Inclusionary Zoning

Another approach that has been used by many cities to reduce gentrification and protect the rights of the most vulnerable population around the regeneration site is inclusionary zoning (IZ). IZ is a means of using the planning system to create affordable housing and foster social inclusion by capturing resources created through the marketplace. The term refers to a program, regulation, or law that requires or provides incentives to private developers to incorporate affordable or social housing as a part of marketdriven developments. This can be achieved either by incorporating the affordable housing into the same development, building it elsewhere, or contributing money or land for the production of social or affordable housing in lieu of construction.

The IZ concept is becoming more popular among developers because local governments usually offer a number of incentives, including lowinterest financing tools, cash subsidies and grants, free or low-cost land, density bonuses, tax abatement programs, rehabilitation assistance, fast-tracking of plan reviews and permits, and reduced or waived fees. IZ is a useful tool for urban regeneration projects that have the explicit goal 140 Regenerating Urban Land of creating diverse neighborhoods that include various socioeconomic, racial, and age groups.

IZ regulations vary, but they typically require that a certain percentage of units be affordable to certain low-income families. For example, in California, most ordinances target very low, low, or moderate incomes: “very low” is usually classified as up to 50 percent of the county’s median income, “low” as 51–80 percent of the median, and “moderate” as 81–120 percent of the median. Depending on the ordinance, builders must sell or lease 5–25 percent of the new homes at below-market rates.

In many cases, the below-market units must be of similar size and quality as the market-rate units. They must also be spread throughout the project in order to create integration and avoid creating ghettos. Some jurisdictions allow off-site construction or enable developers to pay a fee in lieu of building a below-market unit. However, the intent of IZ is to have the belowmarket units mixed among the market-rate units. Some ordinances are mandatory, meaning builders must participate in order to obtain permission to build, but a few ordinances are voluntary in that they offer incentives in exchange for a builder selling at price-controlled rates. Jurisdictions may also offer compensating incentives, such as density bonuses, fast-track permitting, or fee waivers.

Reviews of the impact of IZ policies highlight that even though IZ regulations are intended to add to the supply of affordable housing, they tend to produce small numbers of homes, and at potentially substantial cost. To date, IZ programs have played a relatively small role in meeting the needs for affordable housing in the United States. It is estimated that IZ programs nationwide have led to the creation of approximately 150,000 units over several decades (Calavita and Mallach 2010). In contrast, the U.S. Department of Housing and Urban Development’s largest rental assistance program—housing choice vouchers—serves approximately 2 million households, and the Low-Income Housing Tax Credits program has created more than 2 million affordable homes. Low production obviously limits the potential of IZ to promote social inclusion for low-income recipients (Schwartz and others 2012).

Precisely because IZ programs are intended to provide affordable housing within high-cost housing markets, they can require large cost offsets to developers or direct subsidies to IZ dwellers—or both. The size of the price discount decreases as the income-eligibility of the target IZ population increases. This trade-off has direct implications for the potential of IZ programs to target low-income recipients and promote social inclusion. Jurisdictions with high demand for market-rate housing may be able to offset the substantial loss a developer would incur on an IZ home that is sold at, say, 40 percent of market value to a low-income purchaser by offering a substantial benefit, such as a large density bonus. Indeed, for IZ programs to produce homes, they must offset developers’ potential losses or even enhance the overall profitability of the housing project (Calavita and Mallach 2010).

“In-Lieu of ” Options and Cost Offsets Available to Developers
The types of incentives provided to developers can affect their willingness to participate in voluntary IZ programs. Some forms of incentives can affect the extent to which the programs succeed in promoting social integration. Of course, the underlying housing market conditions also drive developers’ choices—strong housing markets with high demand for market-rate dwellings are much more conducive to acceptance of more demanding IZ design criteria. These can include smaller incentives, fewer opt-outs, lower minimum project sizes, and higher set-aside provisions. The most common form of incentive provided to developers is a density bonus, which allows them to build more square feet than would otherwise be permitted under zoning provisions. Other common incentives include fee waivers, reductions in parking spaces required by zoning and building codes, and expedited permitting (Calavita and Mallach 2010). Two other types of incentives are the availability of alternative means of compliance (for example, paying a fee rather than building IZ units) and the option to build the IZ units off-site— which may defeat the goal of mixed-income neighborhoods depending on where the units are built.

For example, the IZ ordinance in Boulder, Colorado, allows developers to pay in-lieu fees rather than build IZ units. The goal is to have 50 percent of the ownership units built on-site. Affordable rental units can be constructed either on- or off-site, provided they meet size requirements. The IZ ordinance of the city of Irvine, California, provides a menu of alternative compliance options, including converting market-rate units or extending the affordability period on existing affordable units; in-lieu fees; transfer of existing units to a nonprofit housing agency; transfer of off-site credits for affordable units (that is, a developer can provide more than the minimum number of units at one site and count those against another site); alternative housing (such as special needs, single-room occupancy, and shelters); and land dedication for affordable housing.

Developers can also fulfill affordable housing goals by trading credits with other building sites. The types of opt-out offerings, if any, should be aligned with program goals. If the intent is to enforce the maximum degree of social inclusion, in-lieu options are less likely to be effective. If the intent is to maximize the supply of affordable housing in the jurisdiction regardless of specific locations, opt-out provisions could be useful. The box below summarizes IZ practices in New York City.

Inclusionary zoning practices in New York City

The Department of City Planning of the City of New York has been implementing an Inclusionary Housing Program since 1987. This program aims to promote economic integration for low-income households by offering an optional floor area bonus to developers in exchange for the creation or preservation of affordable housing. All bonus floor area must be accommodated within the height and setback provisions of the underlying zoning district. The program “requires a percentage of the dwelling units within a building to be set aside or new or rehabilitated affordable units to be provided off-site within the same community district or within one-half mile of the bonus development. All affordable residential units created through the Inclusionary Housing Program must remain permanently affordable” (City of New York 2014).

There are currently two programs for IZ housing in New York City. The original is the R10 Program that provides a floor area bonus of up to 20 percent in applicable residential and commercial districts. The other program, the Inclusionary Housing Designated Areas, allows a bonus of 33 percent of floor area that can be obtained for providing 20 percent as affordable housing. These designated areas, 16 in total, are located in four of the five boroughs of New York City, with a large majority of locations in Manhattan and Brooklyn (Association for Neighborhood and Housing Development Inc. 2013; City of New York 2014).

The output and impact of IZ in New York City indicates the following: 2,769 affordable housing units have been generated between 2005 and mid-2013; on the West Side of Manhattan and on the Brooklyn waterfront, the IZ program has proven to be an effective and efficient means of generating affordable housing units; outside of these two areas, very few IZ housing units were created, even where there was significant development; and overall, IZ represents less than 2 percent of all multifamily building permit applications in New York City during these years (Lander, Freedman-Schnapp, and Ullman 2013).

The push for more affordable housing has led to calls for IZ to be made mandatory. The mandatory versus voluntary topic is a whole debate on its own. It was summed up in a 1994 study by the California Coalition for Rural Housing that found that “mandatory programs produce the most very low- and low-income affordable units compared with voluntary programs, both in terms of absolute numbers and percentage of total development” (Furman Center 2013). From the developers’ perspective, if the costs of a mandatory IZ program mean a less than profitable outcome, it will also affect the developers’ ability to undertake the project. Ultimately, it may actually decrease housing supply and increase overall housing prices (Furman Center 2013).