Blog Affordability

Inclusionary Zoning: Are Goals and Outcomes Aligned?

March 25, 2024

Inclusionary Zoning (IZ) is a policy that requires developers to set aside some of the new homes they build as income-restricted housing, affordable to renters or buyers who make less than a defined amount (typically determined as a percentage of Area Median Income, or AMI). It is often implemented as a “density bonus,” which pairs the affordability requirement with relaxed zoning rules that allow homebuilders to build larger buildings with more homes, on the assumption that the profits from the increase in market-rate homes will compensate for the losses on the below-market-rate homes.

Jacob Krimmel and Betty Wang’s paper Upzoning with Strings Attached: Evidence from Seattle’s Affordable Housing Mandate looks at Seattle’s Mandatory Housing Affordability (MHA) program, which paired a modest upzoning with mandatory inclusionary zoning in 33 “urban villages” around the city, to find out how it affected housing production in and around the upzoned areas.

Key Takeaways

  • The MHA program had no effect on overall housing production, but it did affect where housing got built.
  • Development activity shifted away from MHA-upzoned parcels and toward non-MHA parcels nearby in the same neighborhoods.
  • The overwhelming majority of developers chose to pay the in-lieu fee instead of setting aside actual apartments for low-income tenants.

In housing policy and scholarship, housing is considered “affordable” if residents can rent or own it for ~ 30 percent or less of their take-home income. People paying over 30 percent of their income for housing are considered “rent-burdened;” paying 50 percent or more of income for housing is considered “severely rent-burdened.” 

The MHA program was initially piloted in 6 neighborhoods before being expanded to a total of 33 neighborhoods covering roughly 11% of Seattle’s land in 2019. The program grants a modest expansion of buildable area—roughly one additional story—and imposes a mandatory affordability set-aside on all developments in the upzoned area, whether or not the project takes advantage of the additional allowed height or floor area. 

Developers have two choices to satisfy the inclusionary requirements: they can set aside apartments in their projects for low-income renters, or pay a fee, which goes into the city’s affordable housing fund. 

Notably, the MHA program does not apply to any single family zoned parcels.

Krimmel and Wang combine local permit data, rezoning maps, and census data to examine MHA’s effects. Specifically, they compare development activity in MHA-upzoned census blocks to activity nearby blocks that were not subject to the program.

They find that development declined in MHA areas, instead moving to nearby blocks that were not subject to the same affordability requirements: their “results are consistent with developers deciding first to build in a certain neighborhood and then strategically choosing to build on parcels in that neighborhood not subject to the MHA’s affordability requirements.” Further, 98% of developers who did build within the MHA area chose to pay the in-lieu fee instead of providing on-site affordable apartments.

These results suggest that the MHA program is poorly designed to maximize affordable housing production. The increase in allowable density is too modest to outweigh the added expense of providing on-site affordable units or paying the fee. Further, the fee was set too low to make it competitive with on-site affordability. As such, the program is mostly shifting development activity to nearby blocks not subject to the affordability requirements.