Inclusionary Zoning in Vermont Villages and Small Towns

TRC 316: Land Use Policy and Economics Final Paper

Lev McCarthy December 2, 2014

1. Introduction In 2013, 36 percent of home-owning Vermont residents, and nearly 50

percent of renters reported spending over 30 percent of their annual income on

their mortgage (ACS 2013). This stat is indicative of Vermont’s inclusion in a

national affordable housing shortage, which endangers the financial wellbeing of

low-income families across the nation. In the 21st century, inclusionary zoning

programs are used more and more as a tool for mediating the affordable housing

shortage. Inclusionary zoning programs, “either require developers to make a

certain percentage of the units within their market-rate residential developments

available at prices or rents that are affordable to specified income groups, or offer

incentives that encourage them to do so” (Schuetz et al., 2011).

In the United States, Inclusionary Zoning came about in the 1980’s as a

remedy to the pervasive shortage of affordable housing, and as a response to the

ineffectiveness of federal housing programs (Calavita, 2007). The federal

government had become involved in the implementation of affordable housing in

the 1950’s when the Housing Act of 1949 provided federal funding of slum

clearance and the construction of housing projects. In the 1960’s and 1970’s

housing advocates became more and more concerned that suburban zoning

practices were perpetuating racial and social exclusion (Benson, 2010). At the

same time, the Reagan administration began to sever federal funding for new

housing construction, and inclusionary zoning became a way for localities and

states to replenish the sudden lack of affordable housing construction (Calavita,

2007). Some of the first inclusionary zoning programs were established in the

1970’s, in places such as Montgomery County, Maryland and the state of

California. Today IZ programs have been implemented in over 400 municipalities

across the United States (Porter, 2004).

IZ is controversial because its effectiveness is arguable and its impact on

local economy and social landscape is undetermined. In an article published in

Urban Studies, Jenny Schuetz explains that “the ideological debate over IZ has

greatly exaggerated both the benefits and the dangers of IZ: any negative effects

in housing prices and production have been relatively slight, but only modest

amounts of affordable housing have been produced through IZ programs”

(Schuetz et al., 2011). Inclusionary zoning is the affordable housing program du

jour and as Vermont towns attempt to build up their historic downtowns it is

important to gauge what type of IZ program may be most effective at increasing

housing affordability. This paper will, examine some case studies of existing IZ

programs, break those programs down into their constructive features, look at the

financial and social landscape of small Vermont villages and towns, and use

these considerations to propose how Vermont should best serve low-income

Vermonters without infringing on other residents’ quality of life.

2. Case Studies

Housing markets are inherently complex and it is impossible to entirely

isolate and correlate one output to a single input. To best resolve this, we must

broaden the scope, attempt to discount external impacts (which there are many),

and parcel down what features of specific IZ programs impacted the availability of

affordable housing.

Inclusionary Zoning in California is an attempt to slow the pervasive

housing affordability crisis, which has plagued the state’s major metropolitan

areas since the 1970’s (Calavita et al., 1997). The first step in CA’s IZ program

was in 1979, when California state law required cities and counties to provide

density bonuses and incentives for affordable housing. Along with the density

bonus, each county was required to have a general plan for housing that will

provide “decent” housing for “people of all economic means”. Lastly, state law

requires redevelopment agencies to set aside a portion of incremental taxes

derived from new development, and use it to subsidize affordable housing. These

second two laws are optional incentives, and are invoked infrequently (Schetz et

al., 2009). The ultimate decision to enact IZ programs are left to the individual

jurisdictions, which has resulted in the diversity and complexity of programs

across California (Calavita et al, 1997). California’s localized, and deregulated

method of enacting IZ has seen its share of results. Between 1994 and 2003, the

number of IZ programs in California saw a 50 percent increase from 64 to 107.

Arguably the most successful IZ program has been implemented in the

Bay Area, but the Bay Area’s success is more of an exception than a norm. As of

2006, 48 percent of jurisdiction in the Bay Area had adopted IZ. Of those

programs, over 90 percent are mandatory, and most apply broadly to all

residential development. Through 2013, the Bay Area averaged 15 affordable

housing units per year in counties, and 6 units per year in cities (Schuetz et al,

2009).

New Jersey accompanies California as the second state to enact state-

wide laws requiring localities to address affordable housing shortages, and

encourage inclusionary zoning.

New Jerseys IZ program began in the late 1970’s primarily as a way to

mediate the societal and economic harm done by decades of exclusionary

zoning. In 1975, the New Jersey Supreme Court decided that each municipality in

New Jersey is responsible for their regional fair share of affordable housing.

