Inclusionary Housing Policies Attract Millennials

Zoning Strategy Helps Middle Class Stay in the Neighborhood

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Dr. Lisa Sturtevant is president of Lisa Sturtevant & Associates, a Washington, D.C.-based housing and economic development consulting firm.

Sasha Hauswald is state and local policy director at Grounded Solutions Network.

Meea Kang is a founding partner at Domus Development, which specializes in creating and preserving affordable housing and infill mixed-use projects.

Posted: Wednesday, February 22, 2017 7:38 pm

In a country where housing supply is not keeping up with demand, especially for cash-strapped working families and millennials, many cities are using inclusionary zoning ordinances to make sure middle-class homebuyers aren’t left out in the cold when housing developers draw up their plans.

Key to any discussion on affordable housing is the definition of “affordable” and exactly who can afford it.

By now, we’ve all heard about the Silicon Valley barista who commutes three hours to work at a Starbucks downtown. But, now try imagining yourself paying $850,000 for a 2,700 sq. ft. townhouse in a city like Alexandria, Va., or someplace closer to home.

The fact is, in many metro areas, people who never considered themselves “low-income” are finding themselves priced out of the housing market altogether. Teachers, nurses, cops and accountants are just a few of those feeling the squeeze. If you’re a millennial working in customer service and eyeing that studio apartment near work and a transit stop… yeah, you might need to live with mom and dad just a few more years.

In North America, a commonly accepted definition of “affordable housing” is a housing cost that does not exceed 30 percent of gross household income. According to the U.S. Census Bureau, more than 46 percent of renters in Portland, San Francisco, Denver, Houston, St. Louis, Atlanta and Washington, D.C. pay more than that. In Detroit and New York City, more than half exceed that amount.

Take your monthly household income and multiply it by 0.3. If the result is more than your monthly mortgage payment or rent, then guess what? You live in affordable housing. For a household earning $100,000 per year, a monthly housing payment of $2,500 or less is considered affordable.

An inclusionary zoning ordinance is a legislative tool that attempts to increase the availability of affordable housing in areas where the market value of housing exceeds this threshold. They can be mandatory or voluntary and typically provide incentives for developers to include a certain percentage of units and/or square footage in a housing development at affordable rates.

“In 2016, we (the U.S.) added 1.2 million households and we built 1.1 million housing units,” said Dr. Lisa Sturtevant, a Washington, D.C.-based housing and economic development consultant who recently spoke at the New Partners for Smart Growth Conference in St. Louis. “And, over the last few years, particularly since the end of the recession, household growth has really outpaced housing construction,” she said.

This “supply vs. demand” variance has been one of the factors causing home prices to soar in some of the most densely populated metropolitan areas of the country. And, the people on the demand side are often millennials who were hit hardest by the recession and whose wage growth has still not recovered. As a result, many of these young people have delayed marriage, childbearing and the formation of households, Sturtevant said.

This, in turn, has become a problem for communities trying to attract employers and build healthy and diverse local economies, she said.

At the same time, federal spending on housing is shrinking and is mostly going to programs that serve “low- to very low-income” people, said Sasha Hauswald, state and local policy director at the Grounded Solutions Network.

This has created a crack many urban millennials are falling into: earning too much money to qualify for federally subsidized housing, but not enough to afford a market-priced apartment near their job, Hauswald said.

Some believe we can build ourselves out of the problem, she said. This logic suggests that by reversing the supply vs. demand paradigm, prices will automatically come down as the overall supply goes up. However, Hauswald and Sturtevant said, it’s not that simple.

New housing tends to be priced at the top of the market; construction costs are high; and new construction tends to catalyze the market in adjacent neighborhoods, making the problem grow. While increasing supply can lower home prices slightly, it isn’t the whole answer.

"It's not that we're just not building enough housing," Sturtevant said, "we're actually not building the right types of housing. In some markets there's a mismatch that's growing larger between the types of housing that's getting built and what is needed to support growth of a socioeconomically diverse community."

