Considerations for Density Bonus Ordinances

Problem

As state budgets continue to tighten and demand for federal affordable housing resources increase, local governments with an interest in producing housing for low- and moderate-income residents have begun to explore regulatory incentives that encourage the private sector to play a greater role in the development process. To that end, many communities are contemplating the enactment of density bonus or inclusionary zoning ordinances. Density bonus ordinances permit developers to increase the number of units allowed on a piece of property if they agree to restrict the rents or sales prices on some of the units. Developers can use the additional cash flow from these bonus units to offset the reduced revenue from the affordable units. If you’re considering such a change in your regulatory environment, here are some of the more common questions that state, city, and county officials may need to address when deciding whether to enact a density bonus or inclusionary zoning program.

State Enabling Legislation

Does your state allow density bonus programs? Because density bonus programs are part of a community’s zoning ordinance, many states require state legislative approval before a local government can enact any type of inclusionary or density bonus program.

Mandatory Requirement or Voluntary Program

Do you want your density bonus program to be mandatory or voluntary? Mandatory programs often face opposition from the development community, but guarantee that developments contain affordable housing. Voluntary programs face much less political opposition, but are often less effective at producing affordable housing in areas that are experiencing less growth.

Amount of Bonus

How much of a density bonus do you want to provide? Density bonuses range from 15 percent to 25 percent. If the legislature allows a higher maximum bonus, your community would have more flexibility in providing a bonus that yields the most affordable units, while taking into account the economic realities faced by communities and developers alike.

Set or Flexible Density Bonus

Do you want to have a set density bonus or a flexible density bonus? Some mandatory ordinances set the number of affordable units as a strict percentage of the total number of units in the development. Many voluntary ordinances set a maximum bonus density, but allow city or municipal staff to negotiate a minimum density bonus that will allow the project to move forward.

Another consideration in this category: Do you want to require that all of the bonus units be affordable, or allow city staff some flexibility? Your community could require that the entire bonus be set aside for low- to moderate-income units. As an alternative, you could also allow city staff to underwrite the development and allow a portion of the additional units to be market rate as a means of increasing economic feasibility.

Beneficiaries

Do you want to provide density bonuses solely for multifamily housing, or do you also want to provide them for single-family housing? Your community could include single- as well as multifamily developments in its density bonus program(s) to encourage additional homeownership opportunities for moderate-income residents.

Do you want to target specific geographic areas? Your community could designate transit corridors or redevelopment areas for density bonuses. Another possible strategy would be to set income limits and sales price or rent limits, and allow proposals from anywhere in the community.

Do you want to tightly target the incomes of those eligible to live in the units? If your community sets income limits for affordable units at 50 percent of median, the income derived from those units might not be sufficient to make the affordable units feasible. In addition, the for-sale market to those at 50 percent of median may be restricted in your community.

Administration

In addition to income levels, do you want to base the bonus on the number of bedrooms? Your community could seek to increase the number of housing units available for larger families by providing density bonus benefits to developers who create apartment complexes with some number of three- and four-bedroom units. Depending on the needs of your community, you may be more interested in creating units without regard to the number of bedrooms.

For developments that include rehabilitation as well as new construction, do you want the bonus to be based on the entire project, or only the newly constructed units? Your community may want to restrict the bonus to the newly created units. In the alternate, you may want to encourage rehab as part of an overall redevelopment program, in which case you may want to provide a bonus on the entire project.

Alternatives for Satisfying the Ordinance’s Requirements

Do you want to give developers some latitude in terms of how they go about satisfying the inclusionary zoning requirements? For example, you may want to require that the affordable units be constructed in a particular development, or allow the new units to be located in other areas of the community as well.

Do you want to allow developers to pay a fee in lieu of the bonus requirement? You may want to require the affordable units to be constructed as part of the project, so that each development contains a mix of incomes. On the other hand, you may want to earmark the additional financial resources (derived from the “in lieu of” fees) for other housing purposes.

A Package of Incentives

As your familiarity and comfort level with the various strategies grows, you might consider combining one or more options. Do you want to create a package of incentives that can be offered to developers of affordable housing? Your community could offer reductions in set backs, lot coverage, and/or building heights. Your community could also waive administrative or impact fees and could exempt the resulting increase in value from assessment for property tax purposes.

Monitoring Responsibilities

Now that you’ve got some new provisions in place, how do you want to enforce components such as income and rent or sales price restrictions over the long term, and how do you intend to monitor compliance? Your community may not want to have a compliance period for owner-occupied units, or may want to have strong compliance and enforcement mechanisms to ensure that what starts out affordable… stays affordable. In either event, you’ll need to consider the demand on staff and other resources required to conduct monitoring.

Do you have a compliance period? The longer the compliance period, the longer the units remain affordable. However, it also means that your community is responsible for monitoring, in some fashion, ongoing compliance with the rules of the program. For single-family housing, your community could place a deed restriction on the property. For multifamily properties, your community could require the property owners to submit annual reports detailing incomes of residents in the development.

Do you want to impose a penalty for non-compliance? Without a penalty, there is little incentive to continue to comply with the rules of the program. You community could refuse to allow the owner/developer any future density bonuses, or your community could have a financial penalty for non-performance.

Whatever long-term mechanisms you develop, you should make sure the developer/owner understands and agrees to the requirements prior to construction.

