The economy may be a little sluggish, but housing prices throughout California have not stopped going up. So it’s not surprising that cities and counties throughout California appear to have developed a new interest in "inclusionary zoning" programs, which require housing developers to set aside 10% to 20% of their units for low- and moderate-income residents.
More than a dozen cities and counties – ranging from the City of Los Angeles to San Benito County – are currently considering adopting inclusionary programs. In some cases, these proposals are being considered because of the state Department of Housing and Community Development’s certification process for housing elements.
The market is so hot – and advocates are so well-organized – that the number of inclusionary ordinances is strongly on the rise. A recent study from the Coalition for Rural Housing and the Non-Profit Housing Corporation of Northern California found that 95 cities and 12 counties (about 20% of the statewide total in each case) have inclusionary housing programs, a huge increase from 64 jurisdictions a decade ago. The only recent example of a locality that considered an inclusionary ordinance and then didn’t adopt it is Calaveras County, located in one of the most conservative areas of the state.
The bigger question, however, is what happens when these policies are put into place. Inclusionary ordinances may look good when adopted, but the political reality of implementation can be different, as local jurisdictions are reluctant to require construction of the units onsite or to build housing with the "in-lieu fees" that are sometimes collected instead of requiring construction.
The housing advocates’ study found that 34,000 units have been constructed in California since 1973 as a result of inclusionary ordinances. The study also found that the average "in-lieu fee" is about $107,000 – significantly less than the subsidy required to make a market-rate unit affordable in California. But two recent examples, one from Oceanside and one from Sacramento, show how difficult it is to convert inclusionary housing policy into reality.
In mid-December, the City of Sacramento reached a compromise with JTS Homes, which had sought an exemption from the onsite inclusionary requirement. JTS is building a 450-home subdivision in Meadowview, a neighborhood in south Sacramento, and wanted to transfer its 58-unit affordable housing obligation to an apartment district in the North Laguna area. The city agreed to let JTS build 19 units onsite and 39 offsite.
At almost the same time, an Oceanside task force deadlocked on the question of whether to extend a longstanding 10% requirement, partly because building industry officials claim the city has not spent the $15 million collected under the program since 1991. The building industry saw this as a reason to ditch the requirement, but the city’s consultant, David Rosen, asked why the task force was resistant to an onsite requirement if the in-lieu system is not working.
The answer should be obvious. Many cities need to have a policy showing they are promoting affordable housing. At the same time, there is considerable political pressure not to actually build affordable housing – or to build it far away from other people. On top of everything else, builders dislike the requirement, claiming it increases the cost of market-rate units.
Inclusionary requirements have long been a staple of the liberal affordable housing agenda. State housing officials began to look for and encourage them during Gov. Jerry Brown’s administration. During the last decade, the state has focused on increased densities and identification of sites for multifamily housing. Still, HCD has continued to encourage the use of inclusionary zoning as a strategy for meeting a city’s or a county’s fair share of regional affordable housing needs.
Although inclusionary ordinances are all similar in concept, they can vary widely in the particulars. In most cases, the ordinances require that housing developers set aside from 10% to 20% of their units for specific income groups – usually using the federal guidelines of very low income (50% of median income), low income (50-80%), and moderate income (80-120%). In many parts of California today, a moderate-income household earns $70,000 to $90,000 per year – still not enough to purchase a median-priced house, which exceeds $400,000 in many coastal counties. The statewide survey found that only about one-quarter of the 107 programs in California require a setaside of 20% or more, while almost half required only 10%.
Of all the current proposals, the Los Angeles effort is the most wide-ranging. Although no formal ordinance has yet been introduced, L.A. officials are looking at requiring all housing developers to provide from 10% to 20% affordable units, depending on the income range to which those units are targeted. Seeking to combat the builders’ argument that an inclusionary zoning ordinance would increase costs for builders, the city commissioned David Rosen – the same consultant who worked with Oceanside – to study the economic feasibility of the inclusionary option.
Rosen’s 324-page report assessed the economics of several development prototypes – including both rental and ownership properties – and concluded that in all cases an inclusionary requirement does not sink the economic feasibility of most projects. High-rise rental projects do become infeasible because of the cost of construction. However, many of the prototypes included in the study assumed density bonuses of 25% to 50% in exchange for providing low- and moderate-income units.
A number of jurisdictions outside of Los Angeles also appear to be moving forward with inclusionary requirements. To name just a few:
• The San Benito County Board of Supervisors is considering a 30% inclusionary requirement as part of its housing element. The board is scheduled to vote on this proposal in January.
• Mendocino County appears ready to adopt an inclusionary requirement as part of its housing element. The Board of Supervisors postponed a final vote from December 17 to a meeting in January.
• In November, West Sacramento adopted an interim ordinance requiring a 5% setaside for low-income residents and a 10% setaside for moderate-income residents.
• In Monterey County, county officials recently increased the inclusionary requirement from 15% to 20%.
• Even conservative Placer County recently approved a 15% inclusionary requirement as part of its Housing Element – over the objections of a group called Residents Against Inconsistent Development (RAID), which claimed that the requirement could discriminate against the beneficiaries of the inclusionary requirement because affordable units might be built to lower quality.
Still, the question remains: When a developer with tract map in hand is standing in front of them, will these city councils and boards of supervisors have the will to tell the developer that he must sell every fifth house for $150,000 less than the market will bear? The "right" answer could be difficult to muster.