Chasing Affordable Growth

When the Great Recession ended in 2009, it also brought to a close Americans’ 50-year estrangement from central cities, as millennials, boomers and many in-between rekindled an affair with urban living. To meet the demand, developers in cities as geographically diverse as New York, Seattle, Denver and Nashville have engaged in an intown building frenzy unparalleled in the modern era. At the same time, skyrocketing housing costs have begun to price lower-wage — and some middle-income — families out of their neighborhoods, and even their cities.

Though hailing economic success, mayor after mayor has fretted about the effects on economic diversity. “We are facing our worst housing affordability crisis in decades,” said Mayor Ed Murray of Seattle, echoing the sentiments of many other peers. “My vision is a city where people who work in Seattle can afford to live here.”

One high-profile response in Seattle, New York and elsewhere has been the push for a $15 minimum wage. Less celebrated has been renewed experimentation with inclusionary housing policies, also known as inclusionary zoning.

“Inclusionary housing works through the land use approvals process to incentivize or require affordable housing,” said Robert Hickey, who as a researcher for the National Housing Conference wrote a series of reports on the topic.

Inclusionary housing policies first gained attention in jobs-rich suburbs, such as Montgomery County, Md., a near neighbor to Washington, D.C. Created in 1974, the county’s Moderately Priced Dwelling Unit program required projects of more than 50 homes to designate 15 percent of units for moderate to low incomes, in exchange for greater density.

Now, it’s the cities’ turn. As their close-in neighborhoods grow tighter and taller in the construction boom, they are beginning to offer developers a bargain: We will loosen restrictions on density, height, parking requirements or other constraints — allowing you to make more money — if in return you cause below-market rate units to be built. Hickey estimates that 20 cities and towns “are seriously exploring inclusionary housing that weren’t before,” including Nashville, Pittsburgh, New Orleans, Minneapolis and even parts of Detroit. “It used to be mostly focused in California, but is now happening in all sorts of states,” he added.

“There has been this shift in consumer preference toward urban locations, which is great, but they are putting pressure in areas on the people who lived through the bad times,” said Rick Jacobus, author of a recent guide to the topic, called Inclusionary Zoning: Creating and Maintaining Equitable Communities, for the Lincoln Institute of Land Policy. “Inclusionary housing is a good way to address that, as long as it doesn’t create conflict that impedes building, because the first rule of any housing crisis is you have to add units, whatever the income level.” In designing their inclusionary housing approaches, cities are grappling with key policy choices that can make or break their success — and the developers who are being asked to implement the programs. First, what share of a project must be affordable units, and are they required or incentivized? Must they be included on-site, within the development, or can they be built elsewhere? Can developers buy their way out of providing units on-site by contributing to an affordable housing fund?

“For us as REALTORS®, the key issue is whether it is a voluntary policy that uses incentives, or mandatory,” said Jarron Springer, CEO of the Greater Nashville Association of REALTORS®, Inc. As Nashville has become a post-recession leader in attracting jobs, the city for the first time has faced an affordability crunch that prompted City Council to consider mandatory inclusionary zoning. Springer’s group joined a coalition arguing for beefing up incentives rather than using mandates. “The REALTORS® want to be part of a solution. We are in no way just saying ‘no’, but we want to be careful in how we design a policy.”

Whether mandatory or incentive-based, inclusionary policies require additional economic and political calculus: How much extra density is enough (or too much), and how much will current residents tolerate? If you allow off-site affordable units, how do you avoid concentrating them in high-poverty neighborhoods?

This last point is critical, experts and city officials said, because the hope is to use the boom to lift all boats, in neighborhoods across the city. “There are few tools that are more effective for economic integration,” Hickey said. “It is indispensible for improving the locations available for lower-income households.” At the same time, he added, flexibility is the hallmark of every successful program.

To that end, San Diego’s program allows for off-site development of affordable units, with a preference that they be built in the same “community planning area”. But the city will allow other areas if they do not already have a concentration of low-income households, and if the units will help meet the goal of having more homes in close proximity to transit stations. Boulder, Colo., will allow developers to meet targets off-site by rehabilitating existing units and preserving them as affordable, provided they help meet the goal of economic integration of neighborhoods and offer transportation access without a car. Boston allows developers to pay into an affordable housing fund in lieu of developing onsite, but requires that at least half those funds must be invested in neighborhoods with above-average incomes.

“It’s encouraging to see cities trying new ideas,” Hickey said. For the boldest experimentation, he added, two cities stand out: New York and Seattle.

New York’s Mandatory Inclusionary Housing

In the decade before Mayor Bill de Blasio took office in 2014, New York City had seen rents climb 15 percent while the median income of renters rose just two percent, according to a New York University study, and he vowed to address it. In March, after long and often contentious debates, the New York City Council approved his Mandatory Inclusionary Housing program. With a goal to preserve or build 200,000 units of below-market-rate housing by 2025, it almost certainly is the most aggressive such effort to date.

