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Posts about Inclusionary Zoning

Development


The Obama administration says zoning is at the heart of some huge economic problems

The Obama administration wants to talk zoning. According to a paper it put out this morning, laws that restrict new development and require new buildings to come with new parking, along with slow permitting processes and arbitrary preservation regulations, create barriers to opportunity for working families.


Houses in DC. Photo by nevermindtheend.

The White House's Housing Development Tookit starts with the belief that strict land use regulations are hurting the United States economy:

"Over the past three decades, local barriers to housing development have intensified… The accumulation of such barriers - including zoning, other land use regulations, and lengthy development approval processes - has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers' access to high-wage labor markets, and stifling GDP [editor's note: Pete Rodrigue wrote about this for us last week] growth by driving labor migration away from the most productive regions."
The report goes on to say that while preventing new housing development can be environmentally beneficial, it can also amount to "laws plainly designed to exclude multifamily or affordable housing."

It also draws a direct link between zoning laws and both inequality and inequity in the US:

"When new housing development is limited region-wide, and particularly precluded in neighborhoods with political capital to implement even stricter local barriers, the new housing that does get built tends to be disproportionately concentrated in low-income communities of color, causing displacement and concerns of gentrification in those neighborhoods."
Here's what we can do about the problem

The report urges places to modernize their zoning laws, and suggests ten tools to do so. They include:

1. Eliminating off-street parking requirements: All over the country, there are rules that require new buildings to come with a certain amount of parking. Building that parking means not building housing on the land, which developers would often prefer to do. It also means encouraging more people to drive.

Reducing parking minimum requirements can increase the housing supply as well as demand for frequent, reliable bus or rail service, which can make it easier for people to get to jobs.

Cutting parking requirements for developments located near a transit stop can increase the supply of housing units and lower costs. The availability of transit reduces the need for a vehicle and offers more space for development.

Luckily, a lot of cities are catching onto the logic here, including DC, and also New York City.

2. Allowing accessory dwelling units: New housing doesn't have to only be brand new buildings. A lot of people would rent out their basements, attics, or small cottages in their back yards into accessory dwelling units (ADUs) if their zoning simply allowed it. Often, the people renting these units have limited incomes, like someone starting their career or an older adult.

Thanks to its recent zoning code change, it's now easier to rent out ADUs in the District.

3. Using inclusionary zoning:Inclusionary zoning requires a specific amount of new housing units to be "affordable," where the rent or the selling price is lower than the market rate and the units are only available to people whose incomes fall below a certain level. In exchange, developers get something called a density bonus, which allows them to build more market rate units than they otherwise would be.

The White House's toolkit cites DC and Montgomery County as examples of places that have pushed for housing affordability via inclusionary zoning. It also cites inclusionary zoning as a reason for better educational outcomes for low-income children.

This matters in our region. A lot.

No single action will solve the housing affordability issues many cities face, but reducing barriers to development can increase opportunities for working families. As too often happens:

"The long commutes that result from workers seeking out affordable housing far from job centers place a drain on their families, their physical and mental well-being, and negatively impact the environment through increased gas emissions."
The White House's report relates to our region because we are one of the handful of regions in the nation where restrictive zoning has become a significant bottleneck. Detroit and Baltimore have the opposite problem; their vacant housing isn't getting used.

This problem is impacting metro areas to different extents. It's worst in the Bay Area, but New York, Seattle, Boston, and others all have similar problems… and so do we.

Development


See all of DC's new affordable housing in one map

Over 2,000 new affordable housing units have gone up in DC since 2015, and another 8,000 are under construction or in the pipeline. Check out this map to explore the most up-to-date data on the last two years' worth of completed, under construction, and planned affordable housing in DC.

The data in the map is courtesy of the District's Department of Housing and Community Development (DHCD) and the Office of the Deputy Mayor for Planning and Economic Development (DMPED). New housing production and preserved units are both on the map, including units created through the Inclusionary Zoning (IZ) program.

You may notice that there are far fewer affordable housing units northwest of 16th Street, and that the projects with lots of units are often grouped in the same area.

Here is a layout of the units broken down by Area Median Income:

Most of the units, whether on the way or already completed, fall above the 50% AMI range, which does not target the people most in need. However, there is a big increase in the number of units that are in the pipeline is for income range below 50% AMI.

Affordable housing is funded in several different ways. For new and preserved units that aren't inclusionary housing, projects secure some private funding and the city's role is to provide money to close the financing gap via both federal funds and the city's Housing Protection Trust Fund. IZ units, on the other hand, are 100% privately funded.

The map's data does not parse out which units are funded by the federal government, DC, or private funding.

