Cities and counties across the country have turned to Inclusionary Zoning (IZ) policies to address affordable housing shortages.
IZ involves incentivizing or requiring the production of affordable housing units in new housing construction. One advantage of IZ is that by harnessing the power of new construction, units are produced that are new; tend to have greater amenities; and tend to be located close to transit, stores, and restaurants.
Inclusionary zoning can either be voluntary or mandatory.
Mandatory IZ involves requiring that a certain portion of the housing units in new construction projects be affordable.
On the other hand, Voluntary IZ involves offering certain bonuses to developers that they may elect to receive in exchange for providing a certain number of affordable housing units.
SMART ALEC has model legislation for Voluntary IZ that is currently pending in Atlanta, Georgia; and has been introduced by Councilwoman Carla Smith (District 1).
https://docs.google.com/document/d/1AlBGLCR7F1H5LsZ0mrWAxrBgSth0fW8VhnEJwlNrTx0/edit?usp=sharing
This Voluntary IZ ordinance is an enabling ordinance for Height Bonus Areas. If passed, the City of Atlanta would be able to designate certain areas for automatic height bonuses, which developers would receive in exchange for a certain proportion of housing units that are deeply affordable.
There are unresolved legal questions surrounding the possibility of a “takings” challenge with regard to Mandatory IZ, where a property owner might argue in court that being required to provide affordable housing units would essentially be a “taking” of their right to market-rate profits on each unit.
Many mandatory IZ programs–in order to avoid a takings challenge–have taken the form of “inclusionary upzoning” programs. This means that the jurisdiction has simultaneously enacted an upzoning along with new requirements for affordable housing, so that some or all of a property owner’s lost profits are actually offset by additional height, additional density, or other benefits given by the upzoning.
There are some legal scholars who argue that Mandatory IZ is not a taking and that all this upzoning is unnecessary. However, many jurisdictions are likely to continue to legislate defensively until the legal question is settled.
In the meantime, there are concerns that–especially in cities and counties with high land costs–attempting to make property owners fully whole through upzoning, amounts to so much developer welfare. And as “market rate” continues to climb, then the size of the compensation that would be required by an upzoning continues to skyrocket away from us.
Many national affordable housing advocates have criticized Voluntary IZ for not being a mandatory policy or for not historically producing enough units as Mandatory IZ policies.
However, SMART ALEC takes the position that, unless a city or county is in a state where Mandatory IZ is not believed to be a taking, or unless land costs are low, that Voluntary IZ is a preferable policy to Mandatory IZ. This is because, again, subsidizing developer profits to achieve mandatory units can be very expensive.
By adopting a voluntary framework, this takes us out of a potential takings analysis, and allows the parties involved–the government and the develop–much greater flexibility to work out an exchange that meets the needs of both parties.
One of the keys to adopting an effective Voluntary IZ policy is to identify incentives that developers really want. The question of what developers want: this is definitely a question that is unique to each jurisdiction. Some jurisdictions have already given away the whole store for free when it comes to density, so height is often an under-looked incentive.
Speaking of giving away the whole store for free, zoning and land use is one of the limited tools that local governments have to preserve and produce affordable housing. So, it is important to not give away things to which developers are not entitled, so that these things might be later exchanged to achieve other public policy goals like affordable housing.
Another challenge with any IZ policy is to produce units that are affordable at zero to thirty percent AMI, which is the greatest level of unmet need in most, if not all, jurisdictions.
Adopting an IZ policy that is mandatory makes it especially challenging to reach a level of deep affordability because it such a level of affordability requires an even deeper subsidy to avoid a takings challenge. Therefore, Voluntary IZ is more likely to achieve the level of deep affordability that most jurisdictions require.
Still another challenge with IZ is that the units can only be required to remain affordable for a limited amount of time. Some State Legislatures have placed limits on the affordability periods that can be enforced through a restrictive covenant. The State of Georgia recently reduced the maximum enforceable affordability period from thirty years to twenty years.