Most policies favor developers meeting their affordability obligations by building affordable units in the same building as the market rate units. But localities also frequently offer alternative compliance options. Jurisdictions commonly allow:

    • building a greater number of affordable units off-site, generally in the same community or in other growing and accessible neighborhoods;
    • dedicating land that can support a greater number of affordable housing units; or
    • paying a fee to support affordable housing elsewhere in the jurisdiction.

To the extent a jurisdiction seeks to maximize the overall number of affordable housing opportunities, it may want to consider allowing affordability requirements to be met through off-site construction. In some cases, production of affordable housing units may be less expensive in off-site locations, increasing the number of units that can be built or reducing the amount of offsets the communities may need to provide. Allowing off-site construction also may lessen opposition to the ordinance among developers and landowners. Communities that permit off-site construction may wish to consider the amenities offered by the off-site location to ensure that the affordable housing opportunities are provided in opportunity-rich neighborhoods near public transit and jobs.

Most inclusionary housing programs also allow developers to pay a fee in lieu of constructing affordable units. The fee is often based on the cost to develop an affordable housing unit. Fee revenue is normally allocated to a local affordable housing trust fund that is used to finance other affordable housing initiatives.

The option to pay an in-lieu fee provides greater flexibility, particularly for developers of small projects; however, in areas with high land costs, few buildable lots, or where the fee is set too low to support new development, the trade-off may be fewer affordable units built. In areas with these constraints, some communities require proof that development of affordable units will create an insurmountable burden, economic or otherwise, before granting permission to pay an in-lieu fee.

Case Studies

Affordable Housing Ordinance (Davis, Calif.)

The small, suburban city of Davis has had an inclusionary zoning ordinance since 1987. The Affordable Housing Ordinance requires 25 to 35 percent affordability for rental housing and 10 to 25 percent affordability for homeownership developments. To date, the program has produced approximately 2,000 affordable homes for low-income renters and moderate-income homeowners. These homes must remain permanently affordable.

For most of the policy’s history, the ordinance offered developers two alternatives to developing affordable units on-site: land dedication or paying an in-lieu fee. Many of the affordable homes produced by developers to date have been through exercise of one of these two alternatives. Land dedication, in particular, has allowed for a variety of affordable housing types, including a domestic violence shelter, senior housing, family housing, housing for individuals leaving homelessness, transitional housing and housing for those with developmental disabilities.

In January of 2015, the city added a third alternative: acquiring and placing permanent affordability restrictions on existing housing units. Use of this option is subject to discretionary approval by the City Council based on consideration of such factors as the condition of the units and potential displacement of existing residents.

For More Info:

Danielle Foster, City of Davis, City Manager’s Office
Email: [email protected]

Moderately Priced Dwelling Unit Program (Montgomery County, Md.)

Montgomery County is home to the nation’s longest-running inclusionary housing program. The county recently added a compliance option under which developers of high-rise buildings can meet their affordability obligations by converting market rate homes to deed-restricted affordable homes, subject to administrative approval. While no conversions had been completed as of mid-2015, a few recently approved developments were utilizing this option.

One example is Hampden Row in downtown Bethesda. Toll Brothers, the developer of a seven-story, 55-unit condominium development is buying down the affordability of 12 market rate rentals in a mixed-income property located within the same Bethesda planning policy area, but approximately three miles northwest of Hampden Row.

The on-site obligation for Hampden Row would have been nine affordable condominiums. Toll Brothers will make a payment of $1.434 million to make 12 off-site market rate rentals affordable to low-income households.

The county agreed to an Alternative Location Agreement with Toll Brothers after finding that the monthly condominium fees of the property would have made the total ownership costs of the below market rate homes unaffordable to the program’s targeted households, who earn up to 70 percent of area median income (AMI). It was also significant for the county that the developer agreed to provide a greater number of affordable units off-site.

For More Info:

Lisa Schwartz, Montgomery County Department of Housing and Community Affairs
Email: [email protected]