Sule Aygoren Carranzais managing editor ofRealEstate Forum.

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[IMGCAP(1)]NEW YORK CITY-The success of a project with anaffordable housing component as well as its impact on the localcommunity depend on the affordable program that is implemented.NYU's Furman Center for Real Estate and Urban Policy and the Centerfor Housing Policy in Washington, DC recently analyzed somedevelopments that utilize inclusionary zoning (IZ), one of the mostused but also most controversial policies in the creation ofaffordable housing.

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Under IZ, developers often receive incentives or are mandated toset aside a portion of the housing units in a new market-ratedevelopment as affordable housing. In return, the developertypically receives benefits such as density bonuses or fast-trackpermitting. To analyze the details of such programs, theresearchers took a look at IZ policies in markets three differentregions--Boston, the Washington, DC area and San Francisco.

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The organizations sought to answer three main questions: Whatkinds of jurisdictions have adopted IZ? How much affordable housinghas been produced in different IZ programs, and what factors haveinfluenced production levels? What effects has IZ had on the priceand production of market-rate housing?

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Whereas prior studies were unable to obtain a broad and clearpicture of these developments, thereby inflating the negativeimplications of IZ, this study's findings were less harsh. "Ouranalysis refutes the 'sky-is-falling' cries from IZ opponents; wefind no evidence that these programs have reduced housingproduction in the San Francisco area, and find evidence of onlyslight effects on production in the Boston area," says Vicki Been,director of the Furman Center. "However, we found that IZ policieshave produced only a modest number of affordable housing units,suggesting that the policy by itself is not a panacea for acommunity's affordable housing challenges."

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The design and impact of IZ programs varied greatly byjurisdiction, which each had different priorities. Some emphasizedeconomic integration within projects, while other wanted to simpleto boost their affordable housing stock. Also, different marketshad their own laws when it came to land use and zoningflexibility.

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For instance, in the Washington, DC area (where five of 23counties participate in IZ) and the San Francisca area (seven of 10counties), most of the IZ programs are mandatory and have a broadbreadth of applicability to different types and sizes ofdevelopments. All of the programs in DC provide density bonuses andallow developers to pay fees in lieu of building units, while 67%of San Francisco programs provide density bonuses and 86% allowpayments instead of building units. In DC, roughly 8.1% of theunits must be affordable and must be kept that way for five to 15years for for-sale units and five to 20 years for rental units. InSan Francisco, 15% of units must be affordable for a median lengthof 45 years.

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In suburban Boston, where 86 of 187 cities/towns take part in IZprograms, 58% are mandatory and have a narrow breadth ofapplicability by size and type of development. About 70% of theprograms provide a density bonus and just 38% allow fee payments inlieu of units. At least 10% of the units must be affordable, andone-third of the programs require permanent affordability while therest don't specify.

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[IMGCAP(2)]These variations in the design and implementation ofthe programs yielded different results. In the San Francisco area,the study found no evidence that IZ programs have increased theprice or reduced the production of single-family homes, despite thehigh percentage of mandatory programs. Conversely, in suburbanBoston, IZ programs resulted in small decreases in production andslight increases in the prices of single-family homes. Theresearchers found that IZ programs that provide density bonuses orother cost offsets to developers may be less likely to drive up theprice or decrease the supply of market-rate homes. In San Franciscoarea, programs with density bonuses also resulted in moreaffordable housing units.

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"This kind of study is critical for informing localpolicymaking," says Jeffrey Lubell, executive director of theCenter for Housing Policy. "These policies are notone-size-fits-all; they need to be tailored closely to localcircumstances. Communities should work collaboratively with allstakeholders to ensure that IZ programs provide effective costoffsets to developers and that complementary housing policies areadopted to address other aspects of the local affordable housingchallenge." He adds that there is a particular need, especially inexpensive housing markets, to reduce the regulatory barriers to newdevelopment in order to meet demand.

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In fact, the study found that larger, more affluentjurisdictions are more likely to adopt IZ programs. Other factorsimpacting a given city or town's decision is proximity to otherareas with IZ and whether the jurisdiction has adopted otherland-use regulations, especially cluster zoning or growthmanagement.

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In terms of the number of affordable units produced as a resultof IZ, that figure was dependent on how long the programs had beenin effect. In Metro DC, 15,252 affordable units were produced as of2003, one-third of which were in Montgomery County, which beganimplementing IZ in 1974. In suburban Boston as of 2004, 43% ofjurisdictions with IZ had not produced any affordable units. Theresearchers attribute that to the late adoption of IZ by theregion's counties. And in the San Francisco area, almost all thejurisdictions produced affordable units, with 9,154 units per yearas of 2004. Programs with density bonuses and exemptions forsmaller projects have produced more units.

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As a result, the study suggests that policymakers should keepseveral factors in mind when considering whether to adopt IZ,including: individual ordinances should be judged on their ownmerits; IZ policies help, but aren't the be-all, end-all solutionfor affordable housing issues; more flexible IZ policies may leadto greater production of affordable units; the potential impacts ofIZ policies on the price and supply of market-rate housing shouldbe considered; density bonuses or other benefits that help tooffset the profits lost on affordable units should be less likelyto negatively impact the price and supply of market-rate housing;cost offsets vary by location and market cycle, and need to work inpractice; and broad-based consultations with stakeholders may behelpful in designing effective policies and monitoring theirimplementation.

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