Inclusionary Zoning Programs Shape Mixed-Income Housing Development

December 22, 2017

Housing developers are encountering inclusionary zoning programs that put affordable housing side-by-side with market-rate — and even luxury — units.

Such programs have been around for decades and are gaining momentum as cities scramble to address a growing shortage of affordable housing options.

In November 2017, Atlanta became the first city in Georgia to pass an inclusionary zoning law, according to the National Low Income Housing Coalition. The law targets projects in specific areas, including within a half mile of the BeltLine transit loop and those near the new Mercedes-Benz Stadium.

New projects in those areas must allocate 10 percent of new units to renters making 60 percent of household area median income (AMI) or 15 percent of units to households at 80 percent of AMI. Developers not meeting the requirement will have to pay an “in-lieu” fee into the city’s housing trust fund. There’s speculation the ordinance could be challenged in court due to Georgia’s statewide ban on rent-control laws.

Inclusionary ordinances come in all shapes, sizes and structures. Some are voluntary, while others require developers to reserve a percentage of new housing developments for lower-income families. Requirements range from 5 percent to 20 percent.

Developers receive benefits in return, from tax rebates and low-interest loans to allowances for increased project density.

The Push for Inclusion

Cities across the country are pushing inclusionary zoning and the creation of additional mixed-income projects to combat gentrification. Low- and moderate-income residents, a key part of the urban workforce, are forced out of their neighborhoods by rising rents.

New York City first implemented an inclusionary ordinance in 2005. Last year, the city introduced more rigorous requirements to address its unprecedented housing crisis. The Mandatory Inclusionary Housing program makes affordable housing mandatory and permanent wherever housing capacity is approved through land-use actions.

The Bottom-Line Opportunity

The obvious benefit to developing these mixed-income projects is the positive social and economic impact they provide. Many believe mixed-income housing builds stronger, more diverse communities. Stronger communities and neighborhoods contribute to the long-term viability and value of a property.

Mixed-income development within inclusionary zoning programs can also be profitable. Although programs feature incentives and penalties, most developers opt to take advantage of the incentives. These include perks that can significantly boost a project’s bottom line:

  • Low-interest loans
  • Tax credits
  • Subsidies
  • Reduced or waived fees
  • Discounted land prices
  • Fast-tracking for city approvals
  • More leniency on density or parking requirements

Inclusionary ordinances vary from state to state. Some, such as New York, have very aggressive programs. At the other end of the spectrum, states like Texas prohibit inclusionary statutes, resulting in creative city-level programs to encourage mixed-income development.

The Big-Picture Goal

Cities use inclusionary laws to increase housing options for low-income people. Non- and for-profit developers alike are finding they can benefit. Meeting minimum affordable housing requirements helps developers stand out in a competitive bidding process.

Developers credited plans to incorporate affordable housing as key in winning a bid to redevelop the former Walter Reed Army Medical Center in Washington, D.C., according to Urban Land Magazine.

The development team — which includes Hines, Urban Atlantic and Triden Development Group — is in the planning stages for the Parks at Walter Reed, a 66-acre mixed-use redevelopment. The development team’s proposal designated 400 of the 2,000 units as affordable.

At the same time, mixed-income projects carry risks, with a record that includes successes and epic failures. Some developers choose to pay the penalty for good reason. Mixed-income projects can bring additional challenges and added costs related to marketing, design, management and overall project integration.

Cities are clearly making an effort to change the status quo of affordable housing development. It’s ultimately a decision developers will have to make case by case.

They’ll need to consider incentives (or penalties) to determine what’s feasible and in the best interest of their stakeholders.

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