Inclusionary Zoning

In Brief: Inclusionary zoning requires a portion of the housing units in certain real estate developments to be reserved as affordable to low- and moderate-income households.
The Problem
Affordable housing units.Communities can provide housing for a range of incomes and household types within each new development that gets built. One approach to affordable housing production uses the existing real estate market to advance housing goals. During times of growth in the real estate market, a community may slip in its diverse mix of households without provisions to include affordable housing in new developments. Good planning for new development can encourage sustainable development and affordable housing without straining a community's infrastructure and master planning.

When correctly designed, the inclusion of affordable units in a residential or mixed-use project has been proven to add diversity and social value without compromising the quality or the market appeal of development. However, not all developers are ready to accommodate affordable units into a project when their financial projections only support market-rate units. How can the real estate market best be used to advance the affordable housing goals of a community?

Residential Street
Introduction to Inclusionary Zoning

Inclusionary zoning is an effective tool that can be used by municipalities to ensure adequate affordable housing is included in the normal course of real estate development. However, a distinction exists between the terms and incentive zoning. Inclusionary zoning is a mandatory approach that requires developers to make a portion of the housing units in their project affordable to low- and moderate-income households. Incentive zoning is a voluntary approach that either waives certain regulatory requirements or provides additional density (the incentives) for developers in exchange for providing affordable housing.

The mandatory zoning approach to affordable housing (often in concert with a density bonus, as is recommended) is the most effective means of increasing the number affordable housing units and creates a wider variety of affordability levels within a development.

In practice, an inclusionary zoning bylaw may include some flexibility to its mandatory provisions. For example, bylaws may only apply to certain types of development, such as new construction or substantial rehabilitation. Inclusionary zoning bylaws may include "in-lieu-of" payment or construction alternatives providing developers the option of paying a fee per unit, building affordable units off-site, or rehabilitating units elsewhere in place of constructing affordable units within the proposed development.

The voluntary zoning bylaws may contain incentives for developers such as density bonuses, expedited permitting, and cost offsets such as tax breaks, parking space reductions, and fee reductions. Inclusionary zoning bylaws also may contain a unit threshold (such as 10 units or more), identify income targets for the population to be served, and identify control periods and mechanisms (for example, permanent deed restrictions). These specific requirements may be covered by a Regulatory Agreement between the community and the developer.

3 Inclusionary Zoning examples.
Characteristics that Support Inclusionary Zoning
Opportunities to effectively use inclusionary zoning include:

Local partnerships with developers. The mixing of unit types in a project adds additional effort in design and marketing that may be unfamiliar to the developer. Local housing trusts, non-profits and agencies can offer assistance to ensure that the affordable units are managed efficiently.

Educated developers and financiers. The mixing of unit types has been successful in many projects. But, developers and financiers who are only familiar with one product type may need to be shown the opportunities are real. Information should be readily available to offer the development community.

Moderate to strong housing market. Potential for housing development, either in new apartments or in residential subdivisions, provides the opportunity to seek affordable units as part of that growth. With more profit and less risk (particularily if a density bonus is provided), the development community will more readily provide affordable units in development projects.

Local support for the provision of affordable housing. Local officials and citizens need to be educated regarding the necessity of providing affordable housing units within their community. The development of a strong community Master Plan or a targeted Planned Production Plan is an effective means to involving members of local government and the general community in discussions of the existing state of affordable housing, the goals of the community, and specific strategies for achieving these goals.

Community benefit. Communities that recognize that the inclusion of affordable units in the normal practice of development provides benefits for local businesses and government by housing middle- and low-income workers, does not devalue new housing projects, and only repositions them for a more diverse market, are communities that will create successful inclusionary programs.

Effective administration. Administration, monitoring and enforcement are critical to the success of an inclusionary zoning program (typically performed by the municipality, local housing authority, an affordable housing trust fund, or a housing consultant, working on behalf of the community). Carefully drafted local decisions and legal documentation to support long-term affordability are also essential to a successful inclusionary housing program.

Benefits
Inclusionary zoning is a very effective tool for communities wishing to increase the affordable housing supply. Inclusionary zoning uses the marketplace to generate affordable housing without requiring significant outlays by the municipality. Inclusionary zoning stimulates economic development by increasing the range of housing types for the local workforce, thus helping to retain and attract new business investment, and frees up additional disposable income for low- and moderate- income households to spend in the local economy.

In addition, inclusionary zoning regulations help communities work toward attaiment of several of the Patrick Administration's Sustainable Development Principles:
Affordable housing.

  • Expand Housing Opportunities: Inclusionary zoning helps provide housing to meet the needs of people of all abilities, income levels, and household types. Inclusionary zoning can also be used to help coordinate housing with existing jobs, transit and services.

  • Advance Equity: Inclusionary zoning helps to ensure social and economic justice in a community by providing a more level playing field for developers and encouraging more low- and moderate-income housing.

  • Make Efficient Decisions: Developers can also benefit from mandatory inclusionary housing bylaws as they provide a uniform, predicable process that gives more certainty up front about the feasibility of a development proposal.

  • Increase Job and Business Opportunities: Inclusionary zoning supports the growth of new and existing businesses by increasing the supply of moderately priced housing for local workers.
Financial Considerations

Affordable housing.The Primary attraction of inclusionary zoning is that it provides affordable housing without requiring municipal funding. In addition, inclusionary zoning bylaws aid a community's economic development efforts by providing housing for the local workforce, thus retaining and attracting business investment, and potentially increasing the amount of disposable income spent locally. A common concern about inclusionary zoning is that it may slow the pace of development, exacerbating the affordable housing supply problem and acting as a disincentive for private developers who may be considering investing in a community. Studies have shown that inclusionary zoning does not in fact slow the pace of private development in a community. Residential development rates are driven much more by the strength of the local housing market and broader economic and market trends.