While inclusionary housing policies can help, they aren't the whole solution, either, Hauswald said.

“Inclusionary housing is one of the local policies we can implement, but not the only one. It’s not a panacea. It’s one tool in the toolbox; one strategy you want to consider amongst a suite of low- and affordable-housing strategies, and alone it’s not going to miraculously solve all of our housing affordability challenges,” she said.

There are more than 500 cities in the U.S. that have inclusionary zoning ordinances. The concept has been around since the mid-1970s. Massachusetts, New York and California have the most, with more than 100 jurisdictions each. This has given researchers like Hauswald and Sturtevant a lot of examples to study, and the web site contains a variety of case studies and best practices.

Lately, Hauswald said, the concept has been getting more popular across the country, including in some cities within conservative states that historically frown on such programs. In some cases, Hauswald said, progressive cities like Nashville, Tenn., and Tucson, Ariz., have attempted to implement inclusionary zoning ordinances only to have them preempted by the state. Such is often the fate of a blue city inside a red state, she said.

Hauswald said she believes interest in inclusionary housing has been growing recently because “it’s really particularly good at something that traditional affordable housing development isn’t that great at. It’s really good at creating mixed income buildings and neighborhoods, and in this era where we are increasingly aware of the benefits of economic and cultural diversity, inclusionary housing is a tool that can help us get there.”

While the practice is still sometimes controversial among developers, who tend to believe they bear the brunt of the costs, Hauswald said studies indicate that these ordinances have little effect on the production or cost of market-rate housing. In most cases, the price of land adjusts down, just like it does with any other zoning restrictions that affect the market. Any adverse effect on developers can be further mitigated by incentives, she said.

Some national statistics on inclusionary housing policies, according to the Grounded Solutions Network, include:

  • 80% of policies are mandatory
  • Most policies apply to the entire jurisdiction
  • Programs generally cover both rental and ownership
  • Percent affordable: Most typical is 10-20%
  • Income Levels: Widely varying, common practice is less than 80% AMI for rental and 80-120% AMI for ownership
  • 80%+ of homeownership and rental IH programs require at least 30 years affordability

Key traits of successful policies include:

  • Mandatory, or voluntary w/ compelling incentives
  • Set consistent expectations that are predictable and fair
  • Target areas of growth and investment
  • Offer developers flexibility with alternative options
  • Have long affordability terms and a plan for stewardship
  • Offer real zoning and/or procedural benefits
  • Are crafted with an eye to financial feasibility
  • Balance simplicity with precision and predictability with flexibility

Meea Kang, a founding partner at Domus Development, which specializes in creating and preserving affordable housing and infill mixed-use projects, said many obstacles face developers who get involved. From the high cost of land to all the political and regulatory issues, impact fees, environmental clean-ups and financing hoops to jump through, developers are right to be cautious. She said municipalities need to recognize these barriers and partner with developers to forge win-win relationships that benefit the community.

Flexibility with zoning regulations is paramount, Kang said. Density and parking space requirements are common sticking points.

In an affordable housing project for families in Sacramento, Calif., Kang struggled to convince city staff to change allowable density from 30 units per acre to 72 units per acre and the required parking from 2.5 spaces per unit to one space per unit. After the 81-unit development was complete, a study found that 80 percent of the occupants were under the age of 30, and 40 percent of them walked, biked or took transit for their daily commutes.

She won similar battles against out-dated building codes in other cities, she said.

“What I tell my local government friends as I challenge them on parking is ‘we’re not building housing for everybody. It’s not an egalitarian process.... We have choice. If you can provide alternatives to transportation, people will choose to get rid of their cars,’” Kang said. “We proved it.”

In 2015, California Governor Jerry Brown signed AB 744, which specified that developments containing affordable housing and located near transit will be entitled to greatly reduce parking requirements in most California communities.

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