All posts by Richard Drdla

Myths

Issues

A number of myths continue to be associated with IZ, although there is no evidence to support them. These myths serve to cloud and confuse the debate on how best to design these programs.

As will be seen, many of these myths deal in one way or another with the cost burden associated with providing the affordable housing.

IZ is a “partnership”

This term is frequently used by the development industry in Ontario. It is used to suggest that the other levels of government, particularly the municipalities, must somehow have “skin in the game” – that is, contribute financially toward the affordable housing.

This is a made-in-Ontario concoction. No reference to either this term or the notion is found anywhere in the US with regard to IZ.

To the contrary, IZ programs in the US have been designed for the most part to operate with little or no financial support from the municipalities. Indeed, these programs were designed this way because the municipalities in the US, like those in Ontario, lacked the financial resources needed to provide this support.

The programs also are designed to operate independently from state-level programs. States are typically involved only when they provide financial assistance to secure affordable housing at a deeper level of affordability than achieved by the IZ programs on their own.

IZ raises housing prices for the market homebuyers

IZ is often described as driving up the price of housing for other homebuyers, either generally across the community or more specifically in the same development. This is said to happen because the developers will pass on the cost of the affordable housing to the other buyers.

But developers cannot hike house prices in this way. The market as a whole sets the price of housing, and not the individual developers. And it is reasonable to expect that developers are already selling at the highest possible price. So, they cannot raise the price to cover the affordable housing obligation or any other cost increase.

There are two authoritative studies coming out of the US that clearly support this position. More specifically, the studies show that the price of housing in municipalities with IZ programs is virtually the same of that in comparable municipalities without these programs.

Developers must absorb the cost burden of the affordable units

If the developers cannot pass the cost burden onto the market homebuyers, so the argument goes, then the developers must absorb the cost by taking a hit on their profits.

The possibility that the developers will accept any significant reduction in profits is remote. The more likely response is that the developers will postpone the development until the market conditions favour going ahead.

In any case, IZ programs are not designed with the expectation that the developers will absorb this cost. These programs intentionally fix the affordable housing obligation so that the developers can take into account the associated cost when bidding to purchase land for development. In this way, the cost associated with the affordable housing will be “passed back to the land” – that is, seen in the form of reduced land prices.

IZ depends upon concessions

While most IZ programs do provide concessions, the value of these concessions and rationale behind them is often misrepresented.

The concessions offered by IZ typically are related to the development requirements and approval process. They principally include waivers of development-associated fees and relaxation of various development regulations. As noted earlier, they certainly do not include financial subsidies.

These concessions are offered by the municipalities for a simple reason: they consider it unfair or inappropriate for them to be adding to the cost of affordable housing, while at the same time requiring the developers to reduce the price of that housing. So they do what they reasonably can to eliminate those costs.

It is notable that these concessions generally remain fixed over time, and are granted uniformly to all eligible developments. They certainly are not adjusted to meet any prescribed standard nor to satisfy any viability criteria relevant to any particular development.

The value of these concessions is also relatively modest. They typically represent no more than a small fraction of the price write-down associated with the affordable housing. They are determined by what the municipality can reasonably give and not by what might be required to sustain by any development.

Here is a final important point. While it is true that most programs do provide these concessions, there are many that do not. That these programs can produce affordable housing in the absence of concessions is proof by itself that they are not needed to make IZ work.

IZ works only with up-zoning

Under this thesis, up-zoning is necessary because the increased density allowed by the up-zoning is seen as a necessary way of paying for the affordable housing.

The experience in the US does not support this. The vast majority of 500 or so programs there apply IZ to all approvals, including developments proceeding “as-of-right” with no density increase. It is only in the dozen or so “big city” programs that IZ is tied to up-zoning. This occurs, not because IZ needs up-zoning, but because virtually all development in those cities needs up-zoning.

IZ relies on density bonusing

Density bonusing refers to offering additional density to compensate developers for providing affordable housing. The additional density is automatically granted on some standard basis fixed in advance and applicable to all eligible developments.

