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Inclusionary zoning: Will Minneapolis see it this year?

MinnPost photo by Peter Callaghan
Some ordinances allow developers to pay fees in lieu of providing lower-rent units, with the money then used to provide affordable housing elsewhere in the city.

It was already the subject of a City Council ordinance (but no action) two years ago; it was an issue in the 2017 city elections; and it has already been adopted in hundreds of American cities, most recently Seattle and Portland.

The issue is inclusionary zoning, imposing rules that would require developers to set aside some units for affordable housing or offer incentives to get developers to participate voluntarily. And now, partly because of that 2017 election, it could be coming to Minneapolis sometime this year.

Council President Lisa Bender, who introduced an inclusionary zoning ordinance in 2015 as well as one two weeks ago, said the city has commissioned a consultant to look again at the economics of what’s been termed mixed-income housing. But Bender, who said the politics on the council have changed since she first introduced the issue, also said she thinks the council will strongly consider a mandatory affordable housing program downtown — and perhaps look at offering incentives in other parts of the city.

“I think the best … approach for Minneapolis is to do a policy that applies to the most developments possible and require a certain percentage of units to be affordable,” said Bender, who added that she thought any mandatory program would be phased in.

What is it?

The term “inclusionary zoning” is used to describe a variety of local measures that either require or encourage developers of larger residential buildings to make a certain percentage of the rental units in a project available to lower income people at less-than-market rents. Often, the number of units is set at 20 percent of new apartments, but some cities allow fewer units to be set aside depending on how low the rents are.

Some ordinances also allow developers to pay fees in lieu of providing lower-rent units, with the money then used to provide affordable housing elsewhere in the city.

Portland, for example, requires 20 percent of new units to be priced at 80 percent of the area’s median income or 10 percent of new units at 60 percent of the area’s median income. New buildings with fewer than 20 units are exempt from the law, and the projects that are subject to it get a 10-year tax exemption on the affordable units, lower parking requirements and density bonuses that allow more rentable space in buildings.

In Minneapolis, the Metropolitan Council has determined the area median income for a family of four to be $90,400, with 80 percent of that being $68,000 (based not on actual math but on how HUD  makes the calculation.) A two bedroom apartment, therefore, would have to rent at $1,627 to be considered affordable for that family. At 60 percent of area median income, that same apartment would have to cost $1,220.

Supporters of inclusionary zoning point to studies finding that policites have little impact on market rents. But other research has been less unequivocal, showing that there are vast differences in the breadth of ordinances — and vast differences in their impacts.

Did the city blow its moment?

Housing advocates have been calling for inclusionary zoning for a decade at least, worried that the city’s failure to act before the current rental housing construction boom represents a lost opportunity.

Russ Adams, the executive director of the Alliance for Metropolitan Stability, a Minneapolis nonprofit, said that there is still an opportunity to secure affordable units if the city acts soon. “It absolutely has potential to be one of the more important tools in the bundle,” Adams said. “The proof is in the design of the ordinance — the design and the reach and how they define affordability.”

Adams said cities, including Minneapolis, have been demanding of developers when their policies offer financial benefits. But the next step is to see how bold they can be when they’re not providing money, but rather land use alterations like variances or zoning changes.

“I feel they should have an equally strong program,” Adams said. Development activity is high right now, he said, and the council can take advantage of the desire to develop in certain neighborhoods.

“Some people would say they blew it, they missed the big expansion moment, and they should have had a policy 10 years ago,” Adams said. “Yes, they should have. But the opportunity still exists to get some decent numbers here. It won’t be the only solution to the affordable housing situation, but it would be a chance to leverage the private sector energy and commitment to investing in the city.”

It is legal?

So does state law even allow the city to create inclusionary zoning rules? Probably. A legal analysis by the Housing Justice Center presented to the city earlier this month looked at two state laws related to inclusionary zoning. One law allows cities to impose affordability requirements if a developer requests a “subdivision, planned unit development, site plan or other similar type action.”

The Housing Justice Center wrote that it thinks the last clause “appears to include virtually any request for discretionary city land use decision.”

