Inclusionary zoning will soon be making a difference in DC

Development

Inclusionary zoning will soon be making a difference in DC

by Cheryl Cort • July 12, 2012 12:04 pm

Nearly 3 years after regulations were finalized, DC's inclusionary zoning (IZ) program is beginning to have a positive effect on affordable housing stock in the city.

1919 14th Street, a project with IZ units. Image from Level2 Development

While the program has suffered a slow start up because of grandfathering and the recession's effect on residential development, the program's 3rd annual report suggests that IZ in DC will follow the success of neighboring Montgomery County.

Inclusionary zoning is an affordable housing policy which mandates that new rental or condo buildings over 10 units include 8-10% of the total number of units as affordable to households earning 50-80 percent of area median income (AMI), in exchange for being allowed to build more units than would otherwise be allowed (a "density bonus").

IZ policies have been widely practiced around the country for decades, and very successfully in Montgomery County. Beginning in the early 2000s, the District of Columbia government recognized that it needed more tools to address the growing shortfall of affordable housing for DC residents in a revived housing market. The IZ policy is one of the new tools the city adopted to address its growing affordability problem.

IZ became DC law in 2006, but implementation was delayed until summer 2009, well after the housing market crashed. Thus, the effect of IZ has been minimal because the market has taken time to re-energize, and clear out restarted projects approved before IZ rules were finalized. The city's robust recovery has generated a full pipeline of residential developments, many of which will produce IZ units as part of the larger project.

IZ and affordable housing by the numbers

According to the IZ annual report, as of December 2011, there are 82 projects in the IZ pipeline: 3 under construction, 29 in planning phases, and 50 in conceptual phases, slated to produce a total of 930 IZ units when complete. In addition, there are 120 IZ-exempt residential projects in the pipeline, slated to produce an additional 5,645 affordable units.

Status	IZ applicable projects				IZ exempt projects
Status	Projects	IZ units	Total units	%	Projects	Affordable units	Total units	%
Under const.	3	23	235	10%	36	1,948	8,044	24%
Planned	29	382	3,232	12%	54	2,039	16,594	12%
Conceptual	50	525	5,117	10%	30	1,658	7,897	21%
Total	82	930	8,584	11%	120	5,645	32,535	17%

Source: DC Office of Planning. This shows projects under construction as of December 31, 2011.
Notes: The majority of numbers are estimates and subject to change. Of the 3 IZ projects under construction, only 2 have filed a CIZC. CIZCs are not required until above-grade construction.

There are several reasons residential projects currently in the pipeline might be exempt from IZ requirements. The biggest category of exempt projects are grandfathered—projects that would have been subject to IZ, but were approved prior to IZ regulations going into effect in late 2009. There's a big list of grandfathered projects because the Fenty administration delayed final regulations during the height of the housing market boom. Those projects are now getting going again.

Approximately 53 projects and 16,000 units in the city's development pipeline were approved before IZ regulations went into effect. This means that upwards of another 1,000 IZ units would also have been produced but for the Fenty Administration delay in issuing regulations by more than two years after the DC Council and Zoning Commission put the IZ policy in place.

While these projects are "exempt" from IZ regulations, many of them will nonetheless provide affordable units through a mechanism other than IZ. In some cases, this means an all-affordable or largely affordable project that exceeds IZ standards. Other projects are exempt because they are providing affordable units similar to IZ through an alternative zoning review process called a "Planned Unit Development" or PUD.

A PUD is a special review process where the Zoning Commission gives a development greater flexibility including more density in exchange for additional public benefits and features. Approximately 5,645 affordable units are in the exempt projects pipeline, yielding 17 percent out of a total 32,535 units. See Table 1 for the tally of IZ and other affordable units in the pipeline, as of 2011.

On a policy level, IZ is working as designed

As of 2011, the DC housing market's strong recovery is in full swing. The third annual report on IZ notes that DC's overall development pipeline is going gangbusters with permits to build 4,726 units issued in 2011, which far exceeds 2010's total of 1454 units, and is nearly double the number of residential building permits issued during the last peak year of 2005. Many of these projects are Planned Unit Developments (PUDs) and will meet IZ requirements, though technically outside the program.

In the future, as IZ takes full affect, the program will cover most residential development outside PUDs and geographically-exempted areas, providing 8 to 10 percent moderate and low cost housing for DC residents in these developments. The city's remarkable acceleration of residential development projects seems to indicate that IZ won't be holding it back as some critics had suggested.