Density bonusing is rooted in an old way of thinking about inclusionary zoning. It comes out of early programs, and especially the so-called incentive-based (or voluntary) programs. In these programs, the developers are asked to provide affordable housing, and so must be rewarded amply to secure their participation. (This approach is reflected in the continued use of the term ‘incentives’, although ‘concessions’ and ‘compensation’ are more suitable terms under mandatory programs.)
These programs have been proven to be ineffectual, and so they are no longer considered as useful vehicles for IZ. While they still do exist, they have lost all relevance for new programs.

There is another reason for the change in thinking. Density bonusing represents bad planning practice. This is because the affordable housing obligation is established first, and then the density increase automatically follows. In other words, this means that affordable housing trumps all other planning considerations with regard to the allocation of density.

Mandatory programs typically take the opposite approach. In these programs, the permitted density is first determined by appropriate planning grounds, and then the standard affordable housing obligation is applied.

This approach is used by all of the “big city” IZ programs, where up-zonings are prevalent. It is also the practice in the City of Toronto when applying s37: the appropriate density is first established and then the community benefits negotiated, not the other way around.

RD 2Mar2018

Critique of the Proposed Ontario IZ Regs

Uncategorized

The attached is a critical assessment of the proposed regulations released by the Ontario Ministry of Municipal Affairs & Housing on 18 December 2017 for the Promoting Affordable Housing Act, 2016 (the Ontario legislation authorizing the use of inclusionary zoning (IZ) in the province). It first looks at the problems associated with the overall approach, and then with certain specific regulations.  See the Critique

Delays in Implementing Ontario Legislationon

Uncategorized

The Ontario government in December of 2016 passed legislation authorizing the use of IZ in the province. The implementation of this legislation is dependent upon the the province also releasing the associated regulations. The release of those regulations has been pending for some time.

The delays are related to the behind-the-scenes lobbying by the development industry. The developers have been pushing for a regulation that would require all municipalities to compensate the developers for the affordable units. More specifically, the required compensation would be arbitrarily set across-the-board at 50% of the price or rent difference between the market units and corresponding affordable units.

This regulation would be particularly counterproductive. It would subvert the very purpose of the legislation by ensuring that it generated no or very little affordable housing. Municipalities do not have the cash or other financial resources to provide mandatory compensation like this. Faced with this obligation, they will chose either not implement IZ programs, or implement programs providing affordable housing in a very limited or shallow way.

Opposition to this regulation has rightfully developed, as news has leaked out about the efforts of the developers. Both the City of Toronto and the Association of Municipalities of Ontario have objected to this possible provision. Similar objections were registered in a letter prepared in late March by Social Planning Toronto and signed by over 30 community and non-profit organizations across Ontario (see letter). During Question Period on 3 April, MPP Cheri DiNovo quizzed the Minister about the status of this provision, while calling it a “poison pill” (see transcript).

While undermining the legislation, this provision is also remarkable for being so unnecessary. The proof of this can be seen is the large number of the US programs that have successively operated without any or limited compensation. And it is generally recognized that no compensation is typically needed particularly in fast-growing communities like Toronto and those in the surrounding GTA.

It is also important to note that there is no precedent for this sort of mandated across-the-board compensation in the US programs. The municipalities there have been free to fashion their own regulations – sometimes with and sometimes without compensation – that respond to their particular and disparate local conditions and needs. They seemed to have acted responsibility because these programs have generated considerable affordable housing while not apparently impairing the ability of developers to build. Municipalities in Ontario should be given the same flexibility and opportunity.

What makes an effective program?

Issues

The experience in the US shows that to be fully effective IZ programs should incorporate a number of key aspects.  These aspects deal with how the rules in IZ programs should be framed and approached rather than with what specifically should be in them. (The latter is addressed in an introductory way in this website in A Guide to Developing Inclusionary Housing Programs.)

1)    Make the programs mandatory

First and foremost, the programs should be mandatory – that is, they should require the developers to provide affordable housing as a condition of obtaining a development approval.