The analysis also cites a 2007 state attorney general opinion that found that the statute authorizes cities to make affordability requirements of developers or require them to pay in-lieu-of fees.

But the second statute, which outlines the state’s ban on local rent control ordinances, could also come into play, since housing developers might argue that forcing building owners to charge below-market rents could be interpreted as a form of rent control.

Housing lawyers point out that the state affordable housing provisions were passed after the rent control law and should not be affected by it. Still, the rent control statute led the Housing Justice Center to suggest that Minneapolis tie any inclusionary zoning policies to discretionary city land use decisions “rather than simply imposing a mandatory policy.”

MinnPost photo by Peter Callaghan
Housing advocates have been calling for inclusionary zoning for a decade at least, worried that the city’s failure to act before the current rental housing construction boom represents a lost opportunity.

The rent control law, whether it could be applied to inclusionary zoning or not, is not a complete ban, however. It permits home rule cities such as Minneapolis to impose rent controls as long as those ordinance are approved by city voters in a general election. In other words, Minneapolis would likely have to first amend its charter to authorize rent control in one election, and then put the underlying issue before voters in a second election.

Bender said the city is examining the legal ramifications of inclusionary zoning, but said she doubts any measure that ties land use permissions to affordability elements would work in downtown Minneapolis, mostly because builders already have broad authority to develop there: If they don’t need height or density variances, there is little the city can offer in exchange for affordable units.

That is why she thinks the city will look at a mandatory policy rather than an incentive-driven one for downtown where variance or rezoning requests are common.

Unintended consequences

In Portland, where an inclusionary zoning ordinance was passed just over a year ago, developers rushed to the permit window prior to the effectiveness date. According to the City Observatory, pre-ordinance permit requests total nearly 19,000 units of housing, a three- to four-year supply.

In addition, the city has seen more requests than in the past for buildings of less than 20 units, which are exempt from the ordinance. In fact, between Feb. 1. — when the law went into effect — and September, there were no permit requests for buildings with more than 20 units. Since then, 12 projects with a total of 682 units have made application under the inclusionary housing ordinance, a slower pace than Portland has been experiencing since the Great Recession.

Portland Mayor Ted Wheeler has said he will offer changes next month to sweeten the deal for developers in hopes of getting some of those grandfathered projects to come in under the new program.

Kelly Doran is the founder and principal of Doran Companies, which has built 30 rental apartments in the Twin Cities and upper Midwest since 2007. The latest, done in conjuction with CSM Corporation, is The Expo, a 372-unit complex at the site of the former General Mills facility near St. Anthony Main that recently received city approvals. (Doran recently joined the board of MinnPost.)

The Expo will include 10 affordable units, but Doran opposes a city mandate.

“None of the solutions, including inclusionary zoning, are without other consequences, and there will be a push back on those kinds of policies that will not have a positive impact,” Doran said.

What’s more, because increasing interest rates are tightening the financing for new projects, he said, “all of a sudden margins between cost of money and return on costs start to shrink,” he said. “And you add to that the economic consequences of adding this inclusionary zoning requirement, these deals just won’t work. And they won’t get done.”

“I’m sure that goes in one ear and out the other at some political level, because they just don’t believe it,” Doran continued. “They believe the developer is just posturing. But it will not happen.”

“There’s nobody in the investment business or development business that says, ‘By God, I’ve gotta build in Minneapolis.’ You can build anywhere, and so they’re building in Minneapolis because it works there. … It’s a good city, a lot of really positive things. But at the end of the day, it’s all about the numbers.”

Doran said developers would build affordable units now if they could do so in a way that lets them earn a profit. “I don’t think there’s a developer out there that isn’t interested in being part of the solution,” he said. “We’re part of the society too, you know, and so we see these issues. Why would we not want to be part of the solution?”

For all the talk about affordable housing during the 2017 city election, Doran said there has been little conversation between the city and the development community about the issue. He said he and other developers have suggested to officials in both Minneapolis and St. Paul ways to provide for more affordable units without a requirement. They suggested simplifying land use rules so developers knew what they could build without the case-by-case negotiations that are common now.

