How Cities Can Support Inclusionary Development
As market-rate multifamily development continues to surge in many cities across the U.S., despite some recent signs of softening, local jurisdictions are ramping up efforts to spur the development of new housing units affordable to low- and moderate-income families. Few communities can commit significant sums of public money, so most are attempting to harness the strength of the private real estate market to support more inclusionary development. The hardest aspect of the job it seems is balancing the interest of affordable housing advocates and real estate industry actors to create sustainable policies that will actually work.
One example is Denver. Facing some of the highest and fastest rising rents in the country. Mayor Michael Hancock recently proposed to raise $150 million to build and preserve 6,000 housing units over the next decade. The funding would come in roughly equal amounts from a property tax and a development impact fee. While the property tax is apparently relatively modest (about $12 per year for a home valued at $300,000) and non-controversial, the development impact fee (roughly $1,500 for typical new single family home) has generated significant resistance from some local builders and real estate industry groups.
In Nashville, Mayor Megan Barry has proposed a new incentive program to stimulate development of affordable “workforce housing” (aimed at households earning between 60 percent and 120 percent of area median income). The program would start as a $2 million pilot and provide grants to developers equal to as much as half the increase in property taxes that would be collected from the new development. The grant amount would be designed to compensate developers for the lost revenue associated with creating the workforce units. The local development community generally supports the proposal.
The San Diego City Council in June unanimously passed a package of development incentives to encourage more affordable and workforce housing development. The incentives include allowing developers to build larger projects and provide less parking, in return for creating some lower-cost units. The package also would reduce the approval times for qualified projects and give developers flexibility regarding the location of their required affordable units. According to one press account, “the incentives were supported by a coalition of environmentalists and affordable housing advocates, as well as business groups often on the opposite side of the political spectrum.”
A number of cities are also turning to their zoning authority as a tool to support more inclusionary development. A new publication from the ULI Terwilliger Center for Housing illustrates how local development incentives can be combined most effectively with zoning policies. While “inclusionary zoning” can be a complex and controversial policy approach, the existing evidence and the analytic modeling the report demonstrate that it can be a viable tool in some market environments.