Voluntary (otherwise called incentive-based or optional) programs have been proven to be far less effective in producing affordable housing. Developers have shown little interest in voluntarily providing that housing even in exchange for incentives. As a consequence, voluntary are no longer considered to be a credible option.

Municipalities also should be aware of a crucial difference between the two. In voluntary programs, the municipalities will be expected to provide sufficient compensation to make the developers “whole” again – that is, to cover the cost burden associated with the affordable housing. In well-designed mandatory programs, municipalities will not have that responsibility, for the cost burden can be passed back to the land.

2)    Apply the obligation as universally as possible

In order to achieve the greatest output, the affordable housing obligation should fall on as many developments as possible. These should include developments proceeding as-of-right, as well as those getting a rezoning. Also, they should include small developments because they typically represent a significant proportion of the total housing production.

Applying the obligation as widely as possible is also important for another reason: it is necessary if all developers are to be treated consistently and fairly.

3)    Use fixed and non-negotiable rules

The rules should be fixed, non-negotiable and set out in advance. This applies most particularly to those rules determining the cost of the affordable housing obligation, and also the value of any concessions (if any) provided by the municipality.

Fixed rules are fundamental to mandatory programs, as there can be no mandatory obligation if it can be negotiated away. They also are important for treating all developers consistently and fairly, and for facilitating the approval process.

Finally, fixed rules crucially affect the need for compensation in the programs. When developers know the cost burden of the affordable housing obligation with certainty and ahead of time, they will offer correspondingly less for purchasing the land for development. In effect, this will reduce or eliminate the need for other compensation by passing the cost of the affordable housing back to the land.

4)    Target “below-market” housing

The programs should be directed at extending the affordability range of the housing currently being made available. They will serve little or no public purpose if they are used to produce more of what private developers are doing already. So, the programs should clearly target “below-market” housing – meaning housing provided at a price or rent below what the market is providing for the equivalent housing

5)    Allow enhanced provision through negotiation

The programs should be capable of taking advantage of, and even encouraging, opportunities to secure enhanced provision. Most developments can be expected to meet the minimum provision with no negotiation, and with no change to the required obligation nor the concessions (if any) offered. But there will be others willing to provide an enhanced provision – possibly through a larger number of affordable units and/or the units at a deeper level of affordability. To achieve, the programs will need to be open to negotiating compensation specific to the added costs associated with that enhanced provision, and to fostering partnerships with non-profit providers.

6)    Maintain affordability “permanently”

The affordability of the affordable units should be protected for a long period of time, if not permanently. Those protections should ensure the housing remains available at an affordable rent or price, and only to income-eligible households.

During that period, the units should not be sold in the open market, even if the value of affordable housing is recaptured, because the inclusionary benefits of the housing will be lost.

7      Provide flexibility but within limits

The regulations should provide some flexibility in how the affordability housing obligation is met – particularly, by allowing the use of cash-in-lieu payments and off-site development. Both of these are important and useful ways of producing a wider range of affordable housing types and/or housing at deeper levels of affordability. They also potentially have the added benefit of engaging the non-profit sector in producing that housing.

There is a downside to allowing unlimited access to these options. Many developers will take advantage of them, with the consequence that the benefits of inclusionary developments will not be achieved.

So, the options should be available only at the discretion of the municipality, and only then where they can be demonstrably shown to produce a greater public benefit than the on-site obligation. There could be still other limits, such as requiring these options to be used only on developments in close proximity to the originating development.

8)    Recognize the importance of growth

These programs depend upon harnessing market activity to provide affordable housing. They take a share of what the developers are otherwise building. Where there is little or no such activity, IZ by itself is not capable of producing much affordable housing.

As a consequence, it should be recognized that the programs work most readily in communities or areas facing sustained and strong growth. They work well there because the growth leads to rising land values that can be tapped to support the provision of affordable housing.

What is not necessarily needed – compensation

Compensation for the affordable housing is not necessarily needed in mandatory programs in order for them to be productive. This is shown by the many productive programs that provide no or only limited compensation.

