, it is especially important that the regulations address the best solution to the affordable housing situation in your particular community.

Reviewing inclusionary zoning in other communities can be a good exercise if you look at more than just the ordinance itself. Whenever possible you should also review any and all of the supporting documents for the ordinance — especially the nexus study or findings of fact. This supporting documentation will explain the rationale behind the regulation language which is what is most interesting. Why is the set-aside 20 percent? Why is off-site development allowed? Why is the cash payment-in-lieu amount at $100,000 per unit? The ordinance in combination with the supporting documents better illustrates the type of issues you will want to think about in the context of your own community.

Caveats aside, I would recommend taking a look at the following ordinances featured in the article: Santa Fe, New Mexico; Boulder, Colorado; and Montgomery County, Maryland. These regulations are well written and will give a sense of how different communities address inclusionary housing. You should also review the Highland Park, Illinois, inclusionary ordinance passed in August as well as its supporting documentation. This is a very new ordinance that has yet to produce any units, but it is unique in that it includes a resident and local employee preference. Finally, I would recommend a review of the inclusionary zoning study prepared by Los Angeles, California (www.ci.la.ca.us/lahd/inclusio.htm). This report is comprehensive and one of the few studies of its kind available online.

Note: A review of the Highland Park ordinance will appear in the October issue of Zoning News. Contact the Planning Advisory Service for the ordinance and supporting materials.