Key State Roles

Offer Incentives to Promote Affordability

While incentive programs are more common at the local level, some states have established programs to provide incentives that encourage the development of affordable homes. In some cases, state funding acts as a direct incentive offered to developers to encourage new construction. In other cases, the state incentive program is delivered indirectly through requirements that municipalities make specified benefits available to eligible affordable housing developments. A third approach offers incentives to municipalities (rather than developers) that facilitate the development of affordable homes. Incentives may come in the form of direct awards of financial assistance, access to low-interest loans, or other mechanisms.

For example, HOMEConnecticut is a voluntary program that promotes smart development patterns by offering incentives to towns that plan for and create higher density, mixed-income housing opportunities in strategic locations. Towns considering the HOMEConnecticut program may receive a "no strings attached" state-funded planning grant to help determine if they need additional housing options and plan for what those options should be.

Participating municipalities then define "Incentive Housing Zones" based on the results of the planning process. These overlay zones must achieve a minimum density level, as specified in program regulations (equivalent to 6 single-family units, 10 townhouse or duplex units, or 20 multifamily units per acre), and at least 20 percent of homes in IHZs must be affordable to families earning at or below 80 percent of area median income. In exchange, municiaplities receive $2,000 per unit allowed in the zone when the IHZ is created, and an additional $2,000 per unit upon issuance of a building permit.

While communities have broad latitude to determine where IHZs should be located, in general they work best near the central business district or other job centers or near transit stops -- areas that can accomodate additional density and provide a range of transportation opportunities for new residents.

Typical incentive grants average $50,000 per municipality, allowing towns to make modest iinfrastructure and public works improvements to accomodate additional residents. Because density allowances are greater and affordability requirements are relatively modest, developers can generally recoup the costs of providing 1 in 5 homes at lower cost. State or federal subsidies may be used in tandem with HOMEConnecticut to provide deeper affordability.

Click here
[PDF] to read testimony about the program presented before the Senate Committee on Banking, Housing, and Urban Affairs.

See also:

- Through Chapter 40R, Massachusetts offers financial incentives to municipalities that identify "smart growth zoning districts" (SGZDs), within which (a) residential development may occur at higher densities than would otherwise be allowed, and (b) 20 percent of homes are affordable to low- and moderate-income families. In exchange, municipalities receive a one-time cash "incentive payment" when the district is approved, additional "density bonus payments" for each housing unit issued a building permit and priority consideration for disbursement of state discretionary funds. Chapter 40S provides additional resources to reimburse the cost of educating children who live in SGZDs.  Click here to leave this site and learn more.

- California's density bonus law (SB 1818) requires cities and counties to relax applicable zoning standards (including parking requirements) and grant density bonuses of up to 35 percent for developers who include a modest share of affordable housing in market-rate projects. Cities and counties are also required to adopt an ordinance stating how they intend to comply with the legislation.

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