Mandatory (unlike voluntary) programs can be designed so that cost burden is passed back to the land – that is, reflected in the purchase price offered for the land. This can be achieved by setting reasonable affordable housing obligations, and using fixed rules that establish the cost burden with some certainty in advance.

Most of these programs do offer compensation, but only mainly through concessions available through the regulatory process – such as, relaxed development standards (notably, increased density), fee waivers and fast-tracked approvals. These typically do not include cash subsidies, property tax abatement, nor state or federal assistance of any kind.

Density increases are the most effective and widely used of these regulatory concessions. They are particularly valuable because the economic benefit generated by additional density will be by itself sufficient to cover the cost burden of the affordable units.

In most cases, however, that compensation can be best described as being no more than notional or token. The amounts are arbitrarily set and not related to the cost burden. They are based on what the municipalities can readily provide, and not what they need to provide. Once set, the compensation is seldom adjusted, although the cost burden changes over time and project-by-project.

There is certainly no evidence – whether in their ordinances or actions – that the municipalities in mandatory programs have ever assumed any obligation to make the developer “whole” again, or even to cover the cost burden in any calibrated or substantial way.

Compensation is provided the most in particular circumstances – namely, where the developments provide an enhanced provision beyond the minimum obligation. To do this, these developments need to be offered incentives covering the added costs specifically due to that enhanced provision. Because they are often negotiated on a one-off basis, this leads to much wider range of compensation being used than normally associated with these programs.

Chicago IL: Affordable Requirements Ordinance

Uncategorized

This mandatory inclusionary zoning program, adopted in 2007 and revised in 2015, is unlike most programs in that it has been designed primarily to secure fees-in-lieu rather than affordable units, and particularly those built on-site in mixed-income developments.

This profile, which was originally prepared in October 2009, has been updated in May 2016 to reflect the regulatory changes made in October 2015.

New York NY: ‘Mandatory Inclusionary Housing’

Case Studies: American

INTRODUCTION

The city’s new mandatory inclusionary program – called the Mandatory Inclusionary Housing Program (MIH) – was passed in March 2016. It is one part of the new mayor’s multi-pronged housing plan, called “Housing New York”, aimed at providing 80,000 new affordable units across the city by 2024.

This program will be applied to new developments in 15 designated neighborhoods across the city. It will be linked to other efforts in these particular neighborhoods that will include the public investment of $1 billion for infrastructure improvements, and an overhaul of the out–of-date zoning code to allow for higher approved densities and remove unnecessary development barriers.

This new mandatory program supplements an existing voluntary program that will continue to operate in other areas. This voluntary program – called the Inclusionary Housing Program (IHP) – was adopted in 1987, and then extended in 2005 (see the Appendix).

The new mayor in the 2013 electoral campaign was critical of the less than satisfactory results of the voluntary program, and made mandatory inclusionary zoning one of the central features of his proposals to address the affordable housing crisis in the city.

PROVISIONS

Subject Developments

This inclusionary program will apply to new developments providing 10 or more new units in pre-zoned parts of 15 identified neighborhoods across the city.

The specific areas affected will be determined after a comprehensive planning study of each neighbourhood, followed by a statutory public review. Together this can take 1-2 years. Only part of these neighbourhoods are likely to be up-zoned and made subject to the affordable housing obligation.

The first re-zoning for East New York in Brooklyn has been completed. Others are in the pipeline. (The first re-zoning was completed so quickly because the planning study for the area was initiated when new mandatory provisions were still being considered.)

Spot re-zoning for specific developments outside the designated areas also can be initiated by developers, but the re-zoning must go through same process and will be subject to the mandatory rules – including the obligation to provide affordable housing according to the prescribed of options noted below.

Housing Obligation & Income Targets

The provision of the affordable housing will be mandatory. The production of affordable housing will be a condition of development approval when developers build in one of the subject areas.

Developers will be required to provide affordable housing according to one of four options. The options target different income groups. Those options with lower income thresholds demand fewer affordable housing units.

The option or options available to the developers will be selected by the city after the comprehensive re-zoning process. The intent is to relate the affordable housing obligation to the different local market conditions and needs.