For a site where a 100-unit building could be built, for example, a developer could build 120 with 20 being priced affordably. In return, the city would not require variances for the larger building; would waive permit and licensing fees and forgive property taxes on on the affordable units; and urge the Met Council to waive sewer and water connection fees.

Doran estimated that through such incentives, he could lower rents by between $400 and $700 a month. “And nobody really lost anything because those units wouldn’t have existed in the normal world,” Doran said. “If you didn’t do this, you wouldn’t have gotten those fees anyway, and you still got the fees on the hundred market rate units that you thought you were going to get on this site. So you’re really whole on what your expectations would be.”

Criticism of inclusionary zoning is not exclusive to developers. In 2016, Evan Roberts, an assistant professor of population studies and sociology at the University of Minnesota, wrote that inclusionary zoning shifts the costs of what should be a societal duty onto a relative few: developers and those who might pay higher rents in buildings that have affordable units.

“Why not … have the city capture some of the developers’ profits and some of the well-off residents’ income to finance a few units for people on lower income,” is how Roberts described the argument.

He called the politics “understandable if undesirable.”

“Inclusionary zoning is basically a tax on the construction of new market-rate housing,” Roberts wrote. “Proponents understandably don’t want to describe it as a tax, but a tax it is. Unless the city is funding the difference between a break-even and affordable price from general taxation, inclusionary zoning is a tax on new construction.”

“… the evidence is clear that inclusionary housing provides a tiny number of units relative to need, at best has no impact on overall housing prices while sometimes increasing them, discourages new construction, and come with significant administrative transaction costs,” he concludes.

Not every neighborhood can support mandate

A study by the consulting group Grounded Solutions Network conducted after the Minneapolis City Council first considered an inclusionary zoning ordinance in 2015 concluded that some areas of the city could support a requirement that new developments also include affordable housing units: downtown, Uptown and the University of Minnesota. 

But the study also found that “a single citywide affordable housing requirement with no offsetting incentives might not be the most effective policy. … Many communities with economic conditions similar to Minneapolis’ have developed mixed income housing policies that attempt to produce affordable units where market conditions permit without overburdening more sensitive projects or areas.”

In other words, neighborhoods with less demand for development might not be able to support the economics of setting aside units at lower-than-market rents. “That’s partly why this is a complex policy,” Bender said. “We don’t want to discourage housing development in parts of the city where the market is still recovering because we do have a low vacancy rate and need housing. But we know there are parts of the city that can support affordable units.

“In practice, I think the best approach for our city is to make affordable units mandatory in the strong markets,” Bender said.

Grounded Solutions has now been commissioned to expand on its initial study: to look at policy options for the City Council related to inclusionary zoning, including the use of incentives.

Council Member Jeremy Schroeder, chair of the council’s zoning and planning committee, said he expects that study to be returned by mid-spring, and expects to see recommendations from city staff on an ordinance later in the year.

“I’m excited that we’re looking at it,” said Schroeder, who was policy director of the Minnesota Housing Partnership before winning election in November. “We’ve been talking about inclusionary zoning for a long time. I see it as one tool. I don’t want to make it out to be more than it is. It has limitations. But this is one thing we’ve been talking about that we should do.”

Mayor Jacob Frey, who made affordable housing one of the centerpieces of his 2017 campaign, said he wanted to wait for the consultants’ report before committing to details. But he said he favors some sort of inclusionary zoning ordinance for the city. He has spoken about the need to fill the gap between market rents and rents that could be considered affordable at different income levels.

“I would be for an incentive-based system that links some form of incentive — whether it’s zoning, variance, conditional use permits — to affordable housing in areas where demand is high,” Frey said. “Whatever policy is implemented will not be a blunt instrument. I’m confident the council can move in that direction.

“The trick is to do something that’s helpful and not detrimental.”

