Inclusionary zoning is a requirement that real estate developers include below-market-rate units in new projects. While the concept may on the surface appear positive, substantial research on the effectiveness of inclusionary zoning indicates that it ultimately has negative consequences. Generally, these affordable units can only be achieved by increasing the monthly rents for other tenants. This makes overall housing and what is known as “naturally occurring affordable housing” less achievable, and it can at times makes such projects entirely unfeasible.
Despite broad concern over the policy, both the cities of Minneapolis and Bloomington are immersed in inclusionary zoning discussions with both cities adopting new ordinances.
Minneapolis Inclusionary Zoning
The Minneapolis City Council now requires all new rental projects constructed in the city to provide reduced rent for 10 percent of the units. The proposal calls for those rental units to be held for households at or below 60 percent of the area median income, or to have at least 20 percent of the units priced for and occupied by households at or below 50 percent of the area median income, with the city providing financial assistance. The affordable rents would need to be guaranteed for at least 20 years. Minneapolis continues work on a comprehensive inclusionary housing policy with a goal of completion in 2019.
Bloomington Opportunity Zones
The city of Bloomington has also been delving into inclusionary zoning but has added a variety of available options to help lower the cost of construction of these units to offset what are the acknowledged challenges with the concept. Under a new ordinance adopted this spring by the city, for new projects with 20 or more units, at least 9 percent must be available to homebuyers or renters at or below 60 percent of the area median income.
To lessen the potential negative impact on the remaining units and make these projects more feasible, Bloomington is offering significant incentives to developers:
•Partial waiver of fees and allowance for alternative exterior materials
•The possibility of waivers from city standards for such items as structure size, parking, development density and height
“I am pleased that the city of Bloomington took a unique approach to meeting the housing needs of the community by working with advocates, tenants, owners, developers and builders to find solutions that will work and ways to reduce the costs imposed by regulations,” said Shawn Nelson, a Bloomington City Council member and remodeling contractor with Burnsville-based New Spaces.
While many in the housing industry are pleased with the collaborative approach taken by the city of Bloomington and believe the incentives provided are relevant, its ordinance nonetheless remains mandatory for any project of more than 20 units.
“We are certainly pleased that the city sought feedback in crafting its ordinance. Bloomington’s policy would serve as a model affordable housing ordinance for cities across the state were it not for the mandate,” said David Siegel, executive director of Housing First Minnesota. “We urge the city to make the incentives available to all developers, knowing that we need to build 300,000 more housing units by 2030 and that it is just this kind of flexibility and creativity that will allow that to happen.”
The mandate remains problematic for the housing industry because the track record for inclusionary zoning consistently shows a reduction in affordable units and rising prices for housing overall. For example, in September 2016, Denver repealed its inclusionary zoning requirement, which city leaders described as a failure. The program created 77 affordable units in 14 years.
In New York City, former Mayor Michael Bloomberg’s affordable housing initiative, which relied heavily on inclusionary zoning, planned to build or preserve 165,000 units. By the time Bloomberg left office, only 3,470 units were built, 2.1 percent of what was pledged. Portland, Ore., has also faced challenges. It adopted an inclusionary zoning policy on Feb. 1, 2017 and permits for new housing projects fell. The city began looking at changes to its policy late last year.