Affordable Housing Demand Leading to Land Use Regulation Reform

The unanticipated result of this onslaught of growth management regulations was a significant increase in housing costs. A 2017 study conducted by the CATO Institute noted that between 1980 and 2010, all 50 states added land use regulations to their statute books.² The study concluded that those states with the most restrictive land use and zoning regulations had the highest housing costs and thus more difficulty in generating needed affordable housing.

As noted by Glaeser, Gyourko, and Saks in 2005, “Between 1980 and 2000, real median home prices in Boston and San Francisco rose by 153 and 81 percent respectively.”³ Per Katz and Rosen, in communities such as San Francisco that were particularly active in passing land use regulations, housing prices were 20–40% higher than in other communities that were not.⁴

To address this significant increase in housing costs, many communities began investigating methods of providing affordable housing stock while still complying with, and adding to, growth management regulations. Inclusionary zoning (IZ), sometimes also referred to as incentive zoning, was a popular response to the conflict between the need for affordable housing and growth management–centered land use regulations. As of 2016, 500 cities and counties in 27 states as well as the District of Columbia had enacted IZ ordinances.⁵

The design of IZ ordinance programs varies among jurisdictions. Generally, mandatory IZ ordinances require developers to set aside an identified percentage of units in a residential development as affordable housing units. There may be additional incentives provided to gain the developer’s agreement to the set-aside, such as an increase in density, reduced parking requirements, tax abatements, or a combination of these or similar incentives, similar to incentives offered in some places for planned unit developments (PUDs) in exchange for the community benefits that PUDs can offer. As an alternative to the set-aside requirement, a developer can pay into a “fee in lieu” fund, which the local jurisdiction uses to build affordable units.

The objective of the IZ ordinance is to encourage the developer to build affordable units while making the development feasible to the developer and to investors. The market rate for housing units in a given jurisdiction will impact the success, or lack thereof, of an IZ ordinance. Insufficient profit from market-rate unit sales make development infeasible regardless of the number of incentives provided by the local jurisdiction.

New York City (NYC) enacted its Voluntary Inclusionary Housing Ordinance in 1987, providing a density bonus to developers that voluntarily built affordable housing. Montgomery County, Maryland, adopted its IZ ordinance in 1976, producing approximately 370 moderately priced housing units per year.⁶ Cambridge, Massachusetts, first enacted its Inclusionary Zoning Ordinance in 1998 and in 2015 passed its Incentive Zoning Ordinance, one requiring large nonresidential developers to pay into an Affordable Housing Trust Fund based on square footage of the development.⁷ More recently, in 2016, NYC adopted its Mandatory Inclusionary Zoning Ordinance⁸ with the very ambitious objective of providing, via construction or preservation, 200,000 additional units of affordable housing over a 10-year period at a projected public and private cost of $41 billion.⁹

IZ ordinances have not been as successful as hoped. Since its passage in 2002, San Francisco’s IZ ordinance has accrued over $58 million from developers in fees in lieu but has added only 1,560 affordable units to the city’s housing inventory over the 16 years. Over an 11-year period, Chicago’s IZ ordinance accrued $19 million but only 760 additional affordable units. Seattle added only 56 units over 13 years but amassed over $31 million of fees in lieu.¹⁰

Many in the housing sector argue that it is time to reform land use regulations to enable the construction of more affordable housing in the high-cost urban areas where it is needed most. They acknowledge that the local nature of land use regulation passage and application makes reform more difficult, but not less necessary.¹¹

Regardless of the concerns raised about the effectiveness of the IZ programs, the programs remain at the top of the list of tools used by planners to meet the demand for affordable housing. Atlanta, Detroit, and Portland implemented IZ programs in 2017; Los Angeles and Pittsburgh currently are considering same.¹² Jurisdictions contemplating or enacting IZ ordinances are learning from past mistakes in program design or approach, and many are realizing that IZ will only work if current zoning and growth management land use regulations are modified. In February 2018, Seattle, one of the fastest growing cities in the country, issued a report¹³ regarding its Mandatory Affordable Housing Program, one that combines an IZ program with upzoning (or rezoning) for increased density in identified areas of the city. Noting that more than 45,000 Seattle households pay greater than one-half their income on housing, and that the average rent for a one-bedroom apartment has increased 35% over the last five years, the report acknowledges that the city clearly has a housing problem.¹⁴

Recognizing that its objective to provide at least 6,000 affordable units (for low-income residents) by 2025 was not likely to succeed without some reformation of its zoning regulations, Seattle’s program specifically depends on agreement by residents of the identified areas to support upzone legislation to allow more density. Modification of parking requirements are part of the IZ discussion, as are tax incentives. In 2017, the program went into effect with the rezoning of six Seattle neighborhoods. There are current proposals to apply the program to an additional 27 “urban villages” that must agree to upzoning so as to allow greater density or that are already near transit hubs currently zoned commercial or multi-family.