These are the two primary options:

  • 25% of the total residential floor area for affordable housing – 15% for incomes averaging 60% of the average median income (AMI), and 10% at 40% AMI; and/or
  •  30% of the area for incomes averaging 80% AMI.

There area also two supplementary options:

  •  20% of the area for incomes averaging 40% AMI (this is called the “deep affordability option”) and/or
  • 30% of the area – 20% for incomes averaging 115% AMI, 5% at 70% AMI, and 5% at 90% AMI (this is called the “workforce option”).

At a minimum, the developers will be required to build to one of the two primary options. In some cases, they might be allowed to chose between one or other of the primary options. In still other cases, they might be allowed to chose between one or both of the primary options and one or both of the supplementary options.

These provisions set a maximum for the average of the incomes, and not a maximum for each unit. In the case of the workforce option specifically, none of the units can go to incomes over 135% AMI.

Compliance Alternatives

The affordable housing obligation can be met through new construction, preservation and/or rehabilitation of existing units.

Provision off-site is allowed, but another 5% of the units must be provided as affordable.

Developments with 11-25 units have the option to pay into a city affordable housing fund. These payments will be reserved for ten years for use in the same community district.

Cost Offsets

No specific cost offsets have been identified in this program.

The requirement to provide affordable housing will be tied to a pre-determined up-zoning – that is, a permitted density increase determined through a comprehensive planning study and public review process. Once established, the increased density will be available as-of-right when the affordable housing obligation is met.

No financial subsidies will be provided for meeting the mandated obligation. Subsidies might available in order to provide additional affordable units or make them more affordable. It is also possible that there could be financial assistance in cases of proven hardship.

Reduced parking requirements are the only regulatory concession offered, but this concession is not limited just to the inclusionary developments.

There are no automatic fee waivers but it is possible that some might be negotiated. In this case, the most likely possibility is a waiver of the city’s mortgage recording tax which is quite high.

Development Standards

The affordable units can be limited to the bottom 65% of the residential floors in any mixed-income development. In other words, the top floors can be reserved for the premier market units.

The affordable units must have the same size as the equivalent market units.

Affordability Controls

The affordable housing must be kept permanently affordable through a restrictive covenant registered on the property. The registration on the property is seen to be more permanent that a registration on the building only.

The increase in resale price will be limited to the increase in the AMI for the relevant household size.

ADMINISTRATION

The administration of the program involves mainly two city departments:

  • The Department of City Planning is responsible for special permits and re-zonings. This includes conducting the planning studies and public review process that sets the new zoning for the affected neighbourhoods. Through the City Planning Commission, the department also works to determine which option(s) will be applied in the mandatory program.
  • The Department of Housing Preservation & Development administers the both the voluntary and mandatory programs. This includes confirming when a development is eligible to participate in the program, and then ensuring its compliance with the rules. It also provides subsidy loans for the development of affordable housing.

PRODUCTION

The city has projected that this program will produce 12,000 affordable units by 2024, or 1,500 units per year on average. This would represent roughly 7% of the total projected housing construction in the city over that time.

OBSERVATIONS

This program (like the voluntary one as well) is applied only in certain types of areas – namely, ones that are either potentially or currently facing substantial housing redevelopment pressure that would upset the existing income mix of these areas. Inclusionary programs are seen as a way of harnessing the energies of private development to provide new and much-needed housing, but also that provides affordable housing and maintains economically diverse neighbourhoods.

The program works on the principle that whenever development potential is unlocked by up-zoning, the developers who benefit from this public action should be required to include affordable housing in their residential developments.

As a consequence, great emphasis is placed on protecting the affordability of the affordable housing on a permanent basis. This is seen as crucial to ensuring that all of the economic benefits of new development do not fall eventually into the private hands, and that lower-income households are not driven out as economic conditions improve in these neighbourhoods.

