Affordable Housing Options and Pitfalls, part 2

Voluntary or Involuntary Affordable Housing Set-Aside or Inclusionary Zoning Requirements


This tool to promote affordable housing was popular among a few running for City Council last election cycle and it has been discussed as an option here in McKinney by city staff. Set-asides ask or require developers to set-aside a percentage of their apartment units for affordable housing. Involuntary housing set-asides are not allowed in Texas. Voluntary set-asides are allowed.

When set-asides are voluntary, it's a carrot and stick type of deal. Developers exchange the percentage of rent-controlled apartments for something developers want, like more floors than is normally allowed by the city, higher density, other variances, etc. If developers don't want to build set-asides at their own developments, they can pay a fee to the city to get the same perks. 

The problem with set-asides (see part 1, non-profits) is that the more hoops developers are required to jump through to develop in a city, the more expensive and undesirable building in a city becomes without cities constantly adjusting the required set-aside percentages based on an ever changing economic and business climate.

If a city decides to constantly monitor and evaluate the percentages, the city government will have to hire more people ensure the variable percentages reflect the market, which can be very difficult. There will also need to be city employees tasked with ensuring the set-asides are used properly and stay affordable for however long they are designated to stay affordable. Here’s an excerpt of an article that discusses the complexities of getting the percentages right:

If affordable housing requirements are set too high, the concern is that developers may not be able to make sufficient profits, and they will choose not to build or to build in another community with fewer requirements.Because landowners obviously can’t move to another community, they will have to lower land prices to attract developers – meaning that landowners are the ones whose profits ultimately drop. If land prices fall too far, landowners may decide not to sell – leading to a decrease in housing production overall.

 This reduction in the supply of new housing would, over time, increase the cost if housing – exactly the opposite of an inclusionary program’s intended goal.

While there is not much evidence of this outcome occurring at any significant level in real programs,* this is an appropriate concern that plays a central role in the debate whenever any community considers the right level of affordable housing requirements. Most communities address this risk by setting requirements well below the level that might negatively impact the supply of land for housing. 

In a number of communities, economic feasibility analyses have been useful in helping policymakers get the details right and to build public support for an inclusionary policy. Typically, this kind of analysis involves staff or consultants researching development economics and demonstrating how much local projects can realistically support the costs associated with provision of affordable housing without adversely affecting construction or housing values.

Some in McKinney have suggested that set-asides are similar to parkland dedication that McKinney already requires of all developers. Why not ask for an affordable housing dedication? First off, parkland dedications are mandatory and housing set-asides cannot be mandatory. Secondly, parkland dedication generally benefit everyone, including the developers. Developers know that major selling points for potential residents are greenbelts, parks, and open spaces. On the other hand, requiring a developer to cap and freeze the rents on a percentage of their apartments forever means developers can never profit from them. And, if a set-aside fee dedication can somehow be enacted here, there will have to be an entirely new section of the city government added to oversee new subsidized housing that would have to be built by the government. 

Even if cities find the right balance in percentages and properly oversee the program, the promises of voluntary set-asides are largely never recognized. Many cities find that voluntary set-asides do not give them enough affordable units to be effective or developers simple chose not to participate in the program. The cities that are legally allowed to force developers to set-aside units for affordable housing generally do so eventually. From Shelterforce.org: 

Mandatory inclusionary housing programs—or zoning programs—as most Rooflines readers probably know, are programs which require developers of market-rate housing to set aside a percentage of their houses or apartments as affordable housing. Programs vary widely; some programs are citywide, some are triggered by zoning changes, and some apply to certain zoning districts in a town or city...In the course of that experience, predictably enough, people have long since learned that mandatory is better than voluntary. Given a voluntary program, a lot of developers will duck the option, or choose to forego the incentives that come with the affordable housing strings attached. In a mandatory program, they figure out how to make it work. And after a while, as has been seen just about everywhere it’s been tried, it becomes normal, part of doing business.”

According to Housing Set-Asides: An Activist Toolkit, there are many reasons to make set-asides involuntary:

Housing is simply too important of a need to be left as a voluntary option. Requiring a set-aside citywide, instead of effectively requiring it only in certain parts of the city (as the TIF requirement does) or otherwise making it voluntary, would make a fair, predictable, and even playing field for all developers. The current voluntary program puts developers who volunteer to provide affordable housing at a disadvantage, since negotiating the program takes time. Also, a mandatory set-aside would be far more effective at creating affordable housing than voluntary programs could be—in California, all cities and towns have voluntary set-asides, but only those which require set-asides have successfully created units.

Here's an article from before the Mayor of New York made the voluntary set-asides involuntary:

  “Mayor Bill de Blasio wants to create more affordable units by making inclusionary zoning mandatory: In areas rezoned to allow more density, developers would have to set aside inclusionary units, whether they used the additional density permitted by the zoning or not. By imposing this mandate, the mayor hopes to get both bigger buildings and more affordable units within those buildings.

This approach has met resistance, both within New York and elsewhere around the country. In 2009, a California appeals court threw out mandatory inclusionary zoning requirements because they violated the state’s law against new rent controls. Gov. Jerry Brown, who championed residential development as mayor of Oakland, has turned down mandatory inclusionary zoning proposals twice…In his 2013 veto message, Governor Brown wrote, “As mayor of Oakland, I saw how difficult it can be to attract development to low- and middle-income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community.”