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Sule Aygoren Carranza is managing editor of Real Estate Forum.

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

Under IZ, developers often receive incentives or are mandated to set aside a portion of the housing units in a new market-rate development as affordable housing. In return, the developer typically receives benefits such as density bonuses or fast-track permitting. To analyze the details of such programs, the researchers took a look at IZ policies in markets three different regions–Boston, the Washington, DC area and San Francisco.

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

Whereas prior studies were unable to obtain a broad and clear picture of these developments, thereby inflating the negative implications of IZ, this study’s findings were less harsh. “Our analysis refutes the ‘sky-is-falling’ cries from IZ opponents; we find no evidence that these programs have reduced housing production in the San Francisco area, and find evidence of only slight effects on production in the Boston area,” says Vicki Been, director of the Furman Center. “However, we found that IZ policies have produced only a modest number of affordable housing units, suggesting that the policy by itself is not a panacea for a community’s affordable housing challenges.”

The design and impact of IZ programs varied greatly by jurisdiction, which each had different priorities. Some emphasized economic integration within projects, while other wanted to simple to boost their affordable housing stock. Also, different markets had their own laws when it came to land use and zoning flexibility.

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

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

[IMGCAP(2)]These variations in the design and implementation of the programs yielded different results. In the San Francisco area, the study found no evidence that IZ programs have increased the price or reduced the production of single-family homes, despite the high percentage of mandatory programs. Conversely, in suburban Boston, IZ programs resulted in small decreases in production and slight increases in the prices of single-family homes. The researchers found that IZ programs that provide density bonuses or other cost offsets to developers may be less likely to drive up the price or decrease the supply of market-rate homes. In San Francisco area, programs with density bonuses also resulted in more affordable housing units.

“This kind of study is critical for informing local policymaking,” says Jeffrey Lubell, executive director of the Center for Housing Policy. “These policies are not one-size-fits-all; they need to be tailored closely to local circumstances. Communities should work collaboratively with all stakeholders to ensure that IZ programs provide effective cost offsets to developers and that complementary housing policies are adopted to address other aspects of the local affordable housing challenge.” He adds that there is a particular need, especially in expensive housing markets, to reduce the regulatory barriers to new development in order to meet demand.

In fact, the study found that larger, more affluent jurisdictions are more likely to adopt IZ programs. Other factors impacting a given city or town’s decision is proximity to other areas with IZ and whether the jurisdiction has adopted other land-use regulations, especially cluster zoning or growth management.

In terms of the number of affordable units produced as a result of IZ, that figure was dependent on how long the programs had been in effect. In Metro DC, 15,252 affordable units were produced as of 2003, one-third of which were in Montgomery County, which began implementing IZ in 1974. In suburban Boston as of 2004, 43% of jurisdictions with IZ had not produced any affordable units. The researchers attribute that to the late adoption of IZ by the region’s counties. And in the San Francisco area, almost all the jurisdictions produced affordable units, with 9,154 units per year as of 2004. Programs with density bonuses and exemptions for smaller projects have produced more units.

As a result, the study suggests that policymakers should keep several factors in mind when considering whether to adopt IZ, including: individual ordinances should be judged on their own merits; IZ policies help, but aren’t the be-all, end-all solution for affordable housing issues; more flexible IZ policies may lead to greater production of affordable units; the potential impacts of IZ policies on the price and supply of market-rate housing should be considered; density bonuses or other benefits that help to offset the profits lost on affordable units should be less likely to negatively impact the price and supply of market-rate housing; cost offsets vary by location and market cycle, and need to work in practice; and broad-based consultations with stakeholders may be helpful in designing effective policies and monitoring their implementation.

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