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Can Inclusionary Zoning Provide More Affordable Housing?


Blue prints on a table over a building permit
Expediting building permits can be one incentive for inclusionary zoning policies.

Inclusionary zoning (IZ) is considered by its advocates as a fast solution to increase affordable housing and counteract the current nationwide housing shortage. The City of Bellingham is making plans in 2023 to try this residential development tool and will be starting with an IZ market and feasibility study.


The question is will IZ make housing more affordable or might it reduce the construction of new, privately constructed homes and make Bellingham’s housing issue worse? Supporters hold that inclusionary zoning produces needed affordable housing and creates income-integrated communities. Yet, other affordable housing advocates state the reverse is true — that inclusionary zoning can have the opposite effect, reducing affordable housing in a community while driving up the costs of market-rate housing.


What is Inclusionary Zoning?

According to the Municipal Research and Services Center of Washington, inclusionary zoning refers to municipal and county planning ordinances that require or encourage a given share of new construction to be affordable housing.

There are two basic types of IZ: voluntary and mandatory inclusionary zoning. Voluntary IZ encourages developers to provide low-income housing. Conversely, mandatory IZ requires developers to build a percentage of affordable housing in their project or pay in-lieu fees to a fund used to build and manage city-run affordable housing.

The elements of inclusionary zoning are generally:

1. Minimum quantity of affordable units – A city defines the percentage of affordable homes that must be built in addition to market-rate homes.

2. Targeted income – Income targets are typically based on a percentage of the Area Median Income (AMI) of a community. Bellingham considers housing affordable when it does not exceed 30% of a family’s gross income, and it must serve families making 80% or less AMI.

3. Time period – The affordable units must remain affordable for a certain period of time. For example, cities can require a 50 to 99-year duration of affordability.

4. Geographic location –A downtown urban core or certain neighborhoods in a community can be required to have a mix of market-rate and below-market affordable housing.

Both voluntary and mandatory inclusionary zoning programs give builders and developers incentives to produce affordable housing. These incentives can include density bonuses, support with capital infrastructure costs, tax abatements, parking reductions, fee waivers and/or expedited permit processing. These incentives are designed to help developers offset the costs of the building and the sale of below-market rate homes. But do these incentives result in more affordable housing?


The Incentives of Inclusionary Zoning

Let’s take a look at a few of the incentives municipalities can offer developers as part of IZ in exchange for more affordable housing.


Density Bonuses

Density bonus incentives give developers an exception, allowing for an increase in the number of units per project if the developer commits to building a certain percentage of affordable homes within their project.

Sometimes this is an increase in building height, a reduction in parking space, an increase in the floor area ratio, or more units per acre. The percentage of density is determined by each jurisdiction and is dependent on the community’s needs. NYU’s Furman Center finds that density bonuses to produce affordable housing are more likely to work better in strong versus soft housing markets. This is because there is a higher demand for market-rate housing which will help offset the development cost of selling below market-rate housing.

Density bonus incentives have the potential to be slow to meet the demand for affordable housing. To put it in perspective, if the bonus allows developers 20% more space in exchange for affordable housing, that equates to two affordable homes of every ten homes built — and two homes out of ten may not be enough.


Expedited Permit Processing

While every homeowner and builder would love to see expedited permit processing, if the state and federal government are not aligned with this policy incentive, developers can still face delays in permitting. However, expedited permitting at a jurisdictional level can still help everyone involved in the permitting process, including city staff.


Capital Infrastructure Support

There are a number of ways a city or county can support developers who are committed to building affordable housing. Reducing or waiving capital infrastructure impact fees and connection fees are two ways that can help developers offset the cost of building affordable housing as impact and connection fees add considerable costs to a development project.

The Municipal Research and Services Center of Washington (MRSC) uses Port Orchard as an example when considering how jurisdictions can implement affordable housing incentives. Here they break down the connection fees to help us better understand some of the costs developers pay to bring public sewer and water to a new residential unit:

“Infrastructure connection fees can often be a significant cost for developers. For example, the Port Orchard Municipal Code Sec. 13.04.025 notes the following connection fees: $11,571 for a public water connection, $8,993 for a public sewer line connection, and $3,795 for a wastewater treatment facility fee per residential unit (either detached home or apartment unit). This totals to $24,359 per unit, plus an additional $1,000-$2,000 in installation and materials costs.”

