Thinking about Inclusionary Zoning

Julia Vitullo-Martin, August 2004

Have housing advocates found the magic bullet that will produce affordable housing without overburdening taxpayers or enraging neighbors? Many think so. The land-use regulation called inclusionary zoning basically offers developers a deal: in exchange for supplying or rehabilitating some low- and moderate-income housing units a developer gets to put up a larger market-rate building than would be allowed under standard zoning. The rationale is that the profit of the additional space will subsidize the reduced rents on a few units. The term "inclusionary" was devised to contrast with the "exclusionary" impact of traditional zoning, which tends to exclude lower-income housing from upper-income areas.

Inclusionary zoning is thought to have worked successfully all over the country, including in strong urban markets like San Francisco, Chicago, and Boston. But is it the right answer for New York? Brooklyn Councilmember David Yassky, who represents the booming neighborhoods of Greenpoint-Williamsburg, regards inclusionary zoning so highly that he wants to make it a requirement of new construction on the rezoned waterfront.

A large coalition of community groups, the NYC Campaign for Inclusionary Zoning, is lobbying the city to adopt a model of mandatory inclusionary zoning in all neighborhoods slated for rezoning and redevelopment. In other words, any developer putting up a market-rate apartment building would have to supply a proportionate amount of affordable housing.

Making inclusionary zoning mandatory would be a huge mistake - not because the program is bad, but because it's untried in all but the wealthiest neighborhoods. Even in prime neighborhoods only some 600 affordable (and some 2400 market-rate) units have been built - an achievement, but an inconclusive one.

HOW INCLUSIONARY ZONING HAS WORKED SO FAR

While inclusionary zoning has been available under the New York City Zoning code since 1969, its early version didn't work well. The original programs, which ignored market-place conditions, failed to produce any affordable housing at all, according to Richard Barth, executive director of the Department of City Planning. In 1987 the city updated and improved its inclusionary program, notes Barth, producing a fair number of units quickly before the market collapsed. But the real action has been in the last few years, when over 20 high-rise rental buildings with an inclusionary bonus have gone up in Manhattan.

The program is limited to Manhattan’s high-density neighborhoods - those zoned R10, where buildings can be constructed as-of-right to about ten times the lot size. The program allows a developer to increase a building's floor area by up to 20 percent in exchange for building or rehabilitating a proportionate amount of affordable housing.

In practice, though, this is a new construction program. Almost no units have been rehabilitated. Further, it has unpredictable neighborhood consequences, both because the increased bulk can come as quite a shock to residents who think R10 is as bulky as buildings will get and because the affordable housing component can be built off-site. As Hope Cohen, chairperson of Community Board 7 on the West Side, notes, "The upside of the program is that it builds real, permanent affordable housing, though there’s always the question of how you define affordable. The downside is that it gives an automatic bonus for the allowable zoning district. This makes it hard to plan for the neighborhood, which can get buildings 20% denser than anyone thought."

While the developer can provide the affordable units on-site or off, most developers have chosen off-site, because the bonus is slightly better and the long-run hassles are far fewer. Developer Ron Moelis, a principal in L&M Equity, says "Bottom line: it’s a good program that works so long as you let the developer build the affordable component off-site. If the developer wants to build on-site, fine, but don’t force it." Off-site still means theoretically close by, either in the same community board or within a half-mile of the market-rate building.

But is this geographic restriction a efficient use of scarce affordable housing dollars? For every unit that gets built on the Upper East Side, many more could be built for the same amount of money in the outer boroughs.

WHY BUILD ON THE MOST EXPENSIVE LAND IN THE CITY?

Nonprofit developer William Rapfogel, executive director of the Met Council on Jewish Poverty, has been urging city officials for years to permit the below-market units to be built in areas with lower land costs. "Instead of forcing the developer to acquire a very expensive parcel of land on 61st Street," says Rapfogel, talking about a project his group did with developer Izak Senbahar, "that same project could be built in Brooklyn or Queens, producing four to five times the number of units we could build in Manhattan. If the goal is to create affordable housing, why not create more? Why build on the most expensive land in the city?"

Why indeed? The answer is a bit of weird planners' double-think. Inclusionary zoning is an heir to the old planning concept of mitigation, by which a development that benefits from upzoning must in turn pay to mitigate the effects of increased density on the public infrastructure. Thus a development that is going to pour hundreds of new commuters into a subway station might pay to upgrade and expand the station's capacity. The somewhat stretched idea of mitigation applied to below-market units is that the new development increases the value of neighboring property - causing rents to rise and lower-income people to be displaced. Therefore, says the Department of City Planning, the developer's mitigating response of building below-market units must occur in the same neighborhood as the damage.

Still, says Michael Slattery, senior vice president for research at the Real Estate Board of New York, inclusionary zoning "has worked for what it's intended to do, which is be a neighborhood mix program, helping to integrate low-income households into high-income neighborhoods." The geographic restrictions have limited the program's use, he argues, because land costs are simply too high in R10 areas to make the program financially worthwhile for any developers except those few who can generate high enough rents to offset the production of affordable housing.

RETHINKING THE CURRENT PROGRAM

Certainly the geographic restrictions should be rethought, perhaps broadened to the same borough or perhaps the same councilmanic district, but something larger than the community board. After all, the community board itself is an expansive construction for assessing mitigation. The boundaries of Community Board 7, for example, on Manhattan's West Side, extend from Cathedral Parkway (110th Street) on the north, Central Park West on the east, the Hudson River on the west, and Columbus Circle on the south. One result is an often substantial geographic distance between the building being given a bonus and the affordable housing being provided. Hope Cohen cites the example of a market-rate building near Lincoln Center whose affordable component was built on 108th Street.

City Planning could stick to its principles while still broadening the area of so-called impact. The point would be to give the program more space to show what it can do.

Similarly, why not extend inclusionary zoning to other high density zoning categories, R7, R8, and R9? Let's open it up and see what happens. Some planners think the lower density won't be able to pay for affordable housing, but that's what markets are for - to pass on this kind of information.

The Department of City Planning is right to resist making it mandatory, however. When transferred to less dense, less wealthy neighborhoods, the program is going to change substantially - and no one can predict the consequences accurately enough to justify this. And as Kathy Wylde, president of the Partnership for New York City, says, "Doing any kind of development requires maximum flexibility. If you take away the developer's flexibility, you're going to halt some housing, which we just don't want to do."

Even many of the coalition members say they do not want to stop housing development - they just want to make sure that neighborhood residents are accommodated. Brad Lander, Director of the Pratt Institute Center for Community and Environmental Development, says, "Everyone understands that you could clearly dampen development if you imposed a mandate that was too large and you drove land prices too low. I don’t think that’s going to happen because expanded inclusionary zoning will only work if the administration comes through with a compromise. This isn't something the City Council can do on its own."

WHAT’S NEXT

Councilmember Yassky's proposal is now in front of the City Planning Commission, which has held dozens of informal meetings with advocates and community groups but has not yet responded officially. The NYC Coalition's report arguing for a greatly expanded and mandatory program will be released in mid-September. While City Planning would like to see inclusionary zoning extended to new neighborhoods, such as Hudson Yards, it has proposed only a modest, 10% bonus program for the Brooklyn waterfront, which remains the major battle ground for development issues. City Planning hopes the Environmental Impact Statement on its Greenpoint-Williamsburg plan will be ready at the end of September or early October - which will trigger a new round of discussion and debate.