The city's IZ report also tells us that only one project in the pipeline is receiving full relief from IZ regulations under unique circumstances. This is another important early sign that IZ is already generally accepted by the development industry.

In contrast to projects being exempt because they are grandfathered, in an exempt geographic district (e.g. downtown, two historic districts), too small, or are providing the same or greater amounts of affordable units through an alternate process (PUD or affordable housing development), zoning relief means the project is let out of providing any affordability due to extraordinary circumstances.

The one project that has requested and received relief is the West End Library PUD project which is providing a new library and fire station. These new public facilities were recognized as a significant public benefit for the Planned Unit Development that qualified the project for IZ relief. Additionally, the city has also committed to funding a 52-unit building all at 60 percent of area median income (AMI) above the fire station.

One piece of information missing from the brief report is the expected income split between 50 and 80 percent AMI. For 2011, 50 percent AMI was $53,050, and 80 percent AMI was $84,900 for a family of four. DHCD has struggled to provide accurate information on affordable housing unit production, and getting the details on income targeting appears to be even more elusive.

As IZ units come online, we can expect to get specific information about the income split with the IZ law's reporting requirement. The report does tell us that of the 2 for-sale IZ units on the market, one is at 50 percent and one at 80 percent AMI. We expect to see that most future IZ-covered projects will be providing affordable units at the 80 percent AMI level, given most new development is high rise multifamily.

31 comments

Tags: affordable housing, DC, inclusionary zoning

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Inclusionary zoning in 3... 2... 1... (Aug 14, 2009)
One small step for inclusionary zoning (May 15, 2009)
Forty days and forty nights without inclusionary zoning (Mar 19, 2009)

Cheryl Cort is Policy Director for the Coalition for Smarter Growth. She works with community activists, non-profit groups and government agencies to promote transit-oriented development, housing choices, economic development and pedestrian safety in less affluent communities in the region like eastern DC and Prince George’s County.

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So, if I read this right, out of the 40,000 units, something like 1000 are new affordable units that IZ brought?

Sounds like a great success.

by charlie on Jul 12, 2012 12:28 pm • link • report

charlie: It's about 1,000 out of 8,000 in buildings where the law applies. IZ that was in effec starting in 2009 also didn't create any units for buildings built in 1900, but that isn't an argument against (or for) the policy.

by David Alpert on Jul 12, 2012 12:31 pm • link • report

I'm confused by the table - at first glance it appears to show that IZ exempt projects are BETTER at providing affordable housing than IZ projects. This may be because the exempt projects includes projects that are providing ONLY affordable housing? One would think they should be removed from that total if you want to show that IZ is better than just letting people build no affordable housing.

by MLD on Jul 12, 2012 12:51 pm • link • report

MLD: I was confused also and I agree the table seems confusing. After clarifying with Cheryl, the answer is that the second column is projects that use another method and have affordable housing. For example, some projects are on public land and affordable housing is a requirement. Some are a PUD, where the developer has to offer community benefits in exchange for extra density, and the developer has offered affordable housing.

So this table doesn't show all development projects, just the 2 types creating affordable housing, IZ and other-than-IZ.

by David Alpert on Jul 12, 2012 12:59 pm • link • report

So, with that added data, my orginial critique is magnified.

To the extent you want "afforable" housing, IZ isn't working well as a tool. The majority of projects (5000 vs 900) come from more tranditional levers.

ANd that is ignoring the issue whether "afforable" housing with specific income requirments is the best way forward.

by charlie on Jul 12, 2012 1:41 pm • link • report

@charlie: IZ requires affordable housing for developments that would otherwise not have any. Other types of projects, like those that go thru a PUD rather than just a matter of right development with IZ, also are following IZ, but are called exempt. The other big type of exempt project are subsidized affordable housing where levels of affordability exceed those that would occur under IZ and absent a subsidy. IZ offers broader coverage so that most housing development has some kind of affordability. IZ fills a gap, and creates a new kind of subsidy with a density bonus. With this collection of tools, we get coverage of much of the city's development. Some areas like downtown are exempt all together, but overall these tools work together to provide broad coverage.

by Cheryl Cort on Jul 12, 2012 1:55 pm • link • report

How is IZ a success? What kool-aid have you all been driking? That report mentions that there are only 2 units currently- 3 years after IZ became law. And these 2 units have yet to sell after very intense efforts. Who really wants to PAY for a unit that they never truly own. Get real, this program is designed to fail. What planet are you people from. Cheryl should stick to sidewalks and leave housing for people who actually know what they are talking about. Even if there are 1000 units in the pipeline, you wouldn't have any buyers. How is this a successful program.