Comments (18)

  1. Submitted by Ray Schoch on 02/19/2018 - 11:18 am.

    It won’t happen organically

    There are others, but I’ll just mention a few points worth addressing by those with the authority to do so:

    First, developers’ arguments against inclusionary zoning are not completely without merit, but they should not drive the conversation (or the ordinances that might result from that conversation). “The Market” is a useful mechanism in housing, but it’s not, and should not be, somehow sacred in this discussion. “The Market” has proven itself, almost on a daily basis, of being incapable of solving this problem, not just in the Twin Cities, but all across the country, in cities large and not-so-large. As an affordable housing solution, “The Market” is ineffective and provides no guidance.

    Second, the Twin Cities metro area is heavily segregated by both race and class. That segregation is **not** an accidental phenomenon. Without government action of some sort, that same pattern of segregation will continue. Some, those at the upper end, will view the segregation as a good thing, and will conveniently ignore both moral and constitutional arguments requiring fair and equitable treatment of all people. My bias is that economic segregation is just as pernicious and ugly as racial or ethnic segregation. A society that likes to claim its egalitarian origins needs to practice egalitarianism for the claim to be something other than laughable.

    Third, a developer’s job is to make money, not provide equitable or fair housing. Affordable housing wouldn’t even be a topic of conversation if the development community was eager to provide affordable housing on its own. The “equity” or “fair” part of fair or affordable housing has to come from government. If segregation is seen as undesirable – not a given in this area, I’d argue – and developers’ energy and attention is devoted primarily to profit (investors would reasonably insist that that be the case), “equity” or “fairness” may only come about through some form of coercion. That’s where some combination of ordinance and incentive (i.e., government) has to lead the way, sometimes by grabbing the ears of the development community and dragging it along against its will.

    • Submitted by Pat Terry on 02/19/2018 - 11:56 am.


      I agree with most of your comment, but would add that the “market” has long been hindered by (sometimes) unreasonable zoning restrictions and NIMBY resistance to new construction. If construction had matched the demand for housing, we wouldn’t have a lot of the problems we have today. The market isn’t going to build affordable housing on its own, but some of that problem is driven by an overall shortage of housing which has accumulated every year.

      I fear that this policy is going to actually reduce the amount of housing construction because – as you state – developers are in this to make money. If they can’t make money (and that’s hard with affordable housing) they just won’t build. That is what is happening in other cities that have done this.

      The incentives for developers affordable housing have to be in the form of carrots, not sticks. If people want to rail against evil, profit-driven developers, they can do that. But if the requirements for building make it impossible to turn a profit, they just won’t build.

      I think the counsel needs to sit down with Doran before they do anything.

    • Submitted by John Adams on 02/19/2018 - 03:26 pm.

      Constraints in providing low-priced housing

      This is a complicated topic from several points of view, and many commentators focus only on one or two elements of a multi-faceted situation. When I taught our “Housing Policy course” at the Humphrey School (and I have written a number of articles, books and reports on housing markets and housing problems facing cities) I approached it in two ways: (1) from the supply side; and (2) from the demand side.

      Both sides are complicated.

      On the SUPPLY SIDE, developers, redevelopers and builders are highly constrained in WHAT & HOW they can build (limited by housing codes, building codes, neighborhood sentiments, off-street parking requirements, and density rules, with no manufactured houses or mobile homes permitted, for example); WHERE they can build housing (limited by zoning laws); and SIZE of units that will be built – based on the economics of construction in which COST PER SQUARE FOOT OF LIVING SPACE rises geometrically with reduced unit size; with the reverse encouraging large units where the costs per square foot of living space drops fast as housing units become larger).

      Besides the size of the housing unit, the lot on which the house will be built comprises a major portion of the eventual price – and the price of building lots in the Twin Cities is high and getting higher, which is typical in metropolitan areas that are growing in population and expanding economically.

      I made several presentations to the board of the Builders Association of the Twin Cities (BATC), and from their responses I concluded that I understood well their business, whether they were merchant builders or custom builders.

