Inclusionary zoning( IZ) efforts completely depend entirely upon getting the incentives right. Otherwise nothing gets built. Greater housing choice and affordability do not happen by decree or assertion. There is actual math involved. Developers will have to do that math, so I figure it is only reasonable for the elected officials who vote in IZ requirements should do the math as well. IZ incentives typically include things like;

• An additional story in building height above what the base zoning allows.

• A density bonus; more dwelling units than the baseline zoning allows.

• A waiver of impact fees on the affordable units.

• A partial or total abatement on the property taxes on the affordable units for a specific period.

If there is still a dumb zoning provisions on the books like excessive suburban setbacks, or minimum off-street parking requirements, granting a density bonus that cannot be built without going from surface parking to much more expensive underground or structured parking (raising construction cost, increasing operating expenses and raising rents.)

If your town currently has a really lousy baseline zoning code, low density, high off-street parking requirement, the density bonuses and partial parking reductions may not be enough to make a project pencil under an IZ approach.

If the density bonus can only be used by stepping up the design of the building to a more expensive building type, say from a three story wood frame walk up building with a single stair to a four story building with two exit stairs and an elevator, the cost of the building may no longer be supported by the likely rents. Depending upon the specifics of the project, a density bonus can easily take you one step forward and two steps back on building cost.

I have seen a number of well intentioned and politically popular Inclusionary Zoning efforts turn into the delivery of very few units. These measures can be politically popular because of the magic thinking people are able to do if they don't have to actually look at the math. IZ feels like affordability can be manifested by making the developer do it. Forcing the developer to do something under duress, without looking at the math can a popular, but ineffective approach.

If the developer has to deliver affordable units under duress or pay an in-lieu fee, what happens? The in-lieu fee or cost of the affordable units whose rents cannot support the cost of building a new apartment and managing it gets born by the rest of the project.

If the market rate units have to internally subsidize the affordable units while still providing a return on capital for the developers investors, the rents on the market rent units are going to have to be increased. This can squeeze out the middle income units. —An unfortunate, if unintended consequence.

Some developers just pay the in-lieu fee and build more expensive units because they don't want the risk and the brain damage of keeping affordable units in compliance for an extended period.

The theory behind IZ is that if the economic burden of delivering affordable units is shared across every project above threshold number of units, eventually the people selling land that allows for denser development will have to reduce their sales price. The reasoning is that what a developer pays for land is supposed to be a residual cost (as in all the other costs come off the top and what is left over, the residual is the amount available for the land purchase. The problem with this economic theory is that land owners holding property zoned for dense development have very low holding costs and almost no property taxes to worry about. Let the other guy take a lower price for their land. I will sit on my sites and speculate that next year the number will be better. Land speculators are not real estate economists.

So here’s the deal. If you think IZ is a good and necessary policy, you have to be rigorous about the implementation. Do. The. Math.

Sit down and model actual projects to see if the project still pencils under the combination of required affordable units and incentive. If there is nobody on the planning staff who can perform the Dark Arts of basic developer math, contact someone like Neil Heller at Neighborhood Workshop.

https://www.neighborhoodworkshop.org/

Work it out on paper first….

How do I know what I can build/rebuild on a particular site?

Before you get too far analyzing a particular piece of property, you should get a handle on the likely market for what could be built and the likely costs delivering the completed project in the neighborhood. What are folks paying in rent near the site you are looking at? As a starting point/rule of thumb the rule of 100 will get you a rough idea. It works like this.

$1 in monthly rent will typically support $100 in Total Project Costs. So if a one bedroom apartment in the area of the site your are interested in rents for $1,000, you can’t spend more than $100,000 creating that apartment, land, soft costs, hard costs, everything. Total Project Costs. Yes, that is an oversimplification, but it is a decent starting point. You can start looking at the rough hard cost (direct construction costs) per SF, figure 25% of that number for soft costs (engineering, Architecture, financing, legal, CPA, developer’s fee), and the price that similar vacant properties have sold for. You will put together more detailed estimates and budgets for all your costs down the line, but you need to start with a working theory of how the building can make money.

Rents of $1,000 for a one bedroom x $100 = Total Project Cost of $100,000.

• Hard Cost per unit of $70,000 per unit.