by Pauled on Jul 12, 2012 1:56 pm • link • report

@Cheryl

I liked the article overall and think IZ is a good policy. If you want to make the point that IZ is good because it introduces affordable housing into projects that would otherwise have none, it seems like the chart should compare IZ projects to previous projects that would have been bound by the IZ law - did they include any affordable housing just out of good will/policy?

by MLD on Jul 12, 2012 1:58 pm • link • report

Cheryl, have the 2 IZ units sold yet? Per this article: http://www.washingtoncitypaper.com/blogs/housingcomplex/2012/06/06/why-inclusionary-zoning-isnt-working-yet/

Instead of managing the housing stock from on high, why doesn't your group support higher density, increasing supply, thus reducing prices? IZ is bad policy; it forces DC condo owners to pay higher prices in order to subsidize others to live in the same building.

by Dan on Jul 12, 2012 1:59 pm • link • report

Dan: CSG absolutely supports increased supply. They are a big supporter of growing the amount of residential units in transit-accessible areas.

by David Alpert on Jul 12, 2012 2:09 pm • link • report

So let me see if I have this straight. We are introducing de facto rent control which has choked supply and imposed outrageous carrying costs on home owners for generations in places like New York City. This is a victory? This is the path of policy madness.

by DC Preservation Watch on Jul 12, 2012 2:13 pm • link • report

Rent control in NYC applied (originally) to most units - units in existing buildings - and without regard to income.

IZ only applies to new buildings, only to a limited number of units, and is offset for the developer by being allowed to build more units. And the units must be occupied by people within the stated income limits.

its quite different from rent control.

by AWalkerInTheCity on Jul 12, 2012 2:22 pm • link • report

I just don't see how any rational person can claim that this program is making a difference. The fact that developers are compiling with an outrageous mandate is somehow being touted as this massive victory when in fact, the units are not being absorbed in the market. I don't know of a single person who would purchase a permanently restricted unit here in the District and it seems as if no one else here does. I'm just wondering how it feels to be so massively wrong about something. Cheryl, do you care to share?

by Pauled on Jul 12, 2012 2:25 pm • link • report

After 3 years! Just in time for those who needed it most.

by Ironchef on Jul 12, 2012 2:25 pm • link • report

@Dan: the 2 IZ condos have not been sold. Largely this is due to a conflict over the IZ covenant insisting affordability survive foreclosure. We've recommended dropping that requirement. IZ does increase density as you suggest so its a great tool for increasing the housing supply while also using a portion of the created value of the increased density to pay for the affordable units. The density bonus is 20% with 8-10% affordable. So in the case of highrise development getting 20% more units, only 8% are IZ, the rest are market rate.

by Cheryl Cort on Jul 12, 2012 2:31 pm • link • report

"I don't know of a single person who would purchase a permanently restricted unit here in the District and it seems as if no one else here does. "

arent most of the units UC in the table, rentals, not condos? Clearly there are specific issues with condos, but thats a minority of the total new construction taking place right now anyway.

by AWalkerInTheCity on Jul 12, 2012 2:36 pm • link • report

Link to report:

http://dhcd.dc.gov/sites/default/files/dc/sites/dhcd/release_content/attachments/IZ%20Annual%20Report%202011.pdf

Item 7:

Though no households have yet purchased or rented Inclusionary Units, the Maximum Rent and Purchase Price Schedule, effective March 30, 2012, outlines the maximum rents and sales prices allowed based on Washington Metropolitan Statistical Area 2012 Area Median Income of $107,500 for a family of four (4) as published by HUD. A portion of this schedule is reproduced below.

I dont' see how a program that hasn't sold or rented a single unit can be considered a success at this point.

by charlie on Jul 12, 2012 3:04 pm • link • report

@Cheryl I guess the Hine development Smarter Growth is championing would be an example of other types of projects, like those that go thru a PUD rather than just a matter of right development with IZ, also are following IZ, but are called exempt.

At its final Zoning Commission hearing, the Hine project came under some criticism from ZC board members because most of the affordable housing units are segregated in a separate building with no access to the amenities in the main building at Hine.