Salt Lake City, growing rapidly, has teamed up with the Urban Land Institute’s Rose Center Land Use Expert Peer Exchange Panel program¹⁵ to examine how that city’s zoning and land use regulations can be modified to address the significant need for affordable housing. Like Seattle, the majority of Salt Lake City is zoned for single-family residences. Many factors contribute to Salt Lake’s popularity, especially to millennials; it is a university town, with an international airport, a relatively low crime rate, and access to some of the best snow skiing in the country and numerous other recreational opportunities. Utah promotes these amenities to attract technology-oriented companies, calling itself the “Silicon Slopes.”

Between 2010 and 2014, Salt Lake City added 4,400 residents, and an additional 30,000 residents are projected to move into the city by 2030. Due to housing demand, the city has a 2% vacancy rate, and housing prices have increased dramatically, much more quickly than average wages, forcing employees to seek housing elsewhere. In 2016, the city surveyed employees there, and 52% of the 60% of same who commute said they would live in the city if there were more affordable housing. In the past five years, the Salt Lake Valley has been identified as having the worst air quality in the country, readily visible to those who fly into its airport. A 60% commuting job force only exacerbates the air pollution.

Seattle and Salt Lake City plan to increase their inventories of affordable housing for a variety of reasons: livability, integration, inclusion, environmental and economic well-being, and cultural and racial equal opportunity. If some tinkering with outdated zoning and growth management land use regulations suffices to achieve such goals, Seattle’s and Salt Lake’s steps in that direction should help inform other jurisdictions about how best to go about examining what land use regulations are no longer relevant or are impeding their objective of supplying needed affordable housing.

Endnotes

1. See John M. Quigley & Larry A. Rosenthal, The Effects of Land Use Regulation the Price of Housing: What Do We Know? What Can We Learn?, 8 Cityscape, no. 1, 2005, at 69, 75.

2. Vanessa Brown Calder, Zoning, Land-Use Planning, and Housing Affordability, CATO Inst. (Oct. 18, 2017), https://www.cato.org/publications/policy-analysis/zoning-land-use-planning-housing-affordability.

3. Edward L. Glaeser, Joseph Gyourko & Raven Saks, Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices, 48 J.L. & Econ. 331 (2005).

4. See id.

5. Urban Land Inst., The Economics of Inclusionary Development (2016).

6. John Buntin, The Elusive Search for Affordable Housing, Clues Emerge, Governing (May 2017), http://www.governing.com/topics/urban/gov-affordable-housing-leimert-park-los-angeles.html.

7. Inclusionary Housing Program, NYC Housing Preservation & Dev., http://www1.nyc.gov/site/hpd/developers/inclusionary-housing.page (last visited July 9, 2018).

8. NYC’s program requires rezoning of the land on which the Mandatory IZ program will be applied to provide for increased density.

9. Alan Ehrenhalt, Why Affordable Housing Is Hard to Build, Governing (June 2016), http://www.governing.com/columns/assessments/gov-affordable-housing.html.

10. Id.

11. Edward Glaeser, Reforming Land Use Regulations, Brookings Inst. (Apr. 24, 2017), https://www.brookings.edu/research/reforming-land-use-regulations/.

12. Urban Land Inst., supra note 5.

13. Seattle Office of Planning & Cmty. Dev. et al., Mandatory Housing Affordability (MHA) Citywide Implementation: Director’s Report and Recommendation (2018), http://www.seattle.gov/Documents/Departments/HALA/Policy/Directors_Report_MHA_Citywide.pdf.

14. Id.

15. Press Release, Nat’l League of Cities, Rose Center Land Use Expert Panel to Examine Regulatory and Process Impediments to Increasing Salt Lake City’s Affordable Housing Stock (Mar. 20, 2018), https://www.nlc.org/article/rose-center-land-use-expert-panel-to-examine-regulatory-and-process-impediments-to.