What is Inclusionary Zoning?
Since 2003, Newton has required developers who create 6 or more new units of housing to provide 15% of that project’s units at rents or selling prices within the reach of low- to moderate-income households (households with gross annual incomes at or below 80% of area median income, AMI). This ordinance is called Inclusionary Zoning (IZ). It is a common method to encourage the private production of affordable housing. A full description, and details are here: http://www.newtonma.gov/gov/planning/lrplan/inclusionary_zoning.asp)
Problem was, from April 2003 until this year, only 14 affordable units were built in Newton under this ordinance (more were built under the anti-snob zoning state law we refer to as 40B).
Newton’s Housing Strategy (2016) proposed amending the IZ ordinance to see if the production of affordable units could be enhanced, and Mayor Warren docketed a request to increase the IZ requirement. Several councilors docketed a request then to study the question.
Last March, the consultant, RKG Associates, presented their analysis of the proposed update to the ordinance - what it costs to build a unit in the city, and at what point the IZ requirement is too high--meaning no new housing units.
All developers—few can finance purchase and construction with cash—need to meet the requirements of lenders to move forward with development. Once they factor in probable income, minus cost of land, cost of construction, cost of permitting and other soft costs (architects, lawyers, etc.), the costs of affordable units, operation costs, and debt service, their rate of return has to hit those financial requirements to get funded.
RKG calculated the tipping point between building vs. abandoning housing investments in various scenarios for Newton, and provided the Planning Department with their financial feasibility model, so that staff can now calculate the tipping point themselves.
The resulting recommendation is that the new IZ requirement first apply with the addition of 7 or more units; that the number of required IZ units vary between 15-17.5% of total units in the project, depending on the size and constitution of the development (rental or ownership); and that the required IZ units include a mix of affordability levels (up to 120% of AMI).
In addition, developers of any project that consists of 100% affordable units will be allowed to choose the mix of affordability, rather than comply with the city’s required mix. This may allow, for instance, a 100% middle-income senior-friendly apartment or condo building (with units affordable to households with incomes between 81% and 120% AMI).
Currently, our ordinance applies to projects with a net increase of 6 or more units under a special permit application, but not to any by-right construction. Newton also has a “density bonus” for projects that provide greater affordability than what is required, but the proposed ordinance removes that, since this incentive has resulted in very few new affordable units.
One of the factors that I found most interesting in RKG’s financial analysis of the proposed update was what happened with parking. In all of the scenarios explored by RKG, the consultant assumed multi-family housing would be built near transit, allowing Newton’s lowest parking minimum of 1.25 spaces/unit. As the number of units grows—over 35 units—the assumption is that the parking moves underground.
The number of affordable units is contingent on how much the developer subsidizes parking (and thus driving). And because underground parking is so expensive (I’ve heard estimates between $50-$100,000/space), the percentage of required affordable units has to be significantly lower once underground parking kicks in to make the project viable.
(Newton has some of the most generous parking minimums within the 128 area. Clearly, the City needs to decide whether it wants to continue to subsidize driving or housing, and to what extent.)
So currently, the committee is looking at changing the IZ ordinance to allow for more affordable units across various sizes and types of development. But we also need to decide whether to aim for fewer overall affordable units with deeper levels of affordability or a greater number of affordable units at higher levels of affordability (middle-income or “work force housing” for instance).
What do you think?
In other developments:
The Northland project for Oak and Needham streets started public hearings Sept. 24. Details here: http://www.newtonma.gov/gov/planning/current/devrev/hip/northland.asp I am particularly interested in how the project will address the transportation needs of those inside and coming to the site.