This mandatory program is different than conventional inclusionary zoning programs in three notable ways:

  • It is being applied only in certain designated growth neighbourhoods, rather than universally across the entire city. (And it will co-exist with the existing voluntary program in still other areas.)
  • It is being linked to public infrastructure investments for improving parks, streets, schools and other community amenities in these areas. Notably, these monies are not to be used for financial subsidies for the affordable housing itself.
  • It is also being tied to reforms of the local zoning code that will set new as-of-right density limits in these areas, and remove existing development barriers.

The new program incorporates some significant changes to the city’s earlier program. It turned from the use of voluntary contributions to mandatory obligations, stopped the reliance on financial subsidies to provide the affordable housing, and extended the range of income levels being served.

The changes were made to address deficiencies in the earlier voluntary program. They are particularly intended, not only to increase the amount of affordable housing being provided, but also to provide it in a wider range of areas.

It is also notable that the new program intends to boost output while removing subsidies. This reflects a growing conviction that these limited resources could be more effectively and appropriately spent in other ways, particularly as the developers could provide housing for the targetted incomes without getting both density increases and financial subsidies.

APPENDIX: Inclusionary Housing Program (IHP)

This voluntary inclusionary program was first established in 1987, and then extended in 2005. The first is now called the ‘R10 Program’, and the second the ‘Designated Areas Program’. Changes to the rules for both programs were made in 2009.

The two IHP programs differ mainly in the areas where applied and in the density bonus offered (see below). The latter was developed to apply the same incentive-based approach to a wider set of areas. Both continue to operate independently of each other, and also the mandatory program.

In both cases, the areas have been zoned ahead of time to allow as-of-right development at a permitted base floor area ratio (FAR) when not providing affordable housing, or at a higher bonused FAR when providing the prescribed affordable housing.

PROVISIONS

Provisions specific to the R10 Program

This program applies to all of the city’s highest density residential (R10) zones. These zones are found chiefly and widely in Manhattan, but elsewhere only in downtown Brooklyn and a small part of Long Island City.

In these areas, the base permitted density had been set at a FAR of 10, but this program allows new developments providing affordable housing to earn a bonus of 20%, increasing the permitted maximum FAR up 12.

Provisions specific to the Designated Areas Program

This program applies certain designated areas across the city that were zoned for medium- and high-density. All of these areas have experienced growth or are expected to grow in the near future.

These areas have base densities with FARs ranging from 2.2 to 9. The program generally provides a density bonus of 33% above the permitted FAR base. The exception is in two zones with a FAR of 2.2, where only a 10% bonus is allowed.

The rezoning to allow for increased density comes only after a comprehensive planning study and a statutory public review process. Only part of one of the originally designated areas will be up-zoned and subjected to the affordable housing requirements.

The rezonings under this program started in 2005 and continued through 2011. It is now applied in about two dozen areas ranging from individual blocks to corridors and large parts of the neighborhoods.

Provisions shared by both programs

To take advantage of the density bonus, the developments must provide affordable housing floor space at least equal to both of the following:

  •  20% of the total new housing floor space; and
  •  the following percentage of the additional bonused floor space:
    – 80% whenever a subsidy is used;
    – 50% when no subsidy is used and the units are provided through preservation; and
    – 28.5% when no subsidy is used and the units are provided through new construction or substantial rehabilitation.

The latter provisions were added in 2009 as a way of promoting more affordable housing without the use of subsidies.

In addition to the density bonus, this program offers access to financial subsidies coming from various city, state and federal programs and including property-tax abatements, tax-exempt bonds, and low-income housing tax credits. The main city contribution is the form of tax abatements for periods of 5 to 25 years (with the possibility of an extension), depending upon the level of affordability and location.

Initially, in the R10 program developers were prohibited from using both a density bonus and tax abatement because the bonus was considered to provide an adequate benefit on its own. The designated areas program allowed both from the outset, and R10 was changed to be consistent in 2009.

The affordable units can be rental or ownership, and provided through new construction, preservation and/or substantial rehabilitation of existing housing. Both programs were opened to affordable ownership housing in 2009.

They can be provided either on-site, or off-site provided the other site is within the same district or within a 1/2 mile of the bonused development.

