DC requires new apartment and condo buildings to include a number of affordable housing units, in a program called Inclusionary Zoning. Wednesday night, DC’s Zoning Commission voted to make Inclusionary Zoning serve the group of residents who most need the housing this program can provide.

Photo by Ryan McKnight on Flickr.

What is inclusionary zoning?

Inclusionary Zoning (IZ) is a market-based tool for creating affordable housing that serves people of moderate incomes. Private developers still build housing as they wish, but have to rent or sell a small percentage of units to people making less money. It’s had some success, but debate about the program continues.

IZ proposes to diversify our region’s housing stock. In a high-demand area like ours, the market will naturally provide more expensive housing for higher-income people rather than cheaper housing. This is not a simple case of developer greed. The owner of a piece of property in a desirable, expensive area will want to sell it to whoever will give them the most money. If one group offers the land owner more money for the land (because they plan to build and sell luxury units), that group probably wins the sale over other groups looking to build moderately priced housing, or who want to use tax credits to build below-market housing.

Right now, in DC, many people who use tax credits to build lower-income housing can’t win the bidding for enough land to build on. Where land is cheap, there is enough to go around for people to build units with diverse cost and meet diverse demand, though even then, without tax credits they can’t sell units for less than it costs to construct them. But where land is scarce and demand is high, the market, on its own, won’t provide housing for even moderate-income people.

Photo by Sharron on Flickr.

IZ tackles affordability and supply

When I walk around town talking about our region’s housing shortage, many stop me and say, “What do you mean?! What about all of those luxury apartments and condos going up EVERYWHERE?” Land values explain a piece of that. Yes, we are building more housing than most other periods of DC’s history, but there is a lot of pent up demand for housing at different cost levels that currently isn’t being met.

Say I want to build a 5-story building with 50 units in it. To buy the land, get financing, and cover construction costs, I have to plan to rent the units at luxury prices. IZ changes two things. First, it forces me to build a number of units for people at lower incomes. That increases costs and could make my building unprofitable to construct, so IZ sweetens the deal: I can build my building higher and denser than normally allowed (about 20% larger, though it varies by zone).

When it’s all said and done, my new plan after IZ is a 6-story building, and 5 of those 60 units are going to be rented at more affordable levels.

It’s a compromise, yes. But is also unique in that it addresses the issue of housing supply (we just added 10 more units to the region!), as well as housing affordability (we just built 5 otherwise non-existent affordable options).

Other reasons IZ is exciting

The fact that IZ tackles our housing shortage from both a supply and affordability standpoint is one reason why advocates are for this policy tool, but there are other good things about it.

For one, if we are serious about building an inclusive city and region, this tool helps to do just that. People of different incomes can live (and afford to live!) in the same buildings and neighborhoods when IZ is applied well.

Recent studies by Raj Chetty and Eric Chyn show that low-income children who grow up in mixed-income neighborhoods make more money throughout life—16%, in Chyn’s study—than those in entirely low-income areas. Keeping poverty concentrated is a recipe for more poverty, while mixed-income living (which IZ pushes) could show a way out.

Another reason to like IZ is that it leverages the resources, knowledge and power of the private sector. There is an immense amount of money and expertise in the development field, and they are very interested in building more housing. IZ attempts to align for-profit development interests (build more) with broader community interests (build affordable), and advocates hope to harness the productive energy and capacity of the development field to meet the needs of a diverse and growing city.

Photo by Tim Evanson on Flickr.

Spoiler alert: Not everyone is a fan of IZ

IZ offers both extra density (more money for property owners) and an expensive housing requirement (forced affordability constraints). Depending on the details of the program and the particular neighborhood or market conditions, the bonus could pay for the added expense, or not.

Further, IZ creates bureaucratic hurdles for the developer to go through. The process, paperwork, and the many legal and other experts required can add costs.

The early years of DC’s IZ program saw problems with how the government was implementing it, including federal rules which made it impossible for buyers of IZ condo units to obtain mortgages. (DC changed the rules to deal with that obstacle.)

It’s not just the developers

Developers are not alone in their criticisms of IZ. Some other affordable housing and low-income advocates are concerned about the program.

For some, it is simply a question of scale. Even in the hypothetical situation above, you can see this argument play out: we get 55 units of luxury housing, and 5 units of more affordable housing? For some that is simply not good enough, especially if there is a tool that would allow the original 50 units to be all affordable, or some significant percentage affordable.

Over that last few years since its inception in DC, IZ has created over 900 below-market price housing units, which is great. It’s also true that in that same amount of time 21,000 total units have been created, and as noted earlier in my street conversations, many, many of those units are at luxury prices.

Map of IZ Production under old rules

Another concern some have about IZ is that it does not create “affordable enough” units. IZ laws mandate that a unit be affordable for people making a certain amount of money based on the Area Median Income (AMI). DC’s current rules require some units at 80% of AMI and some at 50% of AMI, but the vast majority were 80%.

For a typical one-bedroom unit, an 80% AMI unit would rent for around $1,600 a month, while 60% would be around $1,100 a month. For many groups working alongside the poorest of our community (for example those making 30% or less of AMI), this does not serve the people in greatest need.

It’s unlikely that IZ can create units at 30% of AMI, since those are so expensive to create and maintain compared to 50-80%. So IZ advocates mounted a campaign to create more deeply affordable units than before.

What has changed

This new change now requires all new rental units to be 60% of AMI (while condo units would be 80%). Currently, most new rental units being built were at 80%, but three-fourths of people on waiting lists for IZ units were around 60%.

Members of the Zoning Commission recognized that this was not serving the needs of many lower-income residents. During one hearing, Commissioner Michael Turnbull remarked, “[80% median family income] is basically market rate. People are saying, we can’t afford that. The city is being gentrified. The people who grew up in the city are being kicked out.” Commissioner Peter May agreed: “The house is on fire, and we are using a garden hose.”

Yet there was opposition from the Bowser administration and the DC Building Industry Association to the proposal to lower the income targeting percentage to 60%. They put forth an alternative proposal. Under current rules, not all zones in DC have to incorporate IZ; the alternate option would add IZ to four zones (two of which, C2A and C2B, have some significant development potential, and two, SP1 and W2, that have very little) while keeping other zones as they have been.

Late Wednesday night, the Zoning Commission voted in favor of the 60% requirement. There will then be a 30-day period of public review before a second, final vote. For many of the thousands of residents who apply for the lottery to get access to these units each year, this drop will add greatly to their affordable options.

David Whitehead was the Housing Program Organizer at Greater Greater Washington from 2016 to 2019.  A former high school math teacher and a community organizer, David worked to broaden and deepen Greater Greater Washington’s efforts to make the region more livable and inclusive through education, advocacy, and organizing. He lives in Eckington.