Multifamily Trends - September/October 2005 - From ULI

Inclusionary Zoning: Cure or Curse?

Over the last few years, housing costs have been rising rapidly while wages have remained flat (or have even dropped, as they did last year). And there is every reason to believe that this trend will continue for years to come, despite any temporary relief coming from a pop of the so-called housing bubble. It should come as no surprise, then, that so many localities around the country are looking for ways to make housing more affordable for the middle class, especially for moderate-income workers—teachers, nurses, police officers, firefighters, government workers, and young families. With little help coming from the federal government, the tools available to local governments are limited in number, costly, and often controversial. Among them, only inclusionary zoning allows for affordable housing to be produced at no financial cost to the government, and as such is becoming a hot item on many local agendas. (See “Making Inclusionary Zoning Work,” summer 2005, page 40.) But is it the panacea some claim, or is it the death knell for local housing markets, as others argue?

As is often the case in heated arguments, neither view is accurate or helpful. If properly drafted and instituted under the right circumstances, inclusionary zoning allows for affordable housing to be produced in moderate amounts, though never enough to fully meet local needs. It is a useful adjunct to other tools, such as housing trust funds, land banks, and community land trusts. Poorly drawn, however, an inclusionary zoning ordinance can reduce the amount of new housing created just when more of it is needed. What, then, are the keys to designing an inclusionary zoning program that works?

Inclusionary zoning programs are complex, and need to be designed for each local market—a one-size-fits-all approach does not work. The following are some of the keys to making them work:

• The housing market needs to be strong—which is fortunate, given the number of strong markets today.

• Since markets change, inclusionary zoning programs need to be flexible and not drawn so tightly that they address only today’s conditions.

• Developers need to be active in the program design from the very beginning, working with housing advocates and government officials. Too many communities have adopted flawed ordinances simply because developers tried to defeat them politically, only to find the depth of demand for affordable housing greater than even their considerable political influence.

• The program should be mandatory. Voluntary programs do not produce affordable housing. Of equal importance, developers find them hard to work with since they create uncertainty: the amount of affordable housing a locality will require in a development is too often unknown until lengthy negotiations with the local government are completed—well after the developer has acquired the site.

• Inclusionary zoning should not function as a tax on developers. Adequate incentives are needed, such as bonus density, which fully compensate for the cost of providing affordable units. Developers and their investors need to make a profit or they will simply build—and invest—elsewhere.

• To avoid adding more delays to an approval process that is already too long in most jurisdictions, the program should require minimal reviews and approvals by the local government.

• Incentives incorporated into the program to offset the costs inherent in producing affordable units should be somewhat generous; “rough justice” is far better than a program that tries for precision. Efforts to make sure developers do not get “too much” only discourage development as markets change. Inclusionary zoning ordinances cannot be changed from month to month or even year to year, so they need enough “cushion” to meet changing market conditions.

Pressure to adopt inclusionary zoning ordinances is intensifying as housing becomes less affordable across the country. For developers, the best defense is a strong offense; now is a good time to get active in working with housing advocates and local officials to draft a local inclusionary zoning program—if one is not already under consideration.

John McIlwain
ULI Senior Resident Fellow, Housing
Multifamily Trends: September/October 2005
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