• Soft Cost of $18,000 per unit.

• leaving the land cost (always a residual number) of $12,000 per unit.

Note: $70,000 in Hard Costs divided by the typical construction cost for new wood frame construction in the area at $135 per SF means one bedroom units at around 500 SF and stairways and common area must be kept to a minimum.

Now what about the zoning? You first look at the local zoning code can be daunting. “What can I build here?” seems like a straightforward question. The answer you get after spending half an hour paging through the local zoning code is going to be “well, that depends.”

Start off by identifying what the particular zoning category applies to the property you are considering. Let’s say that category is “R-5” which according to the naming habits of this particular zoning code stands for Residential 5,000 SF minimum lot size. Now go the the Use Table, (often titled “Allowed Uses”) to see if what you want to build and how you want to use the building is allowed in the R-5 Zone. There will typically be a table with a very long list of every conceivable thing you could use a property for (from shoe repair to landfill) running down the left side of the table and the various Zoning Categories running across the top of the table.

Annotate this graphic template with the particular information you find in the zoning code.

Zoning Code Graphic Template

Go the the section of the zoning code specific to the zoning category that applies to the site. That is where you will typically find most of the information shown on this graphic template. As you start to find the answers to the puzzle of “what can I build?” note them on the template. Each zoning code will have a minimum lot area measured in acres or in square feet (SF). There will also be a minimum lot width. It your potential site is big enough and wide enough, then look at the required setbacks. A setback is the minimum distance you have to set back your building from the front, rear, or side property line. Once you know what the setbacks are you can show them on a scale drawing of the property.

Draw the setbacks all the way around the property to create a box inside the property boundaries. Your building(s) will need to fit within that box. Check your zoning code section for limitations on how much of the property you can cover with buildings, or with buildings and driveways, walkways, patios, etc.

Figure out how much parking you will be required to build on the property. The minimum off-street parking requirement is often found in a section on parking that applies to all the zoning categories. You may have to hunt for parking in the table of contents.

This would be a good time to read the Definitions section of the zoning code. The definitions section is where one town’s zoning code may vary significantly from another town’s ordinance. This is where you will find how you are required to measure the height of a building, whether or not you can encroach into the front or side setback with a porch, or perhaps if you are allowed to build a driveway or parking within a setback. Read the section twice. Return to your specific zoning category and read it one more time to annotate your template with the requirements. The result should look something like this:

Download PDF Template Here

IncDev folks in a familiar setting, (a bar after one of Invest Atlanta’s Community Builder classes).

I have been getting a fair number of inquiries about recent changes at IncDev, so this is probably as good a time as any to put up a blog post on the topic. The Incremental Development Alliance was started back in 2015 as an educational nonprofit dedicated to teaching folks how to do small scale incremental development projects in their neighborhood. The expressed goal at the time was to cultivate 1,000 new developers who could do the modest scale projects their communities need.

Over the past 6 years, IncDev faculty, staff, and board members created and refined a curriculum for seminars and for two day boot camps. We traveled all over the US delivering the the workshops, seminars, and boot camps. In 2020 we ended travel and in person training and worked with folks in virtual session on Zoom.

Starting a non-profit while holding down a day job is tough. It certainly has been an adventure. A healthy organization has to be focused upon its mission and the people who do the work and guide the organization should support that mission. The founding members of IncDev, Gracen Johnson, Jim Kumon, Monte Anderson, and myself, have all moved on, one at at time to focus upon other work. I think that is a sign of a healthy nonprofit.

A national nonprofit doing important work should stay well clear of becoming a cult of personality. (That can be a challenge because everyone involved in the early days of IncDev has a pretty big personality and strong opinions).

The IncDev board will be selecting a new Executive Director soon. The pool of applicants was genuinely impressive. I think that either one of the two final candidates will do an excellent job leading the organization. (seriously).

As me, I need to stay close to home for a host of reasons. I am focusing on our local projects and helping to build a local small developer cohort here in the Atlanta Region. I think that there is plenty of room for improving the collaboration between small developers after they get some initial training. The Atlanta crew is serious about building a local support system which could be useful to folks in other parts of the country. I enjoy the teaching and coaching work and engaging at this local scale feels like the right thing.