When this decision did not lead to adequate progress by 1983, the Supreme

Court mandated inclusionary zoning. They did so by requiring that developers

make 10 percent of new units affordable to household earning under 50 percent

of the area median income, and another 10 percent to households earning

between 50 percent and 80 percent (Calavita, 2006). The New Jersey Fair

Housing Act of 1985 transferred control of zoning from the courts to and

administrative agency, the Council of Affodable Housing (COAH). One of

COAH’s first actions was to allow municipalities to pay other communities to

accept half of the regional fair share, which had been allocated to them (Porter,

2004).

Before California, and before New Jersey, Montgomery County Maryland

realized the necessity of affordable housing, the effectiveness of IZ, and

implemented the first IZ program in 1974. Called the Montgomery County

Moderately Priced Dwelling Unit (MPDU) program, the county’s IZ program has

lead to the production of 11,000 affordable housing units in four decades. MPDU

requires that any new development with fifty or more residential units must

dedicate 12.5 to 15 percent of those units as affordable housing (Benson, 2010).

In Montgomery County, affordable housing is based on the median household

income levels for a family of four. A household is viable for affordable housing if

their income is less than 70 percent of the median household income of the

county (MPDU 25A.00.02 (2.2) (a)).The requirement is coupled with incentives.

Developers in Montgomery County are given a density bonus up to 22 percent.

This combination of required IZ with incentives has been effective at

creating affordable housing units initially, but between 2000 and 2010 the number

of units in the MPDU program built per year decreased steadily. Benson

attributes this to the fact that before 2002, MPDUs were only required to remain

affordable for 10 years. Another factor contributing to the decrease in units is that

most of the large parcels have been built up, so new development hardly ever

reaches the 50 unit threshold that requires IZ units.

A major player in Montgomery County’s affordable housing market is the

Housing Authority Commission, which purchases one third of all affordable units.

This large buyer has been able to stabilize the market for developers, and

standardize how much profit developers can look to receive from IZ.

The city of Boulder, Colorado has had a history of inclusionary zoning that

is younger than Montgomery County, but its history is slightly more tumultuous,

with three major program changes. Boulder first enacted an inclusionary zoning

ordinance in 1980, but its ineffectiveness led the city to replace the old ordinance

with a voluntary IZ program in 1991. Under the 1991 ordinance developers were

incentivized to build low-income housing in exchange for subsidy funds. This

change was a means of appeasing critics, and did little to create more affordable

housing. The voluntary program was largely ignored, and developers found the IZ

program to be cumbersome, and the benefits were outweighed by the difficulties

of changing an exiting process. In 2000, Boulder enacted its first mandatory

inclusionary zoning ordinance. This current IZ ordinance mandates that 20

percent of any new residential development must be low or moderate income

units, and mandates that these units stay affordable for 99 years (Benson, 2010).

Despite a lack of incentives for developers, as of 2006, Boulder’s mandatory

inclusionary zoning program has created nearly 400 affordable housing units

since its inception in 2000.

3. Features of Inclusionary Zoning Programs

Inclusionary zoning is not a blunt tool. These programs are made up of

many small parts, with varying qualifications and enforcements. Here we will look

into some of the features discussed in the literature. First there is the strength of

requirements, are developers mandated to include affordable housing, is it a

recommendation, or is it just a described option? Second is the delineation of

which projects will be affected by IZ. Is this decided by location, by square

footage, or by number of units? Third, if a development is to have IZ, what

proportion of units will be affordable? In California alone this proportion ranges

from 6 percent in Vista up to 50 percent in Placer County. Anecdotal evidence

supports that nationally the percentage is increasing over time with a median

right now hovering around 15 percent (Schuetz, 2009). A fourth factor is whether

or not there are incentives for developers to participate in IZ programs. The most

popular incentive across the literature was density bonuses, while some

programs will provide waivers for building or development fees, expedited

approval processes, parking requirement reductions, exemptions from zoning

growth limits or reductions in zoning requirements for unit size or equipment. The

fifth factor is the income level eligibility for living in the affordable housing. Sixth,

is how long the units remain affordable. Here, Boulder, CO is indicative of a

national trend of increasing the length of time, and in many cases IZ programs

are set for 99 years indicating perpetuity. Many IZ programs will also include a

seventh factor, which is alternatives for developers, If a developer would like to

opt out of the affordable housing requirement may they pay someone else to

build their share? Can they pay a fine? Or in some instances they can build the

affordable housing themselves somewhere off-site.

