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INCLUSIONARY ZONING REALTOR® Party REALTOR® Party INCLUSIONARY ZONING Hot Topic Alerts Housing affordability is a problem for virtually of zoning laws. Various inclusionary zoning every American city. The costs of housing strategies are considered, along with the continues to increase, while incomes remain recent elimination of single-family zoning in stagnant. The U.S. Government considers Minneapolis and Oregon. We also discuss housing to be affordable when the cost is “missing middle housing” in modern cities. no more than 30% of a household’s income, Finally, we look at some of the ways REALTORS® but this does not always reflect reality. In Los are involved in advocacy related to local zoning Angeles, for example, approximately one in and land use in their communities. three renters pays more than 50% of his or her income for rent. Zoning is government’s tool for regulating land use. The typical zoning ordinance dictates The issue of affordable housing has been how land can be used in different geographic addressed in a variety of ways. One method areas within a city or county. The community that cities are using is inclusionary zoning. is partitioned according to a master plan that Inclusionary zoning refers to a program, sets out the permitted uses in specified areas. regulation, or law that requires or provides Industrial or other commercial uses will be incentives to private developers to incorporate concentrated in one area, while residential uses affordable housing in their developments. are kept in other parts of the community. In this Hot Topic Alert, we focus on zoning Zoning and land-use decisions in the United and other land use regulations. We look States are highly decentralized. The decisions at the impact of zoning laws on real estate are usually made at the local level, subject to development and consider the general outline some control by the states. The extent of that December 2019 control depends on the law of the state. Most While most states and the federal government states grant at least some cities and counties take a largely hands-off attitude towards local considerable discretion in enacting local zoning, there are some areas in which state ordinances (“home rule”). Home rule may be or federal laws override local ordinances. For limited to cities of a certain population, or example, zoning ordinances are subject to the it may be optional, something to be chosen Americans with Disabilities Act. Regulations by a city. Home-rule cities are subject to a adopted under that Act say that a city must charter adopted by the city, which is a type “make reasonable modifications in policies, of constitution for the city. Under home rule, practices, or procedures when the modifications a community can do anything not specifically are necessary to avoid discrimination on the prohibited by the state constitution, state basis of disability, unless the public entity can statutes, or the charter itself. Home-rule cities demonstrate that making the modifications are given the power to enact zoning ordinances, would fundamentally alter the nature of the but are not explicitly required to do so. The service, program, or activity.” major limitation on home-rule zoning is that the ordinances must be adopted according HOW DOES ZONING AFFECT HOUSING to a master or comprehensive plan. The DEVELOPMENT AND CONSTRUCTION? comprehensive plan provides a framework A zoning ordinance sets out limits on the or blueprint for land use in the community, permitted uses of land. A neighborhood may and articulates the goals to be met by zoning be zoned for residential use, but there will be ordinances. The plan is developed by the city, further requirements, especially concerning with input from local stakeholders. density. There may be a limit on the number of housing units per acre, or the types of A few states follow a more restrictive rule apartment buildings may be limited. Some on municipal authority. This rule, known as suburban communities have zoning ordinances “Dillon’s Rule” after the author of an influential that require residential properties to have a treatise on municipal government, holds that minimum lot size of one-half acre or more per city and county governments have only the family, or may require minimum building floor powers expressly granted to them by the areas of 1,000 square feet or more. The City of state legislature or necessarily implied by Des Moines has proposed a comprehensive those express powers, and the powers that plan, known as Des Moines 2040 that would are essential to the municipality’s existence require most homes built in Des Moines to and functioning. In states that follow Dillon’s have a full basement, a single-car garage, and Rule, no zoning ordinance may be adopted a driveway. Minimum lot sizes for single-family unless state law allows it. The ordinances houses would range from 7,500 to 10,000 that may be adopted are subject to limits. square feet. For example, Missouri law says that a zoning ordinance is limited to regulating “the height, While zoning ordinances are enacted to number of stories, and size of buildings promote livable and economically viable and other structures, the percentage of lot communities by balancing the needs of all that may be occupied, the size of yards, community members, too much regulation courts, and other open spaces, the density may be counter-productive. Some researchers of population, the preservation of features of have argued that zoning and other land-use historical significance, and the location and restrictions are responsible for driving up use of buildings, structures and land for trade, housing costs, particularly in high-demand areas industry, residence or other purposes.” State law such as New York City or California. Restrictive may also contain limitations on zoning codes, zoning limits the supply of available housing, such as not allowing ordinances that prohibit driving up the price and reducing affordability. condominiums. It would be difficult to make a serious argument households earning 65% of the Area Median that all zoning laws and ordinances should Income (AMI) for garden-style apartments and be repealed. Rethinking and re-evaluating a 70% for high-rise apartments). Developments community’s zoning rules, however, does not with fewer than 20 but more than 10 units are mean that the value of zoning is being ignored. required to make a payment “in the amount of one-half (0.5) percent of the Purchase INCLUSIONARY ZONING Price of each dwelling unit” to the Housing Inclusionary zoning is a market-based approach Initiative Fund in lieu of a moderately priced to providing affordable housing. It requires or dwelling unit requirement on-site. See Code of encourages developers to set aside/include Montgomery County Regulations 25A.00.02.03. a certain percentage of housing units in their projects for low- and moderate-income Atlanta has designed an inclusionary zoning residents. Inclusionary zoning leverages private- plan with the goal of promoting affordable sector development, minimizing the financial housing for those who live and work in the city, subsidies required to meet affordable housing and to keep Atlanta rents relatively affordable goals. It also promotes several policy goals. In for working individuals and households gentrifying neighborhoods, inclusionary zoning within the income range of police, firefighters, can help slow the displacement of low-income teachers, city and county employees, and households. Research shows that inclusionary young professionals. The ordinance, which zoning also provides low-income families with went into effect in January 2018, applies to access to low-poverty neighborhoods and all new multi-family rental developments with better performing schools. at least 10 units. Developers of all covered developments must set aside at least 10% of Inclusionary zoning is implemented in a variety their units for incomes at or below 60% of, of ways. In New York City, developers are or 15% of their units for incomes at or below given a “floor area bonus” that allows them to 80% of AMI. Developers who do not set aside construct a larger building if they set aside a units must pay a one-time in-lieu fee of 15% certain percentage of units to be affordable of AMI per unit that the developer has chosen (which the City defines as “when a household not to provide. The in-lieu fees feed into a trust spends no more than 1/3 of its income on rent fund to be used for developing, rehabilitating, and utilities.). Montgomery County, Maryland, and/or reconstructing additional affordable requires that between 12.5 and 15% of the housing units. A developer who builds the total number of units in every subdivision or affordable units is offered incentives, such high-rise building of 20 or more units must be as 15% additional floor area ratio, reduced moderately priced (defined as affordable to minimum parking space requirements, priority review of applications, or “major project status,” which allows the developer to meet with representatives from city departments in order to identify issues and expedite the permitting process. Chicago’s Affordable Requirements Ordinance (ARO) requires developments subject to the ordinance to set aside 10% of residential units as affordable housing or to donate $100,000 per required unit to the city’s Affordable Housing Opportunity Fund. If a project receives financial assistance from the city, 20% of the units must be affordable. Projects are generally subject to the ARO if they include 10 or more residential units and receive certain zoning The detrimental effects to developers can be changes, include land purchased from the city, softened by careful crafting of the inclusionary receive financial assistance from the city, or are a zoning ordinance. Most ordinances contain part of a Planned Development in a downtown some form of incentive to developers that can zoning district.
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