Many advocates of inclusionary zoning believe that it is essential that below-market homes be fully integrated with market-rate units in the same development. In many cases, however, inclusionary policies offer developers several alternatives to satisfying affordability requirements on-site.

Click on the links below to learn about decisions communities make regarding the location of affordable units: On-site or off-site - Does the entire inclusionary requirement need to be satisfied within the development, or do developers have the option to build some or all of the affordable units in another location? Fee in-lieu - Do developers have the option of paying a fee in-lieu of building their full inclusionary requirement?

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You are currently reading: Location of affordable units Other pages in this section: Circumstances that trigger inclusionary requirements Terms of the set-aside of affordable units Jump to: Incentives and Cost Offsets Mandatory inclusionary zoning policies frequently include provisions, such as density bonuses, designed to "offset" any foregone revenue associated with the inclusionary requirements. In a voluntary inclusionary zoning program, similar concessions are provided as incentives for participation. Other Considerations Few housing policies have generated as much attention and controversy as inclusionary zoning. Beyond the basic mechanics of the ordinance, there are other key issues that communities thinking about inclusionary zoning should consider. Click here to view more resources on inclusionary zoning.

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On-site or off-site

The decision of whether or not to allow inclusionary zoning requirements or incentives to be satisfied through the off-site construction of affordable housing units depends in part on the jurisdiction's principal goals in adopting an inclusionary zoning policy. To the extent the jurisdiction seeks to ensure that affordable housing units are spread throughout a community, or located in specific high-growth areas - such as within transit-oriented development within walking distance of public transit - it may choose to require on-site affordability.

However, to the extent a jurisdiction seeks to maximize the overall number of affordable housing opportunities, it may want to consider allowing affordability requirements to be met through off-site construction. In some cases, production of affordable housing units may be less expensive in off-site locations, increasing the number of units that can be built or reducing the amount of offsets the communities may need to provide. Allowing off-site construction also may lessen opposition to the ordinance among developers and land owners. Communities that permit off-site construction may wish to consider the amenities offered by the off-site location to ensure that the affordable housing opportunities are provided in opportunity-rich neighborhoods near public transit and/or jobs. Some places resolve these competing goals by increasing the set-aside for developers who choose to build new units off-site. In Boston, Massachusetts, for example, the inclusionary zoning set-aside increases from 10 to 15 percent when inclusionary requirements are satisfied off-site. In Sacramento, California, developers may fulfill inclusionary requirements off-site only if they are able to demonstrate that the off-site location is either more cost-efficient for production of the inclusionary zoning units, or offers greater transportation access or otherwise exceeds standards established by the City's residential planning criteria.

In some jurisdictions, market-rate developers are able to make onsite land available to a nonprofit developer who then assumes responsibility for developing the affordable homes needed to satisfy local inclusionary zoning requirements. In general, this approach makes it easier for developers to comply with affordability requirements by allowing all parties to specialize in what they do best: for-profit developers can focus on building conventional market-rate homes, while nonprofit developers that are familiar with affordable housing programs and financing build, and in some cases manage, the inclusionary units.

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Fee in-lieu

Rather than mandating the fulfillment of inclusionary zoning requirements through new construction, some communities allow developers to pay a fee in-lieu of construction of the affordable units. The fee is generally based on the cost of development, and may be determined by a formula or negotiated on a case-by-case basis. The revenue from fee payments is then used to facilitate construction of additional units for low- and moderate-income households or to achieve other affordable housing goals.

The option to pay a fee in-lieu provides greater flexibility, particularly for developers of small projects; however, in areas with high land costs, few buildable lots, or where the fee is set too low to allow new development, the trade-off may be fewer affordable units built. In response to these realities, some communities require proof that development of affordable units will create an insurmountable burden, economic or otherwise, before granting permission to pay a fee in-lieu.

A 2008 study, The Effects of Inclusionary Zoning on Local Housing Markets: Lessons from the San Francisco, Washington DC and Suburban Boston areas, conducted by the Furman Center for Real Estate and Urban Policy at New York University for the Center for Housing Policy, found that the adoption of more liberal rules for satisfying inclusionary requirements, such as allowing off-site construction, in-lieu fees, etc., was associated with the production of a greater number of affordable units. The study could not determine what caused this outcome, but one potential explanation is that developers felt more comfortable building in areas with these types of rules; another potential explanation is that the in-lieu fees were used to leverage other subsidies, such as the low-income housing tax credit. While this evidence is not definitive, it does suggest that such policies deserve serious consideration.

From the Forum... "What is the best way to set the level of fees in lieu of building inclusionary units?" See what other people said and sign in to add your response The HousingPolicy.org Forum is a place to pose questions, exchange ideas, and learn from the experience and expertise of others. This section of the site features interactive forums organized around policy areas, including inclusionary zoning.

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