These seven factors listed above are the primary components of the

inclusionary zoning programs described throughout the literature. This dissection

is useful for gauging the impacts of each factor, and in doing so determine how to

reconfigure these factors to fit a specific locality.

4. Current State of Affordable Housing in Vermont

In order to effectively implement inclusionary zoning as a means of

increasing affordable housing stock and decreasing socioeconomic and racial

segregation we must identify the current housing market. In Vermont, How can

we mediate the affordable housing shortage while adhering to the land use image

of, “historic downtowns and villages surrounded by working landscapes”? This

portion of the literature review will rely on spatial data gathered from the 2013

American Community Survey, as a means of determining where Vermont fits in

to the national housing landscape. Comparison of the average sales price of

market-rate housing to the average median income is an effective means of

determining the strength of a housing market (Benson, 2010). If people are

willing to spend a higher proportion of their annual income on housing, it

indicates that there are benefits to living in that area making it desirable enough

for residents to make some financial sacrifice. In 2010 the average sales price of

a home was $292,600 compared wit the median household income of $50,233.

According to the above determinant and those statistics, Americans are generally

willing to spend 5.5 times their annual income on a home purchase.

If we look to Vermont, we see a housing market with demand lower than

that national average. The 2010 American Community Survey shows the average

sales price of a home in Vermont was $208,400 compared with a median

household income of $51,841. Vermonter’s are generally willing to spend just

over 4 times their annual income on their housing. The exception to this

statewide trend is Chittenden County, and in particular the city of Burlington.

Using the methods above, it is found that people are willing to spend 6.46

times their annual incomes on housing in order to live in Burlington, and there are

some census tracts where that multiplier goes all the way up to 13. Burlington is

the only locality in Vermont to adopt an inclusionary zoning program. What can

we gather from the existing literature that’ll inform the production of inclusionary

zoning programs in Vermont’s villages?

5. Proposal

In Vermont, aside from Chittenden County, it is a well-established and

concerning fact that the population is shrinking and aging (Klyszeiko, 2007).

Whilst downsizing, Vermont legislature has laid out guidelines for future

development to adhere to the ideals of smart growth, with an emphasis on

reinvesting and redeveloping the historic downtowns while preserving the

working landscapes. Through smart growth Vermont is attempting to urbanize on

a small scale, increase density and curtail sprawl. Historically, affordable housing

has been built in isolation or at the periphery of market housing. When the market

is allowed to dictate housing affordability, low-cost homes and apartments are

concentrated in the least desirable areas. If Vermont succeeds in constraining

most new development to downtowns, the old housing stock will be in rural

areas, and unless we reserve some downtown housing for low-income residents,

they will be forced to live in the rural, downtrodden, distanced countryside. To

prevent this end, I propose that the state government in Vermont work with the

municipalities to implement an IZ project that keeps in mind the long-term goals

of increasing affordable housing, while complementing the states land use ideals.

First, state statute should be amended to so that the Vermont Housing and

Conservation Board prioritizes funding IZ projects. This means that applicants

attempting to access the Vermont Housing and Conservation trust fund would

need to follow IZ practices to compete for the funding. Second, local

municipalities should determine their own parameters for what qualifies as IZ, but

the state should set minimums anchored to the municipality’s population, median

income, and housing prices. Lastly, state law should allow new development

within a designated downtown that complies with a localized form of inclusionary

zoning to bypass Act 250 oversight, regardless of development size. These three

measures would incentivize IZ. I do not make these recommendations expecting

that their implementation would result in a drastic increase in new affordable

housing or a significant decrease in housing costs, but I do believe that as we

saw in the case studies, IZ was most effective when implemented gradually; a

progression from optional to mandatory, from incentive to enforcement. This

allows municipalities a few years to figure out their own best practices, and find

possible benefits without risking too much cost.

6. Conclusion

Inclusionary Zoning programs integrate a minimum proportion of

affordable housing units into market-rate residential developments. In this paper

we have traced the history of IZ back into its inception in the 1960s, we have

looked at case studies from across the U.S., we broke down IZ programs into

their individual components, and we proposed an IZ program for Vermont that

considers the state and local contexts. IZ is the newest in a century long struggle

towards housing accessibility and equity, and although it is flawed, by bringing

affordable housing away from the periphery there is hope that issues will become

apparent, and adjustments can be made. IZ is variable, and all that we can do in

Vermont is set up IZ programs that have opportunity to evolve along with the

localities they serve.

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