The key to the plan — and its salient feature — is a promise to rezone neighborhoods throughout the city to allow increased density and height limits. The city also will offer low-interest financing and tax advantages to further subsidize permanently affordable units. In exchange, projects requiring a land use action have two basic options:

  • Set aside 25 percent of units for those making 60 percent of area median income ($47,000 for a family of three), with a further 10 percent for those making 40 percent or less ($31,000), or
  • Offer 30 percent to those making 80 percent or less of median income, or $62,000 for a family of three.

The city also has the discretion to offer two other options, one aimed at creating more units for the lowest incomes, and another going as high as 115 percent of median income.

As it works through rezoning plans for 15 areas, the city also plans to offer those neighborhoods greater investment in infrastructure and amenities. In the East New York section of Brooklyn, city officials have vowed to beautify streets, build schools, improve parks and make other moves to improve livability as new construction arrives.

Seattle’s Housing Affordability and Livability Agenda

Seattle, home to a tech boom driven by Amazon and fueled with refugees from its pricey counterpart by the San Francisco Bay, has been among the five fastest growing big cities since the recovery began. The influx of above-average incomes has helped drive rents and house prices skyward, despite — some would say because of — frenetic construction seemingly everywhere.

Worried that the city was “losing its soul”, as a New York Times article put it, Mayor Ed Murray in 2014 convened a 28-member panel of for-profit and nonprofit developers, housing experts and other stakeholders to plan a counter-attack. Ten months later, the committee produced a Housing Affordability and Livability Agenda (HALA) with 65 aggressive recommendations, mandatory inclusionary zoning chief among them, and the mayor vowed to pursue as many as possible.

Shortly thereafter, Murray announced that a “grand bargain” had been reached among the city, housing advocates and developers. For the first time, the city would require all new commercial and multifamily residential developers either to include 5 to 7 percent of units affordable to 60 percent of median income or pay into a housing fund, with a goal of creating 6,000 units over 10 years. In return, the city would “upzone” 16 percent of the city — including downtown and all of the areas designated urban centers and urban villages — to allow an additional one to two stories. The City Council in November approved the program for commercial development, which must pay a per square-foot “linkage fee” to a housing fund. The rules for multifamily housing projects are expected to be set by this summer.

“Typically inclusionary zoning is done in ways that create a conflict between growth and affordability,” said Alan Durning, executive director of the Sightline Institute, a progressive think tank, and a member of the HALA committee. “This approach invites developers to keep building to meet the overall demand, but we will harness rapid growth to enhance affordability.”

Roger Valdez, director of Smart Growth Seattle, represents a group of builders and developers of multifamily housing and building owners. He isn’t so sure. “Politically it seems attractive because, without using tax dollars to solve the problem, you put developers over a barrel and out pops units and cash. That’s the unicorns and rainbows picture,” he said. “But it doesn’t pencil. The supposed value being added by the up-zone isn’t likely to offset the added construction cost or the lost revenue from rent restrictions. And we’ve already begun to see neighborhoods resolving to oppose the upzones, ‘unless’… And all those ‘unlesses’ will make it even harder to do projects.”

Indeed, substantial opposition appears to be brewing among owners of stand-alone houses within some of the urban villages. Under the grand bargain, the existing single-family zones within village boundaries would be eliminated, to permit small-scale multifamily at a minimum. At a January meeting of more than 100 of those homeowners in the Wallingford neighborhood, for example, residents said that while they shared the mayor’s progressive values, they weren’t ready for what felt like potential wholesale change to the neighborhood.

Given that over 60 percent of the city is currently zoned single-family, and that the upzones affect only 16 percent of the city’s land area, Durning said he finds those concerns overblown. Seattle will “become more like Amsterdam or Paris, less like [the suburbs] or 1978,” he wrote in an op-ed. “What makes Seattle Seattle is not its current particular blend of ramblers and Craftsmans on 5,000-square-foot lots. What makes Seattle Seattle is that it is a welcoming green city for all classes, races and ages. To hold onto the latter, we have to let the former evolve.”

Jacobus, the housing consultant, said this situation points to “a really important problem. No one wants their neighborhood to change and yet prices are rising and people are concerned, but prices are rising in part because no one wants their neighborhood to change.”

“No one anywhere should expect inclusionary to be the main source of affordable housing,” he said. In his review of programs nationally, he added, “those with the most flexibility and the greatest range of local incentives were making the greatest strides.” The most important take-away is the need to act, and to act quickly.

“The market is a predictable cycle and we are at the frenzy point now, but it won’t last that much longer,” Jacobus said. “The interest in inclusionary housing goes away when the market goes down. It’s frustrating because that would be the best time to acquire land for affordable housing and to prepare for the need in the next cycle.”

“At the end of the day, we take pride as REALTORS® in supporting the affordable housing movement,” said Springer, head of the Nashville REALTORS®. “Something will be done to promote it, but we want it to be the best, most sustainable solution for the long term.”

David A. Goldberg is the vice president of communications for Action for Healthy Food, a national nonprofit working to reduce the quantity of sugar and other unhealthful substances in our food supply, and formerly was the founding communications director for Smart Growth America. In 2002, Mr. Goldberg was awarded a Loeb Fellowship at Harvard University, where he studied urban policy.

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