Tuesday, March 29, 2016

State Senate approves ban on mandatory inclusionary zoning

In a move to stop local governments from adopting mandatory so-called "inclusionary zoning" regulations, the State Senate voted 26-3 yesterday to approve Senate Bill 1636, which would prohibit such policies.  The bill would prohibit mandating that builders build a certain number of affordable units but would not prohibit cities from using incentives that reward builders who include affordable units.

Mandatory inclusionary zoning policies usually mandate that if a builder is approved to build new housing or convert a rental complex to a condo complex, that a certain percent of the units must be set aside as "affordable."  Affordable may mean different things to different people but it is generally agreed that housing is "affordable" if it does not exceed 31% of a persons gross monthly income. Most inclusionary zoning regulations attempt to set aside a certain number of units that will be affordable for a family making 80% of the area median income but some cities require it to be affordable at much lower levels of income.

As an example of what price point we are speaking of, in Nashville 80% of the area median income for a family for four is $53,500. Doing the math ($53,500/12 months x 31%) means this family could afford a house or rent payment of $1383 a month. Given the current prevailing interest rates of 4% on a 30-year fixed mortgage that would finance about a $220,000 house.  That payment would include principal, interest, taxes, insurance, mortgage insurance premium  and any mandatory condo or HOA fees. So if metro had a bill that said 14 percent of all units in a development had to be affordable, and the developers was building 100 units of housing that are priced at $400,000, to sell 14 of them at a price of $220,000 would mean the developer would have to increase the price on all of the other units by about $29,000 in order to generate the same revenue.  The effect of this is that some people who previously could have been able to afford a $400,000 house may not be able to afford a $420,000 house.

If the requirement is that 18% be priced affordable, the price for all other houses in the development would have to be even greater. If the requirement should be that the house be affordable for a family of four making 60% or the area median income, the price of the remaining houses would have to be even higher. If the requirement was that the set aside units be affordable for a family of three or two rather than a family or four, the price would have to be much lower still for the set aside units. An inclusionary zoning policy is essentially taking someones property by forcing them to sell it at a price lower than for what they want to sell it.

Some unanswered questions, or at least questions which I do not know the answer to, is do the "affordable" units have to be of the same size and quality of the affordable units?  Also, when speaking of upscale condo's in a downtown area, the amenities may include valet services, dog walking services, concierge services, swimming pool, gym and fresh cut flowers. Is the person who gets one of the set-aside affordable units entitled to all of the same amenities?  If all of the other units have granite counter tops does the set-aside units also get granite counter tops?

Rental price controls were already illegal in Tennessee, so when Nashville considered an inclusionary zoning proposal they were essentially talking about price control in the homes-for-sale market. In July 2015 the Metro Council passed an ordinance that directed the Planning Commission to develop an inclusionary zoning ordinance to present to the Council. That directives said such rules should establish that 14% of the units in any new development or renovation of existing developments or conversion of existing rental developments to for-purchase units, be set aside as "affordable."  It defined "affordable," as affordable to someone making between 60% and 120% of the area median area income.

Since that time, the Planning Commission hired a consultant and  held hearings and developed a proposal that while still bad, was not near as bad as it could be.  It depended more on incentives than mandates. It shifted some incentives that currently promote "green" and energy efficient development and some incentives that promote other desired objectives to incentives that reward developers for setting aside units that are priced to be affordable.

The result of what the Planning Commission has proposed it that no one is happy.  The Chamber of Commerce and several other pro-development organizations have taken a stand against it because it does too much and places too much of a burden on developers and the liberal groups that advocate for the poor and many in the affordable housing community do not like it because it does not go far enough.

I am pleased to see this bill advance in the Senate. On every occasion I have had to speak one-on-one with a State legislator I have urged them to pass such a prohibition.  Inclusionary zoning is simply wrong and it is also ineffective. To help some people, it prices other people out of the market and in practice where it is in place it has produced very few units of affordable housing. Some studies show that it actually can make housing less affordable. Nashville will still probably grapple with some sort of proposal that will be called "inclusionary zoning" but if what passed the senate passes the house, at least it will not be a mandatory program.

For more on this latest development see, Tennessee Lawmakers Move To Block Mandatory Affordable Housing Requirements.

For much more on Nashville's effort to impose inclusionary zoning, follow this link

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