Conclusion

Bonus density programs offer communities a new tool to create affordable housing. Many factors go into the creation of such an ordinance, and local governments should exercise care and prudence in developing these tools. Far from discouraging municipalities from engaging in these activities, the questions we’ve posed herein are intended solely to help interested communities learn from the experiences of others, and to approach the effort with a better understanding of the strategies and logistics involved. Indeed, many of the ideas set forth in this piece have been derived in whole or in part from actual submissions received by the Regulatory Barriers Clearinghouse. Our appreciation for these submissions is duly extended, as is an open invitation to submit viable strategies of your own.

Richmond Transforms Vacant Properties

What’s blocking the development of vacant lots and abandoned buildings into affordable housing? In many cities, prospective developers have trouble obtaining information about available properties. The result is that these properties often lie fallow, eventually deteriorating into community eyesores and havens for criminal activity.

Richmond, Virginia’s “Neighborhoods in Bloom” program is making great progress toward overcoming this problem. The program uses an efficient online system to help prospective developers identify and transform these abandoned lots and buildings into affordable housing and other improvements. This, in turn, is revitalizing entire neighborhoods and raising property values in the surrounding areas.

Web Site Publicizes Vacant Properties for Sale

The Neighborhoods in Bloom Web site provides easy access to abandoned properties that are now ready for sale in designated communities.

Users can go online to learn about each of the communities: Blackwell, Carver/ Newtowne West, Church Hill Central, Highland Park Southern Tip, Jackson Ward, and Southern Barton Heights (plus a link that describes the process of selecting the six neighborhoods). Each neighborhood page describes the community and gives information on properties available for purchase through the Richmond Redevelopment and Housing Authority or local nonprofit organizations.

Code Enforcement Complements Redevelopment

The program started in 1997, when Neighborhoods in Bloom began rejuvenating six troubled neighborhoods. Planners first identified 900 problem properties – half were vacant and two thirds had code violations – where the need for improvements was most pressing. Working with neighborhood groups, the city initiated intensive code enforcement and nuisance abatement programs. To encourage owners to repair their properties, the city streamlined housing rehabilitation resources, making available $14 million in loans and grants from HUD’s Community Development Block Grant (CDBG) and HOME programs.

In the first two years, Neighborhoods in Bloom generated more than 1,100 property inspections, 850 code violation citations, 130 grants or loans to resolve violations, 144 planned rehabilitation projects, and approximately 300 completed or planned new housing units. The results of this sweeping initiative are equally impressive: property values have increased 3.9 percent and violent crime has decreased by 37 percent.

Programs such as Richmond’s Neighborhoods in Bloom show just how far a bit of determination – coupled with a sensible and balanced approach to regulatory reform – can go in transforming ‘what might have been blight’… into communities done right.

To Learn More, Visit…

• Richmond’s Web site: http://www.ci.richmond.va.us/department/real_estate/gsxxs_property.asp.
• Affordable Housing and Smart Growth, National Neighborhood Coalition, Washington, D.C., 2002.
  

Anchorage Pushes Electronic Permitting

In 2000, the Municipality of Anchorage, Alaska made a commitment to provide more city services online. Because the city’s Development Services Department considered the existing permitting process to be both time consuming and expensive, it volunteered to become one of the first agencies to undertake the development of e-services.

Starting Simple

According to James D. Gray, Anchorage’s Deputy Building Official, the Department investigated a number of potential online services and agreed to launch three basic services: online permit purchasing for certain permits, permit status verification, and inspection requests. For the online permitting component, the city secured the services of a contractor to create a system that would allow builders to purchase certain permits online. The resulting system allows builders to purchase permits for projects that do not require review by the city. Construction activities that qualify for these types of permits include mechanical, electrical, and plumbing sub-permits that are needed after the structural permit has been obtained, or for minor repairs and replacements.

To enable easier navigation of the permitting process, the system contains a pdf version of the Web site for review prior to use. In addition, the system automatically supplies the permit that can be posted on the job site. The contractor that developed the system currently provides maintenance of the system for a monthly fee. It also owns the authentication code and processes all electronic payments. The contractor provides several other Web-based solutions, in tandem with other vendors that do business with Anchorage.

Builders can make use of a second e-service that allows them to verify the status of previously requested permits. Builders can check to see if a permit has been approved, and can review the conditions for approval or disapproval and the reasons for disapproval. This system is owned by the city and housed on the city’s Web site.

Finally, the third component of the city’s e-services initiative allows builders to request inspections online. The system sends requests for inspections directly to the Building Safety Division, and in turn, division staff sends the appropriate inspector to the building site. If the request is received before 6 a.m., the inspector can often be sent to the building site the same day.

Benefits and Costs

Gray credits the success of the city’s e-services to the Mayor’s support and commitment to providing the financial resources necessary to implement the online system. “As expensive as the initial phases of this project were, we could not have succeeded without the support of the Mayor,” Gray said. Even with the city’s financial backing, however, the Department had to increase building permit fees to cover some of the additional costs. Nevertheless, most builders think that the reduction in the amount of time it takes to secure permits offsets any increase in fees.

Defining Success

Gray defines the overall success of Anchorage’s e-services initiative by the number of converts who initially said that they would not use the system, but who now wonder how they ever got along without it. To illustrate his point, he referred to one HVAC contractor who didn’t even have a computer in his office when the process began, and who spent hours a day securing permits when he would rather be managing projects onsite. Now he uses a laptop at home in the evening to request and pay for permits in a fraction of the time, and his work day is spent – more profitably – on site

To Learn More, Visit…

Anchorage's Web site: http://www.muni.org/bsd/OnlineServices.cfm

You might also be interested in the HUD publication Electronic Permitting Systems and How to Implement Them, which is available as a free download at
https://www.huduser.gov/publications/destech/electronic_permitting.html or for $5. by calling
1-800-245-2691