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
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.
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.
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
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
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
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.