All floor area must be accommodated within the established height and setback provisions.

The affordable units must be affordable to households earning at or below 80% of AMI. In certain areas, some units may be set aside for higher income households, but only if a greater percentage is provided.  No subsidies can be used for units above the 80% threshold.

All of the affordable units must be remain permanently affordable. Maintaining permanent affordability often has required setting aside a large capital reserve for future maintenance of the rental units.

OUTPUT

From their start to mid-2013, the two programs have produced about 4,500 affordable units. More specifically, the designated areas program delivered 2,770 units in 41 projects (or about 325/year on average), and the R-10 program 1,750 in 60 projects (or about 65/year).

For the period of 2005 to mid-2013, when both were operating, they produced a combined 3,540 units. During that time, approximately 220,0000 new housing units (160,000 in buildings of 4 or more units) were constructed across the city. That means that the affordable housing produced by the two programs together represented 1½% of the total construction activity.

Most of the units were concentrated in just four neighbourhoods: Hudson Yards and West Chelsea in Manhattan’s Westside, and Greenpoint and Williamsburg in Brooklyn. These four accounted for 75% of the affordable housing coming out of the designated areas program.

In Manhattan, nearly all of the units were produced on-site in new large buildings. In Brooklyn, about half were new on-site and about half off-site, with most of these through preservation of existing housing. The preservation typically involved partnering with non-profit organizations.

Little affordable housing was provided in the twenty or so other neighbourhoods included in the program. The output there amounted to less than 700 units, even though significant development had occurred in some of these places.

Nearly all of the affordable units relied on tax, grant and other financial incentives as well as the density bonuses. The main city contribution was in the form of tax abatements for the affordable rental properties.

The above output figures do not reflect the rent-regulated affordable units lost through demolition. One estimate puts the loss at 1,000 units.

ASSESSMENT

Overall, the two voluntary programs have not performed well, considering the need for affordable housing and the level of construction activity in the city. They produced relatively little affordable housing, and that was poorly distributed across the city.

The program works on the principle that whenever development potential is unlocked by up-zoning, the developers who benefit from this public action should be required to include affordable housing in their residential developments.

The program is seen as taking advantage of redevelopment pressures to provide much needed new housing, but in a way that enhances rather than upsets the existing income mix of the affected neighbourhoods.

As a consequence, great emphasis is placed on protecting the affordability of the affordable housing on a permanent basis. This is seen as crucial to ensuring that all of the economic benefits of new development do not fall eventually into the private hands, and that lower-income households are not driven out as economic conditions improve in these neighbourhoods.

The lack of production cannot be attributed to the lack of development activity. There was considerable development in many areas where there little or no afford-able housing output. One of the prime reasons for the lack of production is that the large majority of the eligible developers chose not to participate in the program.

Another reason is the limited scope of the programs. The designated areas program in particular applies only within limited areas of certain neighbourhoods. So, relatively few developers were able to participate, and those that did only had to provide a small percentage of the floorspace for affordable housing.

The production came at a considerable cost to the public purse, as virtually all of the affordable provision received substantial financial subsidies. As noted earlier, there has been the growing conviction that these subsidies were not necessary to achieve the targetted affordable housing, and the monies could be better spent in other forms of housing assistance.

RD 13May16

Density Bonusing

Issues

Density bonusing when used in inclusionary zoning (IZ) is a practice through which municipalities offer developers additional residential density (or development rights) in return for providing affordable housing.

In IZ programs the bonuses are generally are offered under non-negotiable rules fixed in advance. They are made available to all or most developments, although the permitted increase typically is adjusted according to the base density.

In many programs, particularly in early suburban communities, density bonusing is offered under a simple formulation: the permitted as-of-right base density is increased by one market unit for every affordable unit provided. In these cases, the extra density is compensation for the affordable housing.

In other programs, the increased density is only for developments providing additional affordable housing on top of the affordable units required by the base zoning. In these cases, the density bonus is an inducement for developers to provide additional affordable housing.