Just a hypothetical question: If somehow the developer moved that North Building south so that the affordable units were fully connected with the rest of the Hine development (with access to amenities and some green space) would that be a better development or a worse development?

by Trulee Pist on Jul 13, 2012 9:50 am • link • report

Clarification: PUDs are also required to follow IZ regs and provide at least the amount of affordable square footage that a non-PUD would have to provide. PUD developers sometimes proffer more than the minimum IZ requirement to deliver a public benefit that would help justify the additional height or density being sought through the PUD.

by IZin' on Jul 13, 2012 10:40 am • link • report

@Pauled: First, this isnt an onerous burden, if it were, it would discourage housing production - something that would be totally counterproductive. IZ compensates developers for the affordable units by allowing them to build more than otherwise allowed. This approach had been practiced successfully for years in hundreds of jurisdictions around the country. Montgomery County has produced over ten thousand units this way, and continued to have a thriving housing market with plenty of developers happy to build in MoCo. And applicants happy to rent & buy. MoCo has extended its affordability term to 30 yrs for ownership & 99 years for rental.

Why IZ looks like a success despite a slow start:
While only 2 IZ units have been produced, the pipeline is full, with 11% of units from eligible projects offering IZ. That is 903 units of more affordable housing in the next five years or so for essentially free. Secondly, PUDs are following IZ rules, event though they are called exempt. Without IZ, these affordable units wouldnt be produced, or wouldnt be produced so consistently. The first years that IZ was taking hold, a variety of affordability approaches were adopted by the Zoning Commission. Now it follows the IZ rules.

DC's program has been delayed due to grandfathering & the 2008 market crash. But the report shows us that hundreds of IZ units are in the pipeline. The city does need to work out kinks on implementation, including more effectively recruiting applicants and addressing problems with mortgage lenders. IZ follows the market and will produce mostly rentals for the foreseeable future, but could add more for-sale units if the market changes. As for people who want to participate -- this isn't for everyone. Those who think they can have another opportunity to purchase a unit on the market probably aren't right for the program. For those who believe this gives them an important opportunity that might otherwise not be available to get into the home ownership market in a popular neighborhood, this might be a real find. First time purchases can often use this opportunity to graduate to the regular market.

by Cheryl Cort on Jul 13, 2012 11:13 am • link • report

@Trulee - Re. Hine PUD - this is exempt due to it being a PUD, but follows the basics of IZ by including essentially IZ units in the market rate South building -- 12 units affordable at 80% AMI. Additionally, because the project is a public land disposition, the city required far more affordable housing in the project. This is what the North building is -- a 100% affordable building with 29 units affordable at 60% AMI, and 5 units at 30% AMI. The project overall has 29% affordability. The very low and extremely low income units provided in the north building are subsidized by low income housing tax credits, along with the public land value discount. Tax credit deals tend to be 100% affordable because they are far easier to finance this way. Offering very affordable new, accessible housing in this highly desirable location is a great example of fostering a mixed income neighborhood. The north building is not isolated or put under a freeway, it's right in the middle of things. As for IZ - the project conforms to IZ with the 12 80% AMI units in the south building. See my testimony on Hine here: http://bit.ly/LOFBdF

by Cheryl Cort on Jul 13, 2012 11:34 am • link • report

@ Cheryl, would this be a better project or a worse project if the North Building were connected to the rest of the project and residents of its affordable units had access to green space and amenities in the rest of the project?

by Trulee Pist on Jul 13, 2012 11:46 am • link • report

Wow. 900 units over 5 years in the hottest real estate market left.

I think there are something like 50,000 units coming online in the next five years.

The real headline: IZ is a very very minor tool, it isn't doing much on the actual supply, but it is a nice threat to lever against developers.

by charlie on Jul 13, 2012 11:52 am • link • report

While there are *always* critics regarding affordability covenants (many common criticisms are echoed here in the comments), these blanket statements do not reflect the reality that there are many low and moderate income residents in the District that find value in finding affordable housing in desirable neighborhoods in the city's core. The lower barriers to entry for affordable units - lower down payments, lower rent, etc. - are what make it possible for many to even consider a certain building or neighborhood. Many moderate income residents are happy having a nice place to live and are willing to trade off some of the limits rather than gamble taking on a huge mortgage burden with the *hope* that property values will rise.

I happen to live in a cooperative which was converted from rental last year through a loan financed through the Department of Housing and Community Development (DHCD). We agreed to live with the 80% AMI restriction in exchange for the low interest loan, but the affordability restriction itself doesn't explicitly mandate a cap on profit for individuals selling their shares (note this is not always the case for subsidized loans, it depends on the project and the financing source). Granted, the covenant does mean whatever price residents do end up selling their shares, it must be affordable to the *next* coop owner who meets the 80% AMI requirement, so there is some flexibility there. But as Cheryl mentioned, many who chose to live at the cooperative end up graduating to the regular market after selling. And let me tell you, there's always a waiting list of people wanting to moving in.