      There are some additional matters that have constrained the supply of additions to the housing stock. I read something in the late 1980s (I cannot find the reference) that pointed out how the 1986 revision of the Internal Revenue Code reduced the profitability of building and owning apartment buildings. This revision led to a spate of conversion of rentals to condos and a reduction in construction of new rentals from what otherwise might have been built. There have also been laws passed in recent years that extend for a long time the liability (of construction “defects,” some of which can be attributed to inadequate maintenance of buildings by the condo associations) that builders of apartments and condos incur, which has curtailed new supplies of modest-price multiple unit housing.

      Finally, the 19th-century laws in Minnesota (and around the U.S.) that force local units of government (cities, counties, school districts) to rely excessively on property taxes for their support have contributed to a tendency for cities to “zone for revenue” (i.e., encourage land development that is expected to pay more taxes than it is likely to impose costs on the city; and vice-versa) and discourage the construction of lower-priced owner-occupied and rental housing, the placement of manufactured housing on small lots, and the use of mobile home parks.

      If cities and counties (and school districts) were financed differently from general revenues, the matter of housing supply would take a much different shape.

      There are more aspects of the SUPPLY side but the items listed above are the main ones.

      Now on the DEMAND SIDE we confront a different set of situations.

      I worked with the Center for Urban and Regional Affairs back in the 1970s and ran a project that examined cases where single elderly households (almost always women) were spending half or more of their income on housing. We investigated and one thing we discovered was the unwillingness of a number of these folks to share housing and reduce their housing outlay in that way.

      When we looked further into this phenomenon we discovered that many of the respondents were unwilling to share their kitchens, bathrooms, etc., with another. I asked my class whether this was a “housing problem” or a matter of people’s consumption “priorities”?

      The students also wanted to discuss the case of young people who don’t want to live with their parents, but can’t afford to live on their own in a manner that they find acceptable. What is the central problem here? Housing supply? Or an individual’s priorities?

      I proceeded to tell the students that I didn’t like the term “affordable housing” because it implied an argument and a set of criteria that did not agree with.

      In the late 1960s, the newly created U.S. Dept of Housing and Urban Development ran an experiment in a number of cities and rural areas titled “The Experimental Housing Allowance Program.” The idea was to identify low-income households who were living in squalid housing and give them cash to allow them to move to improved housing. What the study discovered was that a very large share of the households in the program spent the extra money on other stuff, like a more reliable car, which they valued more than better housing. This finding confounded the people running the experiment (and HUD officials as well). The people running the study had priorities that were much different from those of the low-income households.

      But the basic issue on the demand side of the housing matter is, “Why are there so many individuals and households who are poor?” We seem unable or unwilling to tackle this problem directly, and as a result focus on things like “housing affordability” which is a complicated and misleading way to address a symptom of a situation rather than going to the roots of the policy challenge.

      That’s why elected officials usually focus on “hardware solutions” (i.e., the SUPPLY SIDE in the case of housing) for certain social problems because they seem somehow more tractable and politically feasible. But as our post-WWII 50-year experiment with public housing taught us, building and operating public housing is exceptionally expensive, and many times it just doesn’t work for some households – even if it does work well for some.

      I read back in the 1960s or early 1970s in “The NYT” that in the City of New York it cost the city’s Public Housing Authority more to build and operate a unit of public housing than it would cost to buy a house in Queens and give it to a low-income household.

      There is more that could be said about why we build what we build and where we build it, but perhaps the principal features of new housing supply and market demand for it in the U.S. is that over the decades we built mainly large and expensive housing units on large lots because they have been a very good economic deal for the middle-and upper-middle-class households who have bought them for the following reason – the buyers get significantly more than they pay for by means of several significant housing subsidies:

      Ten Housing Subsidies to the buyers:

      >>Deductibility of mortgage-loan interest from taxable income.

      >>Deductibility of real estate taxes.

      >>Untaxed Capital gains on residential real estate sales.

      >>Pre-1980 banking regs that separated commercial banking (e.g., car loans; business inventory loans, etc.) from residential housing finance (e.g., savings banks like Farmers & Mechanics; savings & loan associations) in ways that lowered the cost of mortgage loans to home buyers;

      >>VA Mortgage Guarantee & FHA Mortgage Insurance Programs.

