set-aside terms

Inclusionary zoning policies also specify the share of units that must be set aside as affordable, the income levels on which those units are targeted and the length of time for which rent- or resale restrictions apply.

Click on the links below to learn more about some of the major considerations jurisdictions address when setting the terms of an inclusionary zoning policy:

Share of units set aside
- What proportion of units must be reserved as affordable to qualify for incentives or comply with program requirements?

Target income level
- At what income level must the units be considered affordable in order to comply with program standards?

Period of affordability
- How long should units remain affordable?

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Terms of the set-aside of affordable units

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Circumstances that trigger inclusionary requirements

Location of affordable units

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Villas on SixthIncentives and Cost Offsets
Mandatory inclusionary zoning policies frequently include provisions, such as density bonuses, designed to "offset" any foregone revenue associated with the inclusionary requirements. In a voluntary inclusionary zoning program, similar concessions are provided as incentives for participation.

Fairbanks RidgeOther Considerations
Few housing policies have generated as much attention and controversy as inclusionary zoning. Beyond the basic mechanics of the ordinance, there are other key issues that communities thinking about inclusionary zoning should consider.

Click here to view more resources on inclusionary zoning.

Share of units set aside

Like other components of inclusionary zoning ordinances, the share of units that must be reserved as affordable varies in different localities, although in most cases the required set-aside falls between 10 and 25 percent [1]. Jurisdictions that set the set-aside too high, without providing sufficient cost-offsets, run the risk of reducing the incentives for new development, which could decrease the supply and thereby increase the price of housing for market-rate residents. On the other hand, jurisdictions that set the set-aside very low could end up producing fewer affordable units. Some communities allow developers to fulfill their affordable housing obligation off-site, but increase the required set-aside for those who choose to do so. In San Francisco, for example, all projects with 5 or more units must reserve 15 percent of units for low-income households; that requirement rises to 20 percent when the units are built off-site.

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In Burlington, Vermont, the share of units that must be set aside as affordable in for-sale developments is dictated by the average price of the market-rate units. As the average cost of new homes increases, so does the required set-aside.

For example, if the average sales price of new homes in a development is affordable to households at 100 to 139 percent of the area median income (AMI), then 15 percent of units must be reserved for households earning 75 percent of AMI. For more expensive developments where the average sales price is affordable only to households earning 180 percent of AMI and above, 25 percent of units must be set aside for moderate-income households.

Click here for more information on inclusionary zoning in Burlington.

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Target income level

Localities have a great deal of flexibility in specifying the income level(s) at which inclusionary units must be affordable; in general, however, requirements typically range from 50 to 120 percent of AMI[2]. To achieve these requirements, designers of an inclusionary zoning policy may allow some flexibility in the pricing of individual units, but require that all inclusionary homes achieve an "average" level of affordability.

Some localities choose a "tiered" approach, specifying requirements for multiple levels of affordability in order to address a range of needs. Boston, Massachusetts combines these approaches: At least one-half of inclusionary units must be affordable to households earning less than 80 percent of the AMI; the balance may be affordable to moderate-income households earning between 80 to 120 percent of AMI, provided that, on average, these units are affordable at 100 percent of the AMI.

Census data show that households with incomes below 30 percent of the area median income typically have the most severe housing needs [3]. By itself, however, inclusionary zoning generally cannot provide housing that is affordable to families at this income level. This is because the amount of foregone revenue needed to make units affordable to families with such low-incomes would dwarf the value of any cost offsets that could be provided to developers. For this reason, when used as a stand-alone tool, inclusionary zoning is best thought of as a mechanism for producing units affordable to moderate-income families, rather than low-income families.

On the other hand, many jurisdictions have chosen to combine inclusionary zoning policies with direct subsidies in order to reach families with lower incomes than is possible using inclusionary zoning alone. One approach is to use an "administrative set-aside," wherein a share of moderately affordable units produced through inclusionary zoning is specifically reserved for purchase by a nonprofit or public entity that commits to maintaining long-term affordability for very low-income families. For example, Montgomery County, Maryland and Fairfax County, Virginia are able to achieve deeper income targeting by enabling the Counties to purchase some of the affordable units and rent them out to very low- and extremely low-income households. Some communities also require that a small share of inclusionary zoning units be rented to Section 8 voucher-holders or, on the owner side, offer additional homeowner assistance in order to enhance affordability. Still another option is to dedicate in-lieu fees to serving very low-income families -- for example, as gap funding to make a low-income housing tax credit deal work.

From the Forum...

"One common challenge for IZ programs is that when affordable units are part of home owners associations there is a risk that market rate owners will vote to increase fees beyond the means of lower income owners."This issue came up on the 12-16-08 Webinar; the following brief exchange clarified the concern. If you have ideas or experience about how to best address this issue please post a response to this thread." See what other people said and sign in to add your response

The Forum is a place to pose questions, exchange ideas, and learn from the experience and expertise of others. This section of the site features interactive forums organized around policy areas, including inclusionary zoning.

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Period of affordability

Yet another choice to be made when designing an inclusionary zoning policy is the length of time for which inclusionary units must remain affordable. Rent- or resale-restrictions may apply for as little as five or ten years, extend to longer periods such as 20 or 30 years, or be enforced in perpetuity.

In general, longer periods of affordability will be more effective in providing a lasting increase in affordable opportunities for moderate-income families, whereas shorter affordability policies have the effect of transferring wealth to a limited number of beneficiaries. Several localities, including Newton, Massachusetts and Montgomery County, Maryland have extended their affordability period to avoid the loss of inclusionary units [4]. Inclusionary zoning can also be combined with other tools, such as shared equity homeownership to facilitate long-term affordability while still ensuring opportunities for individual asset growth.

Communities that wish to use inclusionary zoning to make a permanent, rather than temporary, dent in their affordable housing challenge may wish to give serious consideration to shared equity homeownership or other policies that ensure that inclusionary units remain affordable over time, such as permanently-affordable rental housing and community land trusts.

From the Forum...

"As the housing market has collapsed we have seen market rate home prices fall to a level that is not much higher than our moderate income affordable prices. This has made it very hard to sell inclusionary housing units with long term resale controls. Have any programs found ways to respond to this challenge?" See what other people said and sign in to add your response

The Forum is a place to pose questions, exchange ideas, and learn from the experience and expertise of others. This section of the site features interactive forums organized around policy areas, including inclusionary zoning.

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[1] See Inclusionary Zoning. Equitable Development Toolkit. Oakland, CA: PolicyLink.

[2] See Inclusionary Zoning. Equitable Development Toolkit. Oakland, CA: PolicyLink.

[3] See, for example, Initial Assessment of 2005 American Community Survey Indicates Growing Housing Cost Burdens for Lowest Income Households. [PDF] 2006. By Danilo Pelletiere and Keith Wardrop. Research Note #06-04. Washington, DC: National Low Income Housing Coalition.

[4] For more detail, see Opening the Door to Inclusionary Housing. [PDF] (no date). By Mary Anderson. Chicago, IL: Business and Professional People for the Public Interest, pp. 37-38.