A big part of the opportunity for affordable housing is just that: its affordability means people are allowed to save more of their income rather than struggling as many do, struggling to pay 40% to upwards of 50% of their income on housing in market rate units. IZ may end up being a good way to increase affordable housing at a time when market rate developments continue to pop up at an accelerating rate. It's certainly better than *not* doing anything to address affordable housing, and rent control isn't the answer because it's being chipped away and lost to conversions and decay each year (probably at a faster rate than new IZ or PUD affordable housing is coming on). With more of these affordable units coming on the market, the city needs to work with lenders to help the new residents get loans for the units (and yes, there *are* lenders out there that work with people in affordable units created in this manner, I've met them).

by David on Jul 13, 2012 12:15 pm • link • report

@charlie - referring to the chart: IZ will directly deliver ~11% of projects otherwise with no affordability. Also, PUDs are following IZ policy, so that's a good share of the 17% affordable units provided in the exempt category.

Sounds worth it to me. We need a variety of tools to address our housing needs. IZ covers "matter of right" development that requires no extra zoning approvals and has no subsidy available. It's a good deal, and part of the solution.

by Cheryl Cort on Jul 13, 2012 12:26 pm • link • report

I've added the link to the report. I think that was originally in there and somehow it got lost.

by David Alpert on Jul 13, 2012 1:06 pm • link • report

Cheryl- IZ is a burden and I promise you that this bonus density isn't worth it to the developers. Go ask them instead of insisting that this is the case. This is the fundamental problem with you and your "positions". You seem to believe that you know better than the marketplace- a space that you don't even operate in but one that you peer in from time to time. It's easy to claim this would be great and that would be wonderful, but look at the facts. There have been no takers for the 2 units that were produced. Forget that one excuse you are trying so hard to make work (it's FHA's fault- it's not). There are other types of financing that can be used to get these units such as a loan with HPAP, but no one wants to buy a permanently restricted unit. And having a person who lives in a cooperative state that these restrictions don't matter because he's saving for a better place, well that's great for him. He's not a homeowner. He's a co-op member. It's not the same thing. When he becomes that first IZ unit owner and realizes that he's stuck forever with a glorified rental unit, then we'll see how happy he'll be to offer support for this program. But none of this seem to matter to you because you just ignore the hard realties and continue pitching this awful, ill-formed junk.

by Pauled on Jul 13, 2012 2:46 pm • link • report

Hey everyone, clearly @Pauled has it all figured out, so we can all just drop everything and go home and let him take over the blog and be right about everything. No need to engage in a discussion or informed debate or anything. Thanks Pauled!

by David on Jul 13, 2012 2:56 pm • link • report

David- so let's discuss. 2 units, no takers. 1000 units in the pipeline and let's hypothesize what will happen to these- that is what all of us are doing here right?- and aw shucks- no takers. You see my hypothesis might be more accurate that you because, so far, the supporting data supports me. Sounds like an AH-MAZ-ING program. So in another 5 years, we'll get a similar report and then I can rub it in your faces. Until then, discuss all you want my friend.

by Pauled on Jul 13, 2012 3:03 pm • link • report

How many of the 1000 units are condos? Doesnt IZ apply to rental buildings (the majority of UC residential in DC right now)?

by AWalkerInTheCity on Jul 13, 2012 3:15 pm • link • report

For any program to be successful it's necessary to make quick adjustments as problems pop up. The publicity over the fiasco with the first two condo units not saleable should be met immediately with corrective legislation (condos can comply with IZ rentals or a public financier for the "condos" etc.).

Generally I'm opposed to no transfer of equity at all. It gives owners motivation to improve and also there's no better solution for poverty than money. (not that all in IZ are in poverty).

I do deal with developers enough to know they avoid IZ like a plague. That's why the rush to get permits before the IZ implementation last year. (btw-does that 14th & Wallach building in the photo have IZ?-it should).

It would be interesting to see an article comparing IZ to rent control in practice, not theory.

IMHO developers have enough clout that when the market slows soon, as it will like 2007, they'll get IZ gutted as a "remedy". Best to be on top of the game when that push comes.

by Tom Coumaris on Jul 14, 2012 10:58 am • link • report