Overview

Over time, land prices adjust to inclusionary housing requirements, helping to make the affordability requirements financially more feasible for market rate developers. To further offset the foregone revenue associated with inclusionary zoning requirements, many inclusionary zoning policies offer density bonuses, zoning flexibility or direct cost reductions to the developer.

The most common incentives are density bonuses, which permit the construction of additional units above the amount ordinarily allowed by the underlying zoning code.

Density bonuses are often coupled with other incentives, such as:

    • flexible zoning standards that allow developers to build multifamily dwellings in single-family zones or reduce parking requirements;
    • fee waivers and tax abatements;
    • expedited permitting and review processes, which can lower developers’ soft costs; and
    • permission to make the affordable units slightly smaller or less well-appointed than neighboring market rate units.

Finally, localities may make some subsidy available to help reduce affordability costs. A 2006 study found that close to half of all California jurisdictions with inclusionary zoning offered local housing funds to help subsidize inclusionary projects. Many of these jurisdictions use these funds strategically to generate projects that exceed the minimum affordability requirement, lower the cost to the developer and help the jurisdiction get its money into housing more quickly.

Well-designed offsets help to facilitate political acceptance of inclusionary zoning policies, lessen the chances of successful legal challenges and reduce the likelihood that inclusionary zoning policies will create disincentives for new development, which could reduce the supply, and thus increase the price, of market rate homes. Policies that are effective offsets may also be useful as incentives for voluntary inclusionary zoning policies.

Case Studies

Affordable Housing Set-Aside Program (Emeryville, Calif.)

Emeryville’s Affordable Housing Set-Aside Program requires 15 percent affordability for rental developments (nine percent for moderate-income households and six percent for very low-income households) and 20 percent moderate-income affordability for ownership developments. Homes must remain affordable for 55 and 45 years, respectively. The small city (population 10,777) has produced more than 400 below market rate units through this program since its adoption in 1990.

Emeryville’s program offers various zoning benefits and cost offsets to participating developers. In addition to density bonuses of up to 25 percent, the city is authorized to subsidize the cost of traffic impact fees, building fees and any other city fees subject to the affordable units. It also provides technical assistance to help developers access local, state or federal sources of subsidy funding to help them meet their affordability obligations.

For More Info:

Catherine Firpo, City of Emeryville
Email: [email protected]

Designated Areas Program (New York City)

New York City’s voluntary inclusionary housing program, known as the Designated Areas Program, offers 33 percent greater density for properties that contribute 20 percent affordable units. Developers may also access the city’s property tax exemption program, city and state loan programs, tax-exempt bonds and low-income housing tax credits to finance the development of the inclusionary units. As of early 2015, the city’s property tax exemption program exempted property taxes on the net value created through new construction for 20 to 25 years, and applied this exemption to all the units in the building, including the market rate units. If this or other forms of public assistance are used, the inclusionary units must be built on-site. Otherwise developers have the option of meeting their 20 percent affordability obligation off-site. The Designated Areas Program offers no in-lieu fee alternative.

Since 2005, the program has produced more than 4,240 affordable units. Homes must be permanently affordable for households with incomes up to 80 percent of median income.

For More Info:

Howard Slatkin, New York City Department of City Planning
Email: [email protected]