Advancing Inclusionary Zoning

Abundant Housing LA supports bold and broad action to advance inclusivity in our region’s cities. We advocate dismantling exclusionary zoning by legalizing apartments, especially in high-opportunity neighborhoods near transit and jobs. We also support inclusionary zoning (IZ) policies (i.e. requiring new market-rate, multifamily housing projects to set aside affordable housing units for lower-income residents), when these policies are carefully designed to achieve pro-housing outcomes and increase the total number of new affordable homes. Ultimately, IZ can act as one element of a broader toolkit for solving California’s housing crisis.

What is inclusionary zoning?

The Los Angeles region struggles with a shortage of housing, especially housing opportunities that are affordable to lower-income households. Abundant Housing LA estimates that Los Angeles County needs 700,000 more affordable homes to meet the needs of households earning less than 80% of the area median income.

As part of our organizational commitment to ending this shortage, Abundant Housing LA supports policies that advance housing affordability, economic opportunity, and socioeconomic integration. We are particularly focused on removing planning and policy barriers that prevent households with lower incomes and people of color from living in high-opportunity communities with good access to jobs, transit, schools, and other public resources.

Building inclusive cities requires our society to dismantle “exclusionary zoning” – these are the restrictive land use rules that prevail throughout the region, even in the City of Los Angeles (where it is illegal to build anything other than a single-family home on 75% of the residentially-zoned land). Apartment bans, minimum lot sizes, downzoning, restrictions on affordable housing or permanent supportive housing, and limits on use of rental vouchers all perpetuate economic and racial segregation by effectively guaranteeing that high-opportunity neighborhoods remain restricted to wealthier households, who tend to be white.

We’ve directly targeted these barriers by advocating for local and regional plans, as well as state legislation, that would legalize multifamily housing in wealthy and job-rich parts of the Los Angeles region. We also support stronger tenant protections, which help lower-income residents stay in their homes and communities. Together, these policies would make it easier for people of all walks of life to live and thrive in Los Angeles.

Inclusionary zoning (IZ) is a specific set of policies designed to advance the goal of greater inclusivity. IZ is a system of requirements and incentives where developers of new market-rate, multifamily housing must set aside a percentage of the new units for lower-income residents. These units must be made available at an affordable rent (typically below 30% of the household’s income), and are “deed-restricted”, meaning that they can only be rented to households below a given income threshold. 

IZ policies can promote two positive goals. First, IZ can increase the number of affordable homes in a city or neighborhood, allowing more lower-income households to live in buildings and neighborhoods that they could not otherwise afford. Second, IZ can advance economic and racial integration in neighborhoods and cities. 

However, some IZ policies backfire and fail to achieve these goals. Requiring on-site affordable units introduces a new cost on housing production, which can make some projects unprofitable to build. This leads to fewer new homes, both market-rate and deed-restricted affordable. In most municipalities that have an IZ policy in place, the policy has created a relatively small number of affordable homes. 

Additionally, IZ policies tend to be more successful in greenfield development situations, where costs to builders are lower. IZ therefore presents a challenge in urban infill development, where costs to builders are higher. Thus, IZ policies must be carefully balanced with the need to protect environmental space and to increase urban infill housing opportunities.

Policymakers and housing advocates should consider what set of policies, which may or may not include IZ, can best accomplish the twin goals of desegregation and the production of affordable homes. We can start by better understanding the IZ programs that currently exist in American cities.

How cities’ IZ programs work

Montgomery County, Maryland introduced one of the nation’s first IZ programs in 1974, in order to promote fair housing and socioeconomic integration, and to ensure that more lower- and moderate-income workers could afford to live in the county. Montgomery County’s IZ program has also produced more affordable units over time than any IZ program in the United States, making it a common reference point for understanding the effectiveness and limitations of IZ. 

The original policy: 

• Applied to developments with 50 or more homes; 
• Required that 15% of homes be rented or sold at prices affordable to moderate-income households for 5 years
• Granted a 20% density bonus (allowing the total number of new homes to be 20% higher that what was allowed under base zoning)
• Allowed the County’s public housing authority to lease or buy up to one-third of the affordable homes created via the program. 

Montgomery County’s IZ program has produced over 14,000 affordable homes, and was most effective in its early decades while the county was urbanizing and developers were primarily building on greenfield sites. The policy has been modified since passage, primarily to apply the affordability requirements over a longer time frame. 

IZ programs were subsequently implemented in hundreds of jurisdictions across the nation, following in Montgomery County’s footsteps. While early IZ programs were focused on ensuring that new and growing communities were not segregated by race and income, many jurisdictions that adopted IZ policies later did so as a strategy to expand the amount of affordable homes. This is partly because the federal government stopped funding new public housing in the early 1970s, and other federal and state funding for affordable housing has decreased since the 2008-09 recession. 