      >>Typical application of “average-cost pricing” of utility extensions into newly developing areas instead of charging “full marginal-cost pricing” using “development impact fees” levied on developers and passed on to new-home buyers).

      >>1986 IRS Code provision that permits borrowing on home equity for consumption with deductibility of incremental mortgage-loan interest.

      >>1986 IRS CODE provision that reduced tax benefits for builders & owners of rental housing, therefore expanding demand (and prices) for owner-occupied housing.

      >>For years Minnesota rental housing paid higher real estate tax than owner-occupied housing of the same value.

      >>Government subsidizes local roads and highways serving new areas rather than adding the extra costs to the new housing.


      >>> Bottom line: new housing on large suburban lots has been and continues to be a good deal economically for household buyers for all the reasons listed above, perhaps the most important being how the U.S. Treasury and the State of Minnesota pay a good share of the new-housing cost to the purchaser – and newer housing on the edge usually appreciates faster than older housing closer in.

      • Submitted by Pat Terry on 02/19/2018 - 05:15 pm.


        The council should probably sit down with this guy too.

      • Submitted by Victoria Wilson on 02/19/2018 - 06:39 pm.

        Every individual is best at determining their own priorities

        “What the study discovered was that a very large share of the households in the program spent the extra money on other stuff, like a more reliable car, which they valued more than better housing. This finding confounded the people running the experiment (and HUD officials as well). The people running the study had priorities that were much different from those of the low-income households.”

        Every person, whether wealthy, middle class or poor makes housing decisions amongst tradeoffs; and each one of us is best at judging how their benefits suit our lives. The participants in the above study did not judge their housing to be inadequate when faced with other priorities. Yet here we find ourselves again with a 60% of an 80% of some median being used to determine the housing inadequacy of one or more data points in a large data base.

        When you tinker with the pricing structure that is compiled by hundreds and thousands of consumer choices, you may for instance discourage said data point from ever buying a house as their rental is a step or two nicer than a place they could afford to purchase. Or maybe the wise % of a % is a bit too low to enable said data point to accept a promotion thus making them no longer eligible to be vulnerable, even if eventually eligible for self-sufficiency. Or maybe choices change as life changes and a below market living situation keeps the data point away from a school that would much better suit their children’s needs.

        Subsidies tied to a building only provide one combination of public services, whereas people, not data points, are best served by the ability to access some combination of features that best serve their unique situation. Subsidies tied to a building create an disproportionate burden of housing help on one small plot, and hence a weaker support system overall. Subsidies tied to new development will without a doubt decrease the creation of new housing.

        Let the builders and developers build the houses that will use the roads and infrastructure that we’ve built and paid for in our expanding metropolitan areas. We need the houses; we encourage density. More inventory will only alleviate prices for everyone.

  2. Submitted by Jeff Klein on 02/19/2018 - 12:22 pm.

    The politics of IZ are so bizarre.

    Effectively what it does is put the entire burden of affordable housing subsidy on a handful of new residents. This is politically easy because those new residents don’t live here yet, and have no voice, and also because the policy is perceived as being tough on evil capitalist developers.

    The irony is that long time home owners – the same “progressive” Minneapolitans who fight development under the auspices that it’s not sufficiently affordable, and with the support of the city’s most “progressive” politicians – have made huge returns on their home investments.

    If we were serious about funding affordable housing, we would levy a tiny tax on home capital gains. This would have the potential to fund many times over more units than IZ. What’s particularly unfortunate is that Lisa Bender, who has been so smart on transit and land use issues, is backing this after we’ve seen it crash and burn in Portland. If evidence isn’t enough, I don’t know what is.

  3. Submitted by Janet O'Brien on 02/19/2018 - 01:35 pm.

    What can we learn from Cedar Square West?

    When the highrises at Cedar Square West, now Riverside Plaza, were built in 1973 it was called “A New Town In Town” and it was intended to house people of all economic levels. What went wrong there and what can we learn from it because somehow that didn’t work out.

