Inclusionary Zoning: One piece of the affordable housing puzzle

The City of Seattle, Washington adopted new inclusionary zoning policies last spring to push private developers into building more affordable housing. Seattle joins a growing list of other communities that have used zoning regulations to benefit low-income renters.

Inclusionary zoning policies were first developed in the 1970s. They were a response to zoning regulations that helped keep neighborhoods racially segregated. They spread as local governments see these regulations as a way to get affordable housing built without much public investment. 

By the end of 2016, 886 jurisdictions and the District of Columbia had inclusionary zoning rules. The majority were in Massachusetts, New Jersey and California. These states have laws that require local jurisdictions to adopt inclusionary zoning ordinances.

Inclusionary zoning encourages private developers to include a specified percentage of affordable apartments in their market rate buildings. These requirements can be citywide or in designated neighborhoods or districts. Cities may have either mandatory or voluntary inclusionary zoning rules. 

Inclusionary zoning requirements usually do not apply to smaller projects, typically 10 or fewer units. In some places, larger developments with hundreds of units may require a larger percentage of the units be set aside for low-income renters.

Some cities give developers flexibility in meeting the affordable housing requirements. In some cases, developers can build the affordable units at another site. In other cases, developers can pay a fee to the city in lieu of building the affordable units themselves. These are referred to as “in lieu payments.”

Cities offer a range of incentives to encourage private development of affordable apartments. These will vary from jurisdiction to jurisdiction. Some offer a streamlined permitting process when affordable housing is included in development proposals. Parking and design waivers may be available, or zoning variances. 

The most common incentive is a “density bonus.” This allows developers to include more units on a piece of land than the zoning would otherwise allow, as long as a specified number of affordable housing units are also built. In practice, this usually means that developers can add more floors to their projects.

Seattle’s City Council “upzoned” 27 neighborhood hubs in adopting its inclusionary zoning ordinance. This means they increased the number of floors allowed on buildings in and around the designated Mandatory Housing Affordability (MHA) zones. The zones were selected to create more opportunities for people of all income levels to be near parks, schools and transit. 

The new regulations require developers building in those areas to include affordable apartments in their buildings or pay fees. Depending on the neighborhood, developers must set aside between 5% and 11% of new homes for low-income households. Households eligible for the affordable apartments must have incomes at or below 60% of area median income. The units must be kept affordable for 75 years.

The city estimates that almost 3,000 affordable units will be produced through the new upzones over 10 years, with about 700 apartments included in the developers’ buildings and about 2,300 built elsewhere using funds from the fee payments. Smaller upzones approved in 2017 in specific districts are also projected to produce another 3,000 affordable apartments in 10 years.

Inclusionary zoning has a number of benefits. It harnesses private development capital to build new affordable apartments. It has a limited impact on city budgets. Especially in cases where developers can make in-lieu payments, city affordable housing funds can receive a substantial boost. This helps cities build more affordable apartments throughout the city. Inclusionary zoning also promotes economic integration in neighborhoods. It offers some low-income renters the chance to move to “areas of opportunity,” neighborhoods with good schools and low crime. 

However, inclusionary zoning policies have their critics. The option to pay fees instead of building affordable units onsite dilutes the effort to promote economic integration. Affordable housing supporters have also pointed out that these policies do not produce a lot of new affordable apartments, especially given the scale of the rental housing crisis. For example, while 3,000 new affordable units in Seattle sounds like a big push, more than 45,000 Seattle households spend more than half their income on housing. 

Others have argued that inclusionary zoning will slow housing development generally because the extra requirements discourage developers from doing new projects. On a related note, some critics express concerns that project owners will raise rents on the market rate units to make up for losses from the affordable ones.

By itself, inclusionary zoning will not solve America’s affordable housing crisis. However, it is an important tool that cities can use to add new affordable units. Inclusionary zoning will help at least some low-income renters move to areas of opportunity. Many other low-income renters will benefit from new housing built with the fees paid by developers. Finally, it is one of the few tools cities have that can push private developers to pay attention to the needs of low-income renters looking for a home they can afford.