In California, some new IZ policies have set the required percentage of on-site affordable units very high, and have not included a density bonus or other incentives. In 2016, San Francisco passed Proposition C, which required market-rate projects with 25 or more units to set aside 25% of units for lower-income renters. This made fewer projects economically feasible, leading to a major slowdown in the production of both market-rate and deed-restricted affordable units. As a result, San Francisco later lowered its inclusionary set-aside requirement to 18%.

Santa Monica passed a similar inclusionary zoning policy for its downtown in 2017, which implemented a 20-30% inclusionary set-aside requirement for projects with 10 or more units. As in San Francisco, the high set-aside percentage and lack of density bonus incentives have hurt housing production. As of March 2019, developments with 321 units and 29 affordable units had been approved under the plan, but according to the planning department, a number of “property owners are selecting to not access higher height potential, and instead build by-right projects that avoid many of the Plan’s community benefits.” For example, developers have proposed single-room occupancy (SRO) buildings that only required a 5% affordable set-aside.

Los Angeles’ Transit-Oriented Communities (TOC) program takes a somewhat different approach. Unlike Santa Monica and San Francisco’s IZ policies, TOC is focused on density bonus incentives. In return for setting aside units for lower-income households at an affordable rent, a new multifamily development can be built taller and include more units above and beyond the normal zoning limits. Projects also receive relief from on-site parking and open space requirements. Developers are thus motivated to participate because the value of the density bonus incentives outweigh the costs of providing on-site affordable housing units.

TOC, which encourages housing production near rail and bus stops, is off to a promising start. Since its inception in 2017, over 30,000 housing units have been proposed or permitted, of which 21% are affordable to lower-income households. The TOC program reflects the hard work of affordable housing advocates who led the campaign to pass Measure JJJ in 2016 (which authorized the creation of the TOC program).

Abundant Housing LA believes that TOC should be expanded more widely in Los Angeles (currently, TOC does not apply to single-family zoned parcels, even if they’re near rail), and that other cities in Los Angeles County should implement similar programs.

Impacts of IZ and recommendations

Based on these examples, we can see how IZ programs have a mixed record on delivering affordable housing production and encouraging socioeconomic integration in cities:

• IZ policies have not created much affordable housing in aggregate. A 2017 study on strategies for producing affordable housing in “rising markets” found that on average, IZ programs add one affordable home each year per thousand total existing homes. With 3.5 million homes in Los Angeles County, this suggests that if every jurisdiction adopted an IZ policy, only 3,500 affordable homes would be built per year. Compared to the need for 700,000 affordable homes countywide, a countywide IZ policy would just be a drop in the bucket.
• High inclusionary set-aside requirements can suppress homebuilding, resulting in fewer market-rate and affordable homes. Santa Monica and San Francisco’s IZ programs illustrate this well. While other factors, like market cycles and construction costs, impact development decisions, drop-offs in housing construction in two of the most high-demand cities in the world is concerning. 
• However, IZ has demonstrated some success in creating affordable homes in low-poverty areas. While other policies, like the Low-Income Housing Tax Credit program, produce more affordable units than IZ programs, affordable homes created through IZ programs are likelier to be located in lower-poverty, high-opportunity areas, since they are part of larger market-rate developments. This contributes to the important goal of a less segregated society.

With this in mind, Abundant Housing LA recommends that cities pursue inclusivity and affordability in housing through the following steps:

• Tackle exclusionary zoning broadly, directly and aggressively. Cities shouldn’t solely rely on IZ policies to dismantle exclusionary zoning. Cities should legalize apartments and remove barriers to development in wealthy, high-opportunity neighborhoods, enforce fair housing laws, and develop land use and zoning plans that affirmatively further fair housing. The cost for affordable housing should be shared by everyone, and should not just be placed on new housing (which harms both new residents and current renters, if IZ suppresses housing production).
• • • Additionally, solving the affordable housing shortage requires a massive commitment to funding affordable housing production and preservation, at all levels of government. Abundant Housing LA has called on cities, states, and the federal government to provide $100 billion in annual funding for affordable housing production and Housing Choice Vouchers. This will also require a fairer system of taxing property owners and reductions in the sky-high costs of building affordable housing.

• When designing IZ policies, cities should include density bonuses and other incentives. As we’ve seen from the TOC program in Los Angeles, these incentives make it economically feasible for new market-rate housing to include on-site affordable units, while expanding new housing opportunities overall.

• Density bonuses should be especially generous in high-income neighborhoods, job-rich areas, and near transit. This allows more lower-income households to live in high-opportunity neighborhoods, reducing socioeconomic segregation and improving lower-income households’ access to better schools, jobs, and public resources.

• When designing IZ policies, maximize the number of affordable units through bigger density bonuses, not through higher set-aside percentages: San Francisco and Santa Monica’s examples show how very high set-aside percentages discourage housing from being built at all. After all, 30% of zero is zero.

• Allowing taller, denser development in return for providing on-site affordable units is a win-win: requiring 10% of units in a 100-unit building to be affordable creates 10 affordable units, while requiring 20% of units in a 20-unit building to be affordable only creates 4 affordable units.