    • Submitted by Pat Terry on 02/19/2018 - 03:14 pm.

      What didn’t work out?

      Sure, it doesn’t house people of “all economic levels.” But it provides a lot of affordable housing, much of it for new immigrants. .

      • Submitted by Janet O'Brien on 02/19/2018 - 06:59 pm.

        The original developer went belly up when the unsubsidized tenants moved out so I guess it didn’t work out for him.

    • Submitted by Janet O'Brien on 02/24/2018 - 10:21 am.

      Nothing went wrong?

      There was a low income component to Cedar Square from the start but it ultimately consumed the place. And yes it sold … out of bankruptcy. You think developers today want to follow this example?

  4. Submitted by Tram Hoang on 02/21/2018 - 09:45 am.

    Lessons from a Peer City

    Getting inclusionary zoning passed in Portland provides some lessons for Minneapolis. I lived there when the debate started, and watched the public testimonies at City Hall. Lots of angry developers with the same empty threats: “we don’t have to build here, we can build somewhere else”…”doing this will make us produce even less affordable units than before”. Well, they rarely built affordable units before anyways, and there are plenty of developers around the country (from Massachusetts, Maryland, California, and Seattle, etc.) who are ready to step up to the plate and develop within the constraints of IZ, including some developers in Portland. Looking forward to the conversations around this topic in Minneapolis and other cities in the region – yet another issue in which community voices can easily drown out developers’ concerns about profit.

    • Submitted by Pat Terry on 02/23/2018 - 02:35 pm.

      Lesson from Portland

      Yes, the lesson from Portland is that exclusionary zoning is a terrible, terrible idea.

      The threats aren’t empty – the building proposals are way down. Your claim that developers are willing to step up within the constraints of IZ is simply false. You reference “developers’ concerns about profit” like its something extraneous to the discussion. Profit is why developers build. If you make profit difficult, if not impossible, with things like IZ, construction will stop.

  5. Submitted by Russ Adams on 02/21/2018 - 03:36 pm.

    St. Louis Park’s Incluisionary Housing experience

    Minneapolis is not alone in reexamining it’s housing policies, investments and practices. Many suburbs in Hennepin County have been revisiting the issue in the wake of a surge in apartment sales and conversions. In many cases, Inclusionary Zoning (or call it Inclusionary Housing if you’d like) is being considered not as the panacea for what ails the affordable housing markets, but as one tool in the bundle of strategies that cities must deploy to plan for the housing needs of current and future citizens.

    And the experience across the country and locally is that it works: you can leverage the private sector to build some of the units needed for your community (not all of the units, but a significant number that helps people access stable housing and economic opportunity with limited public subsidies).

    Take St. Louis Park, for example. It passed an Inclusionary Housing Policy in June of 2015. It required developers receiving financial assistance from the city to build a certain percentage of below market rental units in exchange for the city’s help. There were goals for rental and ownership units.

    Interestingly, after 16 months of the policy in operation, city council members asked staff to report back to them on progress made and what tweaks should be considered.

    The staff studied the issue for several months, then reported that since the policy had been in place (at this point, for a mere 22 months), 294 units of affordable rental housing had been built in St. Louis Park or were awaiting city council approval. The staff also recommended increasing the goals required of the developers, which the city council agreed to. Now either 15% of units in a rental development will be affordable at 60% of the AMI; or 10% must be affordable at 50% AMI. [see background paragraphs, below, for original goals, plus a breakdown of the affordability targets].

    The city set the following housing goals in their original IH policy for rental units:
    – At least 10% of units would be affordable at 60% of the Area Median Income (affordable for a family of four that made just over $54,000 in 2017; paying a maximum rent of $1,356), or
    – At least 8% of the units would be affordable at 50% of the AMI (family of four that made just over $45,000 in 2017, and paid no more then $1,130 in monthly rent). For an individual, the income level at 50% AMI is about $31,000, or roughly a $15/hour wage.

