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Solimar Research

Reliance on Inclusionary Zoning Rises

Nov 29, 2007

With about half of the cities and counties in California facing a June 30, 2008, deadline to file updated housing elements, the often-controversial policy of inclusionary zoning is receiving renewed interest. Already, one-third of cities and counties have inclusionary zoning policies, and now other local governments — including Los Angeles, San Jose and Oakland — are considering the idea.

However, inclusionary zoning does not fit neatly within housing elements, which are primarily intended to ensure that local jurisdictions have adequate sites to fulfill their fair shares of needed regional housing for people of all income levels. Plus, the Department of Housing and Community Development (HCD) has sent mostly negative signals on inclusionary housing for years.

Inclusionary zoning proponents argue that the policy is a "no-brainer" for local governments. "We at NPH [Nonprofit Housing Association of Northern California] think inclusionary is a really important tool that local jurisdictions should look at when they update their housing elements," said Paul Peninger, the organization's policy director.

Still, the building and real estate industries dislike inclusionary policies, which they say add to the cost of market-rate housing.

Inclusionary zoning is a mandate that a certain amount — usually 10% to 15% — of new housing units are affordable to low- or moderate-income households. Most cities and counties permit developers to pay in-lieu fees rather than produce the units. Policies concerning where the affordable units may be located vary. Research on the effectiveness of inclusionary policies seems to reflect the attitudes of the researchers. The NPH released a report earlier this year that said inclusionary policies have been responsible for production of 30,000 affordable units statewide just since 1999. However, a study prepared by three San Jose State University economics professors for the Independent Institute found that cities with inclusionary zoning over the last 30 years have produced 10% fewer housing units and have 20% higher prices than cities without inclusionary policies.

Academics and advocates have produced similar conflicting studies for years. What matters to most cities, though, is what HCD will accept when it certifies housing element updates. All cities and counties within the Southern California Association of Governments and Sacramento Area Council of Governments regions have a June 30, 2008, deadline to file updates. Every other jurisdiction outside of San Diego County has a June 30, 2009, deadline.

For years, HCD has considered inclusionary zoning to be a constraint on potential housing development, and that position will not be any different during the upcoming rounds of housing element updates, said Cathy Creswell, HCD deputy director for housing.

"It's a local regulatory standard that they [cities and counties] need to evaluate for its effect on the supply of affordable housing," Creswell said.

Still, she said, many jurisdictions with approved housing elements have inclusionary policies. The department reviews housing elements on a case-by-case basis, and if inclusionary policies are one part of an overall affordable housing strategy, HCD may approve the housing element, she said.

"Communities throughout California have adopted inclusionary policies. Many of them have been parts of successful broader strategies," Creswell said. But the agency also sees cities that have produced only a handful of units through inclusionary policies or collected a small amount of in-lieu fees even after many years. In those instances, inclusionary zoning is simply one more growth restriction that HCD needs to evaluate closely, she said. There is no black-and-white test, despite what advocates on either side may contend, Creswell said. 

Bill Higgins, a lobbyist for the League of California Cities, said that HCD's lack of specific criteria for reviewing local affordable housing policies is problematic.

"A lot of our members would say, ‘Where's the criteria? What's a good inclusionary program and what's a bad one?'" Higgins said.

Higgins contended that inclusionary zoning provides essentially the same approach as density bonuses in that both policies ensure that a portion of new housing is affordable. The difference is that density bonuses are voluntary — builders can build more units if they are willing to provide a certain percentage of units as affordable — while inclusionary is mandatory.

That's a huge difference to the building and real estate industry. In 2005, the Home Builders Association of Northern California reached an agreement with NPH and cooperatively released a report, "On Common Ground: Joint Principles on Inclusionary Housing Policies." The document emphasized flexibility in how builders satisfy inclusionary requirements, including permitting off-site construction of affordable units, donations of land, and pooling or transferring credits for production of affordable units (see CP&DR, September 2005). The report also urged local governments to waive or reduce processing and impact fees for inclusionary units and contribute more money to affordable housing development.

Officials at HCD embraced the report and continue to point local planners to the document's recommendations.

In San Diego County, where the San Diego Association of Governments (SANDAG) helps cities and the county self-certify their housing elements, 11 jurisdictions have inclusionary policies, according to Susan Baldwin, SANDAG senior planner. None of the local governments added inclusionary policies as part of the recently concluded housing element update, she pointed out.

"The fair-share numbers are really what they have to plan for. They really have to plan for sites," Baldwin emphasized. "But they also have to have programs to build the units on the sites that are identified."

And this, argue proponents, is where inclusionary policies fit into housing elements. Although the core of housing elements is site identification, said Peninger, local governments must have policies to help ensure that affordable housing actually gets built on the sites. Among those policies is inclusionary zoning, he said.

Essentially, HCD uses density as a proxy for affordability, Higgins observed. The department considers high-density units to be affordable. But there is no reason to assume that high-density units in desirable locations — such as waterfront condos or high-rise units in a hopping downtown — will be available to anyone but the wealthiest buyers, he said. Hence, the need for affordable housing policies and programs, of which inclusionary is one, he said.

Peninger said HCD's approach discourages cities and counties from adopting inclusionary policies. Instead of considering inclusionary zoning to be a constraint, he said, HCD should work with cities and nonprofit builders to encourage adoption of inclusionary policies that comply with the "Joint Principles" report.

What cities ought not do is confuse adoption of inclusionary zoning with preparation of a housing element update, said Peninger, a warning that HCD would no doubt agree with.

The City of San Jose — which has produced more affordable units than any jurisdiction in the state in recent years, largely through redevelopment — is scheduled to consider inclusionary zoning in December. The San Jose Chamber of Commerce as well as the local building industry association and Board of Realtors have all lined up in opposition, arguing that the policy would discourage housing development.

Contacts:
Cathy Creswell, Department of Housing and Community Development, (916) 323-3177.
Paul Peninger, Nonprofit Housing Association of Northern California, (415) 989-8160.
Bill Higgins, League of California Cities, (916) 658-8250.
Susan Baldwin, San Diego Association of Governments, (619) 699-1900.
HCD housing element website: http://www.hcd.ca.gov/hpd/hrc/plan/he/
Independent Institute report on housing mandates: http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=27