Establish Inclusionary Zoning Requirements or Incentives

Much like inclusionary zoning, incentive zoning policies enable local governments to provide density bonuses and other incentives to developers, in exchange for the delivery of specific public benefits and amenities. When used to stimulate affordable housing, incentive zoning looks a lot like a voluntary inclusionary housing policy. However, incentive zoning can also be used to stimulate a broad range of other outcomes, including the creation of walkways, parks and other open space, the inclusion of street-level retail in new development and the creation of new child care facilities. Generally voluntary in nature, incentive zoning also applies to a wider range of building types (residential, commercial, office, etc.) than inclusionary zoning.

By combining incentives for affordable housing with incentives for building higher density housing near public transit and preserved open space, incentive zoning can also address a broad agenda that aims to reduce energy usage and emissions of greenhouse gases and promote smart growth land use patterns.

When designing their incentive zoning policies, communities may choose to establish an as-of-right — that is, codified — bonus schedule, or to negotiate agreements on a case-by-case basis. As-of-right systems enumerate specific amenities and the corresponding bonuses provided, introducing greater predictability and helping local governments avoid charges of unequal treatment. In contrast, discretionary implementation of incentive zoning policies allows customized benefits packages to be developed for each project, but may be more costly and time-consuming to execute. In practice, local governments typically administer incentive zoning policies through some combination of these two approaches. [1]

Click on the links below to learn more about:

Or read a case study of Seattle’s Downtown Incentive Zoning programs.

Common Amenities Sought through Incentive Zoning

The first incentive zoning policy was adopted in Chicago in 1957. Chicago’s bonus system focused on attracting developers of high-rise office buildings to the city by offering density bonuses in exchange for the inclusion of public plazas and pedestrian walkways. New York City’s program, initiated several years later, had the dual goals of promoting street-level retail and walkways, and preserving the character of theatre districts and other special neighborhoods. Today, incentive zoning programs are used to achieve a variety of development goals including, but not limited to:

– Affordable housing

– Child care facilities

– Improved transit access

Linkage Fees

Incentive zoning policies represent one approach to using non-residential development to stimulate the provision of other amenities such as affordable homes. However, communities also use linkage fees for this purpose.

Levied on the developers of new commercial, industrial or retail properties, linkage fees are based on the assumption that economic development and job growth will increase the demand for housing, driving up housing prices. Payments usually vary in amount based on the locality and project type, and typically are assessed on a per-square-foot basis.

Linkage fee payments may be deposited into a local housing trust fund and used to help offset related housing impacts of the development and provide opportunities for low- and moderate-income families to live near their work.

– Parks and other open space

– Pedestrian plazas and walkways

– Preservation of historic buildings and historic and/or cultural districts

– Street-level retail

– Streetscape improvements (fountains, public art)

– Other design features and development types, including transit-oriented and mixed-use development

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Common Bonuses Included in Incentive Zoning Policies

Incentive zoning policies need to be carefully designed to ensure that bonuses offer a pay-off large enough to encourage developer participation, without spending more public resources than needed to achieve the target outcome. Communities should also consider whether incentive zoning is the most appropriate means for securing the desired amenity. In some cases, it may make more sense to require, rather than incentivize, specific design features through zoning ordinances and other regulatory mechanisms. In other cases, it may be more efficient for the local government to provide the desired amenities directly. [2]

Where incentive zoning policies have been adopted, incentives most commonly include density bonuses that allow developers to build at a higher density than would have been allowed by the underlying zoning code. Other bonuses, many of which are described in greater detail elsewhere on HousingPolicy.org, include:

– Builder’s remedy

– Expedited permitting processes and fee waivers

– Reduced parking requirements

Reduced set-backs

Tax abatements

– Transfer of development rights

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Legal Issues Associated with Incentive Zoning

As with inclusionary zoning, states generally must pass enabling legislation that authorizes communities to adopt incentive zoning policies before such policies are considered valid. (Learn more about enabling legislation.) Local jurisdictions may also be required to perform a nexus study´┐Ż to justify the relationship between the public benefits requested of developers and the impact the new development will have on the community.

Incentive zoning policies have been met with some criticism, particularly in cases where they are perceived to offer “give-aways” to developers or, on the flip-side, provide insufficient compensation for desired allowances. Overall, however, incentive zoning has drawn fewer legal challenges than inclusionary zoning programs, perhaps because participation is always voluntary (rather than mandatory). Because market conditions and community needs change, regular re-evaluation of desired amenities covered by the policy, as well as the bonuses available to developers that provide those amenities, them can help to ensure that the policy will reflect the city’s development goals and changing market conditions, leading to the desired results.

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[1] Incentive Zoning: Meeting Urban Design and Affordable Housing Objectives. 2000. By Marya Morris. Planning Advisory Service Report Number 494. Washington, DC: American Planning Association.

[2] See Incentive Zoning: Meeting Urban Design and Affordable Housing Objectives, p. 9 for more on “the necessity issue.”

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