    I believe there are still no goals for asking private developers to build at deeper subsidies in St. Louis Park, such as 30% of the AMI, which is unfortunate because that’s where the greatest need is (individuals making a minimum wage of about $9.50/hour; people with disabilities, seniors on fixed income, families utilizing Section 8 vouchers, etc.), so there clearly is room for improvements.

    A 30% goal is important because the Met Council projects a need of 229 units at or below 30% of the AMI for St. Louis Park in the future (2021-2030).

    • Submitted by Pat Terry on 02/23/2018 - 02:44 pm.


      “And the experience across the country and locally is that it works”

      Actually, in a number of places it doesn’t work and is counter-productive. But whether or not it works really depends on what you mean by inclusionary zoning

      The St. Louis Park example you give involves projects getting financial assistance. And where you are using a carrot, it can work – giving developers a subsidy to include affordable units. But when you are just using a stick – mandating inclusionary zoning across the board without financial assistance, it will end up limiting construction. When IZ went into effect in Portland, the building projects just stopped. Developers won’t build if they can’t make a profit. And if IZ becomes just another obstacle (like other zoning requirements) it will make the housing problem worse.

      • Submitted by Russ Adams on 02/25/2018 - 08:38 pm.

        Success, Actually

        The Moderately Priced Dwelling Unit (MPDU) program of Montgomery County, Maryland was a mandatory policy – it leveraged approximately 12,500 over a 40 year period. The county reserved the right to purchase 40% of the MPDU units in order to preserve their long term affordability.

        It’s one tool in the tool belt, and it works. It’s not the only strategy, but it is one that consistently gets results. Since the MPDU program was passed in 1974, over 400 cities, towns and counties have implemented inclusionary zoning programs.

  6. Submitted by Paul Udstrand on 02/22/2018 - 09:35 am.

    That “median” is obviously too high

    That “median” of $90k is inflated. It may be a median of ALL family incomes, i.e. calculated with a sample of the full range of income from millions to zero in the country or metro area, but it’s not a realistic median, and 80% of it is nowhere near “affordable”. For instance two adults working full time for minimum wages of $7.87 or $9.50 an hour make around $35k – $49k a year, before taxes. That’s nearly half the so-called “affordable” income level of $68k calculated here.

    Not to have too much fun with numbers but that $90k is a whack place to start. Looking at the SLP figures it looks like they get closer, but 28% of our minimum wage couples annual income would give them $816 – $1,100 a month for rent.

    At any rate, statistically a realistic median would not be a calculation using the entire range of incomes in the County. What you want is a median that represents the majority clustered around mid-range, or the fifth or sixth decile and below. So in Minnesota for instance you would start with ceiling of around $74k and calculate the median from there. That would probably give you a median of around $40k instead of $90k which yields an affordable rent for most people in the county of around $900 a month.

    You have to remember that we’ve had extensive data for decades now that American’s are devoting on average 50% or more of their incomes to basic housing, which is well above recommended expenditures. This is why American’s don’t save and we have a looming retirement crises. In the real world of real estate housing prices have little or nothing to do with affordability calculations regardless of income.

  7. Submitted by Peggy Reinhardt on 02/25/2018 - 10:08 am.

    Great read and insights – article plus comments

    Inclusionary zoning/housing focuses on developers of 20 units or more. Surely there is a need to look at those non-homesteaded properties – what incentives do those owners have to maintain affordable rents?

    Why does the city of Minneapolis need to use 7-county median income levels set by the Met Council? I understand the median income in Minneapolis is about $10,000/year less so the need for affordable housing is even greater.

    The Minneapolis Health Department published a report in October called Cost-burdened Households by Neighborhood, i.e., households spend more than 30% of income on rent or mortgage payments. In 16 of 84 neighborhoods, the majority of households are cost-burdened. What incentives are there for developers in those neighborhoods?

    One more thing: I haven’t read about housing for seniors being developed. Many older homeowners wish to continue to live in their neighborhoods, but few affordable places exist nearby so that they can move out, allowing families to move into their houses.

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