For more data visualizations, check out DMPED's Affordable Housing Tracker.

What does this data say to you?

Development


DC makes some of its affordable housing serve less wealthy residents (but not the poorest)

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.

Development


DC's inclusionary zoning could start serving poorer households

No one policy or program will fix the District's affordable housing crunch. But later this month, one program that creates new affordable housing is poised to get a facelift to better serve low-income households.


Photo by Ted Eytan on Flickr.

On January 28, the DC Zoning Commission will look at tweaking inclusionary zoning, one of the main policy tools the District uses to generate new affordable housing units.

When new condos or apartments are built in DC, inclusionary zoning requires 8-10% of them to rented or sold more affordably, and only to people making under a certain income (today, 50-80% of area median income). In return, developers can build a few extra market rate units in order to offset the difference in overall cost.

Inclusionary zoning creates these new affordable units without subsidies from the Housing Production Trust Fund or other scarce public resources. That's in contrast to most other programs, like direct investment in new housing, affordable housing preservation, or voucher programs.

DC adopted its inclusionary zoning policy in 2006 and finalized regulations in 2009. The first units arrived on the market in 2011. Now more than 1,200 permanently affordable inclusionary zoning units are on the market or in the pipeline.

Inclusionary zoning targets low, not very-low income households. That's good.

Inclusionary zoning tends to best serve below-market, but not extremely below-market households. In other words, it helps people for whom housing is too expensive, but not way too expensive.

That's because the price gap between what very-low-income households (30% AMI) can afford and market rates is simply too great for zoning tools alone to bridge. But low-income households (50-80% AMI) also need help from affordable housing programs, and inclusionary zoning helps these households without spending down scarce affordable housing subsidies.

Ideally, DC would create as much affordable housing as possible through inclusionary zoning and other off-budget policies like trading public land for affordable housing, because they do not have a direct financial cost to the city.

That would free up as much affordable housing subsidy as possible for very low and extremely low income families, who by far face the greatest housing challenges.

Except today, prices are a little too high to help these target households

Today, DC's inclusionary zoning only requires that developments in high rise zones provide affordable units to serve households earning 80% area median income (AMI).

That's a little too expensive. While the 80% AMI price is below-market in some DC neighborhoods, it is close to or above market rate in others. Moreover, 80% AMI (calculated for the region, and almost $70,000 annually for a two person household) is above DC's Median Household Income ($64,267).

Today, 8 out of 10 DC inclusionary zoning units are produced at 80% AMI. Compared to successful programs in other cities, thats's too high. An Urban Institute report noted that other with similar programs set affordability levels for rental housing between 55 and 70% AMI.

The report indicated that DC should consider following San Francisco's ownership income targeting of 70% AMI. 70% AMI is also the standard for similar inclusionary zoning in Montgomery County.

After a long wait, the DC Zoning Commission may lower the affordability requirement

In early 2015, the Coalition for Smarter Growth, Metropolitan Washington Council of the AFL-CIO, Jews United for Justice, DC Fiscal Policy Institute, People's Consulting, Somerset Development, City First Homes, and PolicyLink formally petitioned the Zoning Commission for changes to the inclusionary zoning regulations.

Since the Zoning Commission relies on staff and analytical support of the Office of Planning, it has waited for OP to fulfill its request for recommendations on potential revisions. Now, almost a year later, the Zoning Commission will consider these proposed changes (Zoning Case # 04-33G) and counter-proposals from OP.

The main changes the Zoning Commission will consider are:

  • Increasing amount of affordable units in inclusionary zoning projects from 8-10% (now) to 12%
  • Similarly increasing the density bonus from 20% to 22%
  • Changing the AMI requirements to 60% AMI for rental units and 80% for ownership unit
  • Making it easier for the Mayor or DC Housing Authority to buy inclusionary zoning units to lease to low- and very-low income households.
You can read the exact proposed changes and text amendments in this Zoning Commission Notice of Public Hearing.

Proponents of the proposed changes to inclusionary zoning are organizing supporters to attend the Zoning Commission hearing and speak in favor of the changes. The hearing is January 28 at 6:30pm, at 441 4th St NW, Suite 220-south.

Development


Here's how DC’s inclusionary zoning program works

DC's inclusionary zoning program helps city residents rent and buy places to live when they can't afford market-rate prices. Here's how it works.


Photo by Payton Chung on Flickr.

Inclusionary zoning stipulates that new residential developments have to have a certain number of apartments or condos, which are then deemed "affordable," where the rent or the selling price is lower than the market rate and that are only available to people whose incomes fall below a certain level.

DC's Zoning Commission designates inclusionary zones, and the city's Department of Housing and Community Development manages the lottery process for households to move into affordable units.

