Thursday, December 10, 2015

Inclusionary zoning study completed. "A quasi mandatory program."

On Wednesday the Planning Commission released their recommendations for new affordable housing policies.  According to The Tennessean and other sources, the inclusionary zoning recommendations developed by the Planning Commission avoid the most onerous characteristics of most inclusionary zoning.  For starters, thanks to a State law, Metro cannot impose rent control.  This was clear from the very first and anyone who wanted to know, knew that back in July 2015 when the Council directed the Planning Commission to develop an inclusionary zoning ordinance to present to the Council. Since State law prohibits rent control, a mandatory inclusionary zoning ordinance addressing rental property was out of the question from the very first.

What the Planning Commission has developed is a recommendation that relies on incentives for developers to build affordable housing. I much prefer incentives to punitive requirements, but incentives can be disguised punishment for those who do not get the incentives. The lead consultant on the project is quoted in The Tennessean as saying, “To some, this recommendation could be characterized as an incentive zoning ordinance, but to others, it might appear stronger. For us practitioners and researchers who talk to a lot of people around the country, some might call this a ‘quasi mandatory program.’"

The primary incentive appears to be bonus incentives. As an example of how an "incentive" program can really be mandatory is how it is applied to density.  In order to build downtown a certain amount of density may be necessary to make the development feasible. If in order to to be permitted to build to that density, you must build a certain number of affordable units, then the incentive density bonus program is not really voluntary but mandatory. 

I should be clear when we talk about "affordable housing" that people know what we are talking about. We are not talking about public housing or Section 8 housing, nor are we talking about housing the homeless.  "Affordable housing" means housing that is priced so that it does not take more than a certain percentage of a family's income. Usually that percentage is 30%. So, affordable to whom one might ask? According to the recommendations of the Planning Commission the affordable housing units for-sale under their proposal would be reserved for families whose income is 80 percent of Nashville’s area median income and for rental projects, it would be 60 percent. It is unclear what family size this applies to.

In Nashville 80% of the Area Median income for a family of two is $42,800.  An affordable monthly house payment for this family would be $1070 a month. That amount of house payment including the escrow for taxes and insurance would finance a house that would sell for about $175,000. Today we are experiencing record low interest rates. If rates go up to 5% that would finance a house costing about $150,000.  $175,000 is not a shabby house, but if developers are building condos that sell for $350,000 to a million dollars, that is way below market.

According to the Planning Commission proposal, a developer willing to build for-sale projects of five units or more in the urban zoning overlay could net $20,000 for "each affordable" unit.  Rather than accept the $20,000 incentive, most developers would prefer to build the more expensive units. This incentive alone will probably result in few affordable units.  For areas outside the urban core, the incentive is only $10,000. While $20,000 may not be sufficient to entice a builder to build affordable units, the density bonus may. This is just a supposition of how it may apply, but if by current zoning a builder can only build 12 stories high but if he agrees to build x number of affordable units, he can build 24 stories high, then that is such an incentive that it becomes in effect a mandatory requirement.

While inclusionary zoning may sound good, the unintended consequences may be that overall fewer units get built. The same developer looking to build in Nashville, may simply choose to develop in another city where requirements are less stringent and where he can earn more money.  Less development, means less housing supply and more pressure on housing prices and even less property that is "affordable." This proposal needs to be looked at very carefully, if it really is a mandatory program, the State should intervene to prohibit for-sale price controls.

I will post more on this topic as more is known.  If there is someone who is knowledgeable of this topic and what Metro is proposing, please submit it to me for publication. To read The Tennessean's article follow this link.

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