In Whatcom County, if the development is projected to spur economic activity that will expand, retain or help develop new employment opportunities, developers may have access to the Economic Development Investment Program funding (EDI) that can provide grant funds to help offset the costs of capital infrastructure.


The Whatcom County Executive's Office, as the administrative agent for EDI funds, and in coordination with the Whatcom County Health Department's Housing Program, will accept requests for the use of EDI funds for costs related to infrastructure improvements associated with construction of owner-occupied affordable workforce homes and renter-occupied affordable workforce homes, in both single-family detached and attached housing types. This program is intended to ensure long-term affordability is achieved for multifamily and single-family residential construction projects.


These affordable housing incentives can be integrated into inclusionary zoning policies that work to create a win-win for the developer and the community.

Should Inclusionary Zoning Be Voluntary or Mandatory?

Some argue that mandatory inclusionary zoning is the only way to ensure that new developments include affordable units, while others argue that voluntary inclusionary zoning is more flexible and more desirable to developers and therefore leads to more affordable housing.

Studies show affordable housing is produced by IZ mandates. Cities like Redmond, WA claim to have seen positive impacts from mandatory IZ. Yet, Redmond only established 496 long-term contracts on affordable housing units from 1995 to 2016. Most critics of IZ point to the fact that the number of affordable units generated by IZ policies are a drop in the bucket compared to the demand. To put it in perspective, in New York City under Mayor de Blasio, a mandatory inclusionary housing (MIH) program was enacted to generate more affordable housing. But, after three and a half years only “2065 affordable units were approved in a city of 8.4 million residents.”

Mandatory IZ programs can produce two common issues. To offset the loss of revenue from the sale of below-market rate housing, builders cut costs on the materials when producing affordable homes, resulting in lower-quality housing. It’s also common for developers to increase the cost of market-rate housing which can hurt moderate-income families who make too much to qualify for the below-market rate homes, but too little to afford the higher cost of housing. This limits housing options for middle-class households, creating an unintended gap in the housing market.

Many of the case studies written on mandatory IZ share similar conclusions. When developers are mandated to build affordable housing, the city experiences an increase in housing prices and a reduction in housing supply. To get around the mandates, developers reduce the number of housing units per project to evade the policy threshold, resulting in fewer new homes. And, landowners who receive lower offers from developers looking to offset the costs of below-market rate housing choose to hold off from selling.

An issue with both mandatory and voluntary IZ policies is that the program requires careful monitoring. The municipality has to have a system in place to track the sale of the affordable homes to ensure the affordability duration requirement is being met and that the house is bought and sold according to the policy guidelines. Do we need yet another level of housing bureaucracy?

As outlined above, mandatory inclusionary zoning intended to increase the supply of affordable homes comes with the risk of slowing housing production and increasing the overall cost of the housing market. Voluntary inclusionary zoning appears to be more effective when all parties -- the jurisdiction and the developer – are in agreement. When done well, voluntary inclusionary zoning can improve socioeconomic diversity, housing a variety of incomes within a development. It also provides low-income families access to higher-quality living that comes with affordable housing.

Whether the IZ policies are mandatory or voluntary, it's important to keep in mind that the incentive options the jurisdiction provides should be structured as a win-win for both the developer and the community.

There are a number of places across the U.S. that have implemented mandatory and voluntary inclusionary zoning programs, but it’s vital to note that there is no singular IZ formula that works for all cities or municipalities because each jurisdiction has different variables. Therefore, more studies are needed before we can definitively declare that IZ (mandatory or voluntary) is a successful tool that produces affordable housing.

Read more about some of the important takeaways that NYC’s Furman Center found when studying inclusionary zoning beginning on page 9.


About— Housing for Bellingham is a community resource that works to explain the fundamental processes and terminology associated with housing related decisions in effort to inform the public. When the people understand land use planning processes and terminology, everyone can make more informed decisions about housing and land use policies in their communities.

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WHAT CAN YOU DO TO HELP?

Contact your Bellingham City Council representative and tell them you support a proactive plan for sustainable growth.

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