Inclusionary zoning rules apply when a developer builds 10 or more units, or when the developer's addition of 10 new units to an existing building represents an increase in the building's residential floor space by 50% or more.

These units cost developers money because they are below market-rate, so to incentivize inclusionary zoning development, the city allows developers in inclusionary zones to build a 20% larger building than would normally be allowed for that particular zone. This additional development is called "bonus density."

In the end, depending on the particular zoning and the bonus density, between 8 to 12.5% of the square footage of a building in an inclusionary zone will go toward affordable units.

Who can live in affordable units?

Under inclusionary zoning, there are two types of affordable units: those priced for households making at or less than 50% of the area median income (AMI), and those for people making at or less than 80% of AMI.

Once the units are built and ready for residents, the city runs a lottery among households that have registered with DC's inclusionary zoning program.

To register for DC's Inclusionary Zoning lottery, a household must submit documents to prove both its size and that its combined income is at or below the required AMI threshold. Charts like these clarifiy who, exactly, makes 50 or 80% of AMI:


Table from DCHD.

Whether a household qualifies for housing that's set aside for a certain AMI threshold varies based on the household's size. A household of four making $80,000 per year, for example, could live in units designated for people making 80% of AMI, but an individual making the same amount could not.

The chart below outlines the maximum rents and purchase prices the can be charged for affordable units depending on the size of the unit.


Table from DCHD.

There's a lottery to get into inclusionary zoning housing

Once the lottery starts, households whose members live and work in DC get priority over those who don't.

187 affordable units have come up for lottery since 2011, and 3,312 households have registered. 93 units have been added since the beginning of 2015, with over 1,500 new registrants. DC's Department of Housing and Community Development says more units should hit the inclusionary zoning program as the city's realty market continues to grow.

A similar lottery system applies to households buying a condo and the city has arranged lenders willing to provide financing.

Once renting an Inclusionary Zoning unit, households pay their building owner directly.

Renters must certify on an annual basis that their income has remained within the AMI threshold of their unit. AMI thresholds are updated every year based on research by the federal Department of Housing and Urban Development. Households that have purchased condos don't need to re-certify.

Inclusionary zoning is different from Section 8

Inclusionary zoning housing is not Section 8 Housing. The main difference is that the government doesn't pay portions of tenant rents for people in affordable units while under the Housing Choice Voucher Program, DC's Section 8 equivalent, it does.

To qualify for the voucher program, households typically need to make less than 30% of AMI. Households under the voucher program can live in inclusionary zoning housing.

DC's inclusionary zoning program is relatively new, starting in 2009. Interestingly, Montgomery County was the first administration in the nation to start an inclusionary zoning program, back in 1972. Other counties and cities in the DC region that run inclusionary zoning programs are Arlington and Fairfax Counties.

Currently, inclusionary zoning rules only apply to new apartments and condos. DC is finalizing an inclusionary zoning program for single-family homes.

The author would like to thank the DC Department of Housing and Community Development for its help in understanding inclusionary zoning.

Development


DC sells valuable land, but loses interest in using it to create affordable housing

Since 2000, the District has generally required that when it sells publicly-owned land, part of the deal include new affordable housing for lower-income residents. But more recently, that commitment has waned. A bill in the DC Council could rejuvenate it by requiring affordable housing in city land development deals.


Design for the winning 5th and I building. Image from the developers.

The trend of weakening the city's commitment to affordable housing reached a new level last May, when the Deputy Mayor for Planning and Economic Development (DMPED) picked a proposal to develop a city-owned half acre at 5th & I Streets NW.

While the bidders who proposed housing offered some affordable housing in the new building, the winning proposal by Peebles Corp. and the Walker Group put a hotel, condos, and a dog spa in the Mount Vernon Triangle while offering to build affordable housing somewhere else—perhaps at a site it owns in Anacostia, about 3 miles away.

DC needs affordable housing, and there are good reasons to build it inside developments on public land instead of far away. Mixed-income communities are valuable to a city that wants to be diverse and inclusive. Mixed-income neighborhoods give people of different backgrounds better access to jobs, transit, schools, and other amenities. These communities build opportunity for less affluent people.

Mixed-income neighborhoods also ensure that as central city neighborhoods get more valuable, not just the wealthiest people benefit. They encourage people to interact with neighbors with varying income levels, and help transportation like bicycling or streetcars, which run shorter distances, to not be only services for higher-income people.

While most traditional tools for creating affordable housing add new units in higher-poverty areas, DC's land dispositions and inclusionary zoning policies are creating affordable housing in stronger real estate markets such as Columbia Heights, and even Chevy Chase.

