Inclusionary Zoning Didn’t Ruin the World

April 22, 2008 11:25 am

Seriously, it didn’t! It has some flaws that need fixing, but all the dire predictions don’t seem to be true.

Last week we received a staff report with data about what is going on in the approval, building permit world. The program has been in existence since February 2004. Here’s some of the stats of interest:

58 projects have been approved which required Inclusionary Zoning
Those projects included 6,023 units
Of those projects 70% were owner-occupied, 18% were rental. (I presume the other 2% were the life leases.)
695 of the 6,023 units were affordable or 11.5%
740 or 12% of the projects approved are future projects that are multi-family but the tenure (rental or owner) has not yet been determined.
An average of 174 affordable units were approved per year.
Several approved projects are unlikely to move forward. These projects in 702 units, 107 of which would have been affordable at 800 E Washington, Starkweather Square plat, Hilldale Condominiums (now hotel), and Churchill Crossing.
184 of the affordable units “bumped out” of the program because they were “marketed” for 240 days.
So, of the 695 approved projects, only 418 or 60% remain in the program after removing projects likely not to be built and those that “bumped out”.
During the first 2.5 years, 53 of the 58 projects were approved. That was 611, or 88%, of the affordable units. This was before fixing the equity model and narrowing the marketing loophole as well as creating the complicated “offsets” program in July 2006.
Only 5 projects have been approved under the new and improved ordinance.
The 5 new projects have 628 units of which 13.4% or 84 units are affordable. One other project with 350 units has not determined its tenure.
During this same time, 4 other SIP (Specific Implementation Plans) were approved but are exempt from the ordinance because the GDP (General Development Plan) were approved prior to the Inclusionary Zoning Ordinance being passed in February 2004.
Of the 695 total affordable units, 306 have moved forward to final approval for construction and were available for purchase. That’s 44% of the units.
184, or 60%, “bumped out” due to the “marketing”.
Of the remaining 122 potential units, 41 have accepted offers to purchase as of December 2007 and 18 are occupied.

The conclusion of the staff report has the following comments:

Unfortunately, a few provisions in the original ordinance which allowed units to be marketed far in advance of when the units were actually available for occupancy and which did not require adequate marketing for sale of units, as well as the equity sharing formula resulted in many of the affordable units being rolled out of the program.
In July of 2006, comprehensive amendments to the original ordinance were adopted by the Common Council. These amendments replaced the incentive point system with a “revenue off-set system”. (The incentive point system was also widely criticized by builders and developers as being confusing and unworkable.)
Ordinance revisions regarding the marketability and complex equity-sharing formula were proposed 15 months after the original ordinance was adopted, based on poor buyer response to the complex formula and the easy roll-out provisions . . . After the Council adopted the new equity formula (pro-rated share times the value, minus 5% bonus for the buyer to accommodate improvements) the program experienced more buyer interest and sales.
Staff believe that there continues to be a flaw in the current program: open marketing of the inclusionary zoning affordable units in a manner that represents the interests of the target buyer population. This is partially a structural problem and professional practice issue in general real estate brokerage industry itself. Buyer-brokers who serve the buyer are paid through a commission shared with the seller’s broker, or through a fee paid to the buyer. In the inclusionary zoning situation where the purchase price is fixed, the developer/builder can refuse to split the commission with the buy-broker (as some have), and the buyer must either pay his/her broker out of pocket, or find another home. Since inclusionary zoning target buyers generally have fewer discretionary resources and developers/builders price the inclusionary zoning units at the maximum sales price level, the inclusionary zoning buyers have less flexibility within the housing market to hire a buyer-broker and thus depend heavily on the developer’s agent for guidance with inclusionary zoning.
The City adopted the original Inclusionary Zoning Ordinance during an up market and has administered it during one of the weakest markets in decades. Since Dane County housing market appears to have experienced the same increases and decreases during the same period, it would appear that the ordinance did not generate the kind of adverse market impact that some predicted would upon adoption of the original ordinance. Instead, growth continued, with increases and declines in approximately the same pattern, reflecting more macro-economic forces than the ordinance itself.
The City is seeing the first affordable units occupied by income-eligible households with 18 units now occupied and another 41 units with accepted offers to purchase. The revised ordinance has been in place for 1 – 1.5 years. Unfortunately, the downturn in the housing market has resulted in only a few projects being approved. This is combined with the fact that some projects approved have a long lead time from approval to actual construction of individual units. As a result, very few units have been marketed under the new ordinance.
Staff have heard that a number of developer/builders are currently waiting to see what will happen with the current Inclusionary Zoning Ordinance given that the potential sunset date of Jan 2, 2009 is rapidly approaching. Given that the housing market has slowed, there is a larger inventory of exiting losts to build on which, in turn, means that some builders/developers can work off of this existing inventory before deciding whether to proceed with new residential development projects in 2008 or to wait until 2009. Because of the very small number of projects approved under the July 2006 revisions to the Inclusionary Zoning Ordinance, and the very small number of units actually being marketed under the new ordinance, it is difficult to evaluate the effectiveness of the ordinance revisions at the present time.

The report, which I don’t have electronically and isn’t available on line, has several tables and other information of interest as follows:

53 projects with 5,042 units of which 611 were affordable were passed Feb 2004 – July 2006. However, only 5 projects with 980 units of which 84 are affordable were passed July 2006 – Dec 2007.
2,523 units were exempt because they were Conditional Uses or Specific Implementation Plans

863 units were approved since the ordinance passed in Feb 2004 that were exempt because they were approved as conditional uses.
1,660 units were approved since the ordinance passed in Feb 2004 that were exempt because they were approved as General Development Plans prior to the ordinance passing, but had to come back for Specific Implementation Plans.

Approximately one-half of the projects with inclusionary dwelling units have been located on the periphery of the City with the other one-half being located in redevelopment projects in the dowtown and built-up areas of the city.
The 18 occupied units are distributed as follows:

6 on the near east side
5 on the north side
3 on the near west side
2 central area
2 southwest side

1990 – 2003 41% (Average of 1,556 units per year) of the units built in Dane County were inside the City of Madison. 2004 – 2006 42.8% (Average of 1,807 units per year)of the units built in Dane County were inside the City of Madison.

There is likely more of interest in the report and hopefully it will be available electronically soon.