Most programs also typically include provisions to protect the local residents from excessive development. The municipalities place a limit (generally, somewhere between 10% and 25%) on the additional density that can be is granted as-of-right and/or make the density increase subject to local public review and approval.

Incidence

Density bonusing is widely used in IZ. A number of surveys indicate that it is used in large majority of programs, but these surveys are not adequate in revealing some key differences (Porter 2004, CCRH 2003, Schuetz 2009 and IHI 2010).

These surveys do not distinguish between mandatory and voluntary programs. All voluntary programs are most likely to offer density bonusing because they rely on providing fulsome compensation as a way of attracting the developers’ participation. As a consequence, if the mandatory programs could be separated out, they would show a much lower incidence of density bonusing.

The surveys also do not distinguish between rezoning and density bonusing (see next section). Most, if not all, IZ programs in major cities rely on conventional upzoning rather than density bonusing to secure affordable housing. This is because most developments in these cities need a re-zoning, which would predominate over density bonusing in the increased density permitted and affordable housing produced.

Experience in Toronto

In the 80’s, Toronto had successful but short-lived density bonusing program for office developments. It took cash in return for allowing higher densities, and then used that cash for building affordable housing. Although the program raised millions, it was closed down after pushback from the public, which considered this as selling development rights, and also allowing for office towers that were too tall.

Since then, the City has taken the position that allocating density must be based in the first place on “good planning”. This principle is applied when administering s37, which thereby relies on upzoning and not density bonusing.

Density Bonusing vs Upzoning

Density increases can be used in IZ to provide affordable housing through two processes: density bonusing and upzoning. The two are too often conflated, but are fundamentally different. They reflect different approaches toward how the density increase is determined, whether compensation is needed, and how the cost burden associated with the affordable housing is absorbed.

In conventional upzoning, the permitted density limits are determined development-by-development on the basis of planning grounds. The need for affordable housing is not a factor in that determination. In this case, sound planning prevails over affordable housing needs.

In this process, the affordable housing is seen as an obligation that all developers have. The cost burden of that housing is absorbed by the increase in land values resulting from the permitted density increase.

In the case of density bonusing, affordable housing goes ahead of planning. The need for affordable housing influences what density is permitted.

The increased density under density bonusing is seen as compensation to the developers for the cost burden associated with the affordable housing. Providing increased density in this way means the cost burden is not passed back to the land.

Summary of Issues

The use of density bonusing in IZ can be questioned for at least three significant reasons:

1. It potentially distorts the planning process. More specifically, it could automatically allow development exceeding what would be warranted by good planning grounds. In turn, this could serve to spark a public backlash against particular developments, and possibly even against IZ more generally.

2. It supports the argument that developers need compensation. In other words, developers must be paid for providing affordable housing rather than having an obligation to provide it. But developers do not need compensation because they are able to pass the costs of the affordable housing back to the landowners.

3. It has a limited role in a dynamic market like that in the City of Toronto. Most developments here will required rezoning that will provide higher density increases than that allowed under density bonusing. So, rezoning will override density bonusing in these circumstances.

References

Innovative Housing Institute: “Inclusionary Housing Survey – Measures of Effectiveness”; Nov 2010.

Douglas R. Porter: “Inclusionary Zoning for Affordable Housing”; Urban Land Institute, 2004.

Inclusionary Housing in California: 30 Years of Innovation; Non-Profit Housing Association of Northern California & California Coalition for Rural Housing; July 2003.

Jenny Schuetz et al: “31 Flavours of Inclusionary Zoning”; Journal of the American Planning Association; Autumn 2009.

 

Richard Drdla
28 March 2019

Resources: US

Rick Jacobus: Inclusionary Housing – Creating and Maintaining Equitable Communities; National Community Land Trust Network, Cornerstone Partnership and Lincoln Institute of Land Policy; 2015.

This report provides a good overall review of the current thinking about inclusionary zoning practices in the US, particularly by  drawing extensively upon recent research and studies in the field.  Included are chapters on designing a program, understanding the economics, preparing for administration, and other key topics  (read the report).