When the DC government sells surplus parcels of public land for private development, it traditionally asks that at least some of the new housing built be affordable. Mayors Anthony Williams and Adrian Fenty sought and built substantial amounts of affordable housing in city-owned parcels like City Vista at 5th & K Streets NW or the new housing around the Columbia Heights Metro station. Unfortunately, the Gray administration has generally asked for far less affordability in public land deals.

The Peebles/Walker proposal represented yet another step away from the goal of mixed-income communities.

There's still time to revisit this poor decision, and fix the longer-term problem of the city's faltering commitment to affordable housing in public land deals. The DC Council will need to approve the 5th and I deal. Economic Development committee chair Muriel Bowser and her colleagues on the council should reconsider this deal.

And if it approves the pending bill, the council will set a clear policy that future land dispositions need a substantial amount of affordable housing on site. That bill, introduced by Ward 5 Councilmember Kenyan McDuffie, will require that any deal include 20-30% of its housing at an affordable level for low-income households.

For rental units, that means households earning between 30% and 50% of Area Median Income, or just under $30,000-$50,000 per year for a family of three. Units could be sold to owners earning between 50% and 80% AMI, or just under $50,000-$78,000 per year for a family of three.

The bill, and an action by the council to reject the 5th and I proposal, would restore DC's commitment to affordable housing and not waste the rare opportunities to get a project that promotes mixed-income communities when DC sells off land.

Development


DC considers making Inclusionary Zoning more affordable

DC's Inclusionary Zoning (IZ) policy requires developers to set aside units in new construction for low- and moderate-income households. But zoning commissioners say the units may be priced too high for those families who truly need affordable housing.


Photo by Mr. T in DC on Flickr.

During a discussion Wednesday night on the zoning code rewrite, DC Zoning Commissioners said that they are ready to revisit the income requirements for IZ units, which are priced for households making 50% or 80% of the Area Median Income (AMI). For a family of 3, that equals about $50,000 and $78,000, respectively.

If $78,000 for a family of 3 sounds high to you, that's because it is. The DC Fiscal Policy Institute has often pointed out that the biggest need for affordable housing is at the 50% AMI level and below. And commissioners agree that an 80% AMI target is too high to address the needs of most families who find themselves priced out of DC's rising market.

IZ units begin to enter the market

After adopting the policy in 2006, the Fenty administration delayed its implementation until 2009, following the housing market crash. By then, many already-approved projects had stalled. As the housing market recovered, these grandfathered projects, which didn't have inclusionary zoning units, moved through the construction pipeline.

One of those projects is The Louis at 14th and U streets NW, where a new Trader Joe's is slated to open soon. The original design for the project included IZ units, but they were eliminated due to the delay in implementation. Meanwhile, across the street is another sizable residential project that will also be completed soon, but since it was approved later, it has IZ units.

Only now are significant numbers of IZ units entering the market. According to the DC Office of Planning, as of July there were 265 IZ units on the market or about to be. That's about 11% of a total 2,404 units subject to the IZ law. Over the next several years, the pipeline is likely to contain about 1,000 IZ units.

Of the 265 IZ units the DC Office of Planning (OP) is tracking, 85% will be affordable for households making 80% of the Area Median Income (AMI), while the remaining 15% will be affordable for households making 50% AMI.

Housing market has changed since IZ began

At Wednesday's hearing, Zoning Commissioner Michael Turnbull asked OP if it would be feasible to require a larger set aside than the current 8-10%. Planning Director Harriet Tregoning indicated that they could look at it, and that the policy might be able to offer additional bonus density. And Office of Planning Deputy Director Jennifer Steingasser said that her agency is planning to introduce a separate discussion on revisions to IZ regulations in January to address concerns about income targeting and other issues.

DC's real estate values are higher than they were before the housing bust, when the Zoning Commission adopted the IZ policy. This means there's more value in the bonus density that IZ gives a development as compensation for the cost of units rented or sold below market rate.

Not only does the current policy require builders to set aside IZ units based on income level, but it also distinguishes between high-rise and low-rise development. For high-rise buildings, which are more costly to construct and are generally 6 stories or higher, developers only have to set aside 8% of their units, and price them for households at the 80% AMI level.

But for low-rise construction with typically 5 or fewer stories, the set aside requirement is 10%, and the income targets are split between 50% and 80% AMI. Commissioner Peter May asked OP if this distinction gives developers an incentive to seek high-rise designation for projects that could also qualify as low-rise construction, and Steingasser said it does.

Housing prices in DC continue to rise. Despite a number of administrative problems that the city is still working to manage, IZ can offer an important source of new affordable homes and help preserve mixed-income neighborhoods.

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