Inclusionary Zoning making slow progress
After a rocky start, DC's new affordable housing program, Inclusionary Zoning (IZ), is getting on track. It's one of many policies needed to address DC's growing affordability gap. In many affluent parts of town, it may be the only new affordable housing available.
IZ requires developers to set aside 8 to 10% of new housing in projects with more than 10 units for households making between 50 and 80% of the area median income (AMI), or incomes of $42,778 and $69,530 for a household of two. One-bedroom apartments in the program rent for between $1,006 and $1,610 a month, while similar condos sell for between $116,600 and $220,100. It's similar to Montgomery County's Moderately Priced Dwelling Unit program, which began in 1974.
Of 28 available units, one for-sale unit had been sold and 14 rentals had leased by July. According to the Office of Planning, another 262 IZ units are in the pipeline as part of 24 different projects, and more than 1,000 IZ units may enter the market in coming years.
How it works
Inclusionary Zoning, a national best practice, uses a zoning bonus to pay for additional affordable units in new residential developments. The subsidy for the affordable units is created through a density bonus, allowing more units than could otherwise be built there. This compensates the developer while saving the city money.
IZ also integrates below-market-rate homes into a larger, market-rate development as a matter of course. Mixed-income housing has long been recognized as having many advantages over exclusively affordable developments. Mixed-income housing in high-demand areas offer lower-income residents access to a higher level of services and amenities than is usually available in areas where affordable housing is concentrated.
It offers an important tool for creating and sustaining economically integrated neighborhoods. It helps ensure some level of diversity of housing choices in areas where demand is strong and growing, such as close to Metro stations, major bus or streetcar corridors, areas with good public schools, or close to downtown DC. The policy is designed to create below-market rate units wherever new housing is being built and keeps them affordable for the life of the building.
Unlike many other affordable housing programs, where low income housing tends to cluster in high poverty areas, IZ units around the country are predominately located in low-poverty neighborhoods. In DC's Ward 8, home to many low-income residents, as much as 90% of the housing in some census tracts is subsidized. But a 2012 study of Montgomery County demonstrates that IZ enables children from low-income families to live in more affluent neighborhoods and have access to high-performing schools.
Barriers to implementation
For all its benefits, DC has struggled to implement IZ since units began coming onto the market two years ago. The program's rigid implementation regulations made it cumbersome for the Department of Housing and Community Development (DHCD) to administer, and the program was severely understaffed as well. In addition, more restrictive Federal Housing Administration (FHA) lending standards made it next to impossible for buyers to obtain mortgages for affordable housing. The first two units to come on the market didn't sell after sitting on the market, and the developer responded by suing the city.
But today, the city is making progress. DC has changed the standard covenant in mortgages for IZ units that release any price constraints in the event of a foreclosure, as required by the FHA. DHCD is considering measures to recoup the public subsidy in the unit that would be consistent with FHA rules.
The city is also making the process for marketing and awarding IZ units to buyers and renters more flexible. Today, DHCD awards units through a lottery, which the agency has struggled to implement, finding it to be a time-consuming process, and has failed to build a sufficient list of eligible and interested applicants. Under the new regulations, developers can use the lottery or create their own DHCD-approved marketing plan to find and select applicants for IZ units.
Finally, the city is moving to address the program's staffing issues by getting additional assistance from nonprofits. DHCD plans to add capacity from experienced nonprofits to give low-income home buyers more help during the buying or renting process as well as long-term stewardship of the units. DHCD hopes to have new nonprofit assistance in place by October 1.
The construction pipeline is swelling with residential projects subject to IZ requirements, and IZ units are starting to enter the market in large numbers. We have proof that private residential projects with IZ units can get financed, and that IZ units can be leased and sold. While the program still faces many challenges, we can learn how to make it perform better and deliver more mixed-income housing opportunities throughout the city.
Like other IZ programs across the country, DC's faces many challenges. Montgomery County's nearly 40 years of experience shows that programs need adjusting and refining over time. One of the key concerns for future action in DC is getting more deeply affordable housing.
In the current pipeline, just 15% of IZ units will be set aside for households making less than 50% of AMI, far short of the 50% housing advocates had originally hoped for. Once the program is running smoothly, the Zoning Commission should consider ways to create more "very affordable" units.
Some of the program's challenges don't have easy fixes, but DC can find reasonable solutions. Addressing these challenges will take the hard work and good will of activists, developers, and public officials. Given the benefits of mixed income housing in walkable, bikeable neighborhoods close to transit, and the growing need for more affordable housing choices, making IZ in DC work is worth the effort.
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