Region Forward Blog

Adapting Inclusionary Zoning to a Changing Housing Market

Nov 6, 2012
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Cheryl Cort Policy Director Coalition for Smarter Growth

Inclusionary Zoning is a flexible and effective tool to provide affordable housing in the expensive metro Washington market according to speakers at a recent workshop at the Council of Governments (COG). On October 15 experts and advocates from area governments non-profits and the private sector convened to discuss area inclusionary zoning housing programs.

Inclusionary zoning or IZ requires that a certain percentage of units in a new residential development be set aside as affordable in exchange for a density bonus and/or zoning flexibility (for example giving developers the right to build more units or build taller buildings than normal zoning rules permit). The workshop was organized by COG the Coalition for Smarter Growth and the Northern Virginia Affordable Housing Alliance. The goal was to convene government practitioners and affordable housing supporters to discuss current challenges share best practices and identify issues for follow up work.

Fairfax Montgomery and Loudoun Counties have had IZ programs in place for three decades and collectively produced over 17000 units. Montgomery County alone has produced over 13000 MPDUs since 1976. However since the County’s program initially required the units to remain affordable for only a short amount of time just over 30 percent of these units are still affordable. Fairfax County has produced over 3400 units has a pipeline of nearly 1000 more and has retained all units in the program until now although some are due to expire soon. The District of Columbia has only recently started to see IZ units produced from its new program.

Participants tackled tough questions about how IZ programs are responding to a changing housing market and how they are coping with new constraints from the Federal Housing Administration (FHA) and commercial mortgage lenders. The workshop also discussed some of the key challenges in retaining units for long-term affordability while providing shared appreciation to homeowners. The difficulties of rising condo fees and high rise construction costs were also identified as major issues that IZ programs in the region are grappling with. D.C.’s approach of rolling the condo fee into the sales price is a newer model that will be tested as IZ units come online in the city.

Speakers noted that IZ programs continue to adapt and respond to challenges. One of the major conflicts in recent years involves the FHA not accepting certain provisions in IZ covenants on for-sale units such as allowing affordability requirements to survive foreclosure. The District will be proposing a more comprehensive approach to ensuring that their covenants conform with FHA requirements while using alternative ways of retaining affordability of the unit or recapturing the subsidy in the event of a foreclosure.

Dave Wilkinson of CityFirst Homes the District’s manager of a housing land trust noted that the FHA rules are difficult or impossible to change and working to avoid foreclosure through effective stewardship is a better approach to retaining units. He noted that foreclosure rates among housing trusts with stewardship programs are close to zero compared to 22 percent and 14 percent for programs with no stewardship. Other struggles with FHA financing were encountered and resolved by Montgomery County which worked for a year to obtain FHA’s agreement that its approaches to resale formulas capital improvement credits and enforcement actions conform to FHA standards. The county does not use a covenant that allows affordability of the unit to survive foreclosure but it retains a first right of refusal and could use its housing trust fund to purchase units.

Deborah Watson representing Bank of America explained that lenders can work smoothly with IZ programs by reviewing the provisions of the program as a whole and ensuring conformity with secondary mortgage institutions like Freddie Mac and Fannie Mae. Bank of America currently has a database of 400 approved IZ programs.

COG the Coalition for Smarter Growth and the Northern Virginia Affordable Housing Alliance will work with participants to convene a series of follow up meetings on specific topics identified during the event for further discussion and development of solutions. Topping the list is examining how construction costs IZ unit pricing and income targeting affect programs.

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