D.J. Tice’s commentary “Luxury begets affordable housing?” (Jan. 26) brings back into focus inclusionary zoning — the requirement that a percentage of units in new rental developments be made affordable. It is one of the strategies recently employed by the city of Minneapolis to expand housing affordability.
Seeing the development of new market rate housing pitted against affordability requirements, Tice points to recent research showing that producing even high-end rental housing creates more affordable housing through a filtering process than does an inclusionary requirement.
However, Tice fails to include the possibility that inclusionary policies would not reduce market-rate development; that cities could gain from both the filtering benefit that comes from expanding rental supply and from new affordable apartments created through an inclusionary policy.
Tice cites a Jan. 2 commentary by developer Kelly Doran (“Housing policies won’t work”) which makes the case that Minneapolis’ inclusionary zoning rule would likely drive out development. Doran stated that the huge loss of revenue he would see stemming from the Minneapolis policy would cause him to cease building in this city. But will other developers follow suit?
Doran said developers need to charge $2,400 a month for new rental apartments with total development costs in the $300,000 to $400,000 range. For affordable units under the city’s policy, he would be limited to charge, under one city option, no more than what a Twin Cities household with an income at 60% of median could afford, currently $1,250 without utilities.
Since the city requires that 8% of new units be affordable, in a 100-unit property the developer would be denied monthly about $9,200 in income ($2,400 - $1,250, or $1,150 for each of eight units). Presuming a property with 100 $2,400 units — therefore $240,000 in monthly total income — this $9,200 reduction equals about 3.8% of total rent revenue. Would this be a deal killer for developing in Minneapolis? It’s hard to believe that all developers would see it as such.
Minneapolis is not alone in passing inclusionary zoning ordinances. In its 2019 report summarizing research on inclusionary zoning, the nonprofit Urban Institute reported that more than 800 U.S. cities have an inclusionary requirement. When reviewing whether these policies stymied rental development, the institute stated that existing research was inconclusive and more investigation was needed. It added that policy design and market conditions were critical factors in determining the effect of inclusionary zoning policies.
The impact of the inclusionary zoning ordinance is something that should be closely monitored here. This is especially true since researchers don’t agree on how inclusionary zoning influences development.
Most new rental housing (presuming it does not take out existing apartments) yields some eventual benefit to lower income renters and should not be discouraged. With the exception of Kelly Doran, it’s not clear whether Minneapolis’ inclusionary policy will have a discouraging impact on development.
Chip Halbach, of Minneapolis, is an affordable housing consultant and volunteer.