Inclusionary Zoning

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CrossroadsUrbanApts
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Inclusionary Zoning

Post by CrossroadsUrbanApts »

CW Robinson and Mayor Lucas have introduced Ordinance 201038 that would impose an affordability requirement on all multifamily projects that seek any kind of tax incentive, including abatements. The requirement would be to set aside 20% of all residential units for low income (10%) and very low income (10%) households, or pay an in lieu fee.

The initial reception (at least on Twitter) seems positive. I'm curious as to the thoughts of those of you all on this board.

I am a skeptic as to the policy impact of such an inclusionary zoning requirement, even while I acknowledge that it is likely good politics. I believe the likely result will be that multifamily developers, including myself, will choose not to seek any kind of tax incentive that would trigger this requirement, which effectively acts as a tax from an economic standpoint. The result, at least in the short-term, will be fewer apartment developments because a key tool (tax abatements) has effectively been taken away. Development margins are thinner than ever compared to the past decade as rents (at the high end) have plateaued and construction costs have escalated. Reducing a project's revenue by requiring the affordable set asides means that fewer projects will be feasible economically.

Unfortunately the result is that fewer apartment projects get started and therefore the existing supply gets even more expensive, which is at odds with what I believe is the intention of the ordinance.

If I'm mistaken, and the true intention of the ordinance is to kill the use of tax incentives all together by multifamily developers, then I think it will do its job. But I think that bad for the city's affordability problem in the short term. In the longer term, land prices might adjust downwards and make new developments feasible again, but it will take several years as land prices tend to be very "sticky".

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normalthings
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Re: Inclusionary Zoning

Post by normalthings »

10% for 70% of median income seems reasonable. 10% for super low is just not doable. The rates will essentially price out little developers leaving the market only open to the biggest players.

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Re: Inclusionary Zoning

Post by flyingember »

This will hurt the east side

What we need instead is a unit mandate.

If you receive incentives, the number of new units per acre of land must exceed the average of all projects built in the past 5 years within a one mile radius of the site. Basically, make it really expensive to build with incentives downtown because the average is skewed with all the new construction.

This would encourage building new units on the east side, since the numbers to hit would be a lot smaller.
And when you build on the east side it encourages developers to build affordable for the community they’re building in.

The idea is as a neighborhood is built out that new projects should be built without intensities.

But in less developed areas you might still need them.

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normalthings
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Re: Inclusionary Zoning

Post by normalthings »

How about a compromise? Special surface parking Assessment to go towards education or affordable housing in exchange for no incentives restrictions.

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Re: Inclusionary Zoning

Post by CrossroadsUrbanApts »

I agree that this will hurt projects the most that are in lower-rent areas like the east side and near east side. If anything there should be a carve out for the inclusionary requirement in lower income areas. I wouldn't necessarily tie it to opportunity zones so those two things don't get mixed up, but would target a similar geographic area.

The practical effect would then be you wouldn't see incentivized projects in areas with the inclusionary requirement, but it would still be a viable tool for projects in the eastern parts of the city (or other areas exempted from the inclusionary requirement).

I'm sure part of the thought process is that the in-lieu fees would be helpful in seeding the low income housing fund. But I just don't think you'll see many projects if any use incentives, so there won't be any in-lieu fees raised. That is unless, the incentives are concurrently either made more generous or easier to obtain (no MBE/WBE or prevailing wage requirement) and therefore it is still economical to seek incentives.

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Re: Inclusionary Zoning

Post by smh »

Do you think there's any opportunity for a policy that would give a density bonus, say 25% to a project that set aside 10% of units for moderate income households, and a larger bonus to accommodate the lowest-income households?

At the moment, I'm struggling to recall the state of zoning in KC, but my guess is this might be of limited effectiveness given that IIRC, most projects of any size tend to go through the UR process, i.e., the sky is the limit at that point so a density bonus doesn't achieve anything. Is there an opportunity to add requirements to the UR rezoning process? I'm kind of thinking out loud here.

I agree with your policy analysis. This feels like a lot of stick and minimal carrot--generally the other way around gets a better response. But you might be right that the goal is to kill off incentives altogether.

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chaglang
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Re: Inclusionary Zoning

Post by chaglang »

smh wrote:
Tue Dec 08, 2020 3:56 pm
At the moment, I'm struggling to recall the state of zoning in KC
I find this hard to believe.
smh wrote:
Tue Dec 08, 2020 3:56 pm
but my guess is this might be of limited effectiveness given that IIRC, most projects of any size tend to go through the UR process, i.e., the sky is the limit at that point so a density bonus doesn't achieve anything. Is there an opportunity to add requirements to the UR rezoning process? I'm kind of thinking out loud here.
My oversimplified understanding is that incentives require a UR rezoning, and URs create a loophole in the underlying zoning. I'm sure there is a way around this, but AFAIK that doesn't exist right now.

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normalthings
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Re: Inclusionary Zoning

Post by normalthings »

Why isn't there a requirement that new suburban housing developments have an affordable requirement? The urban core already has some sort of mix even if an individual project doesn't.

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Re: Inclusionary Zoning

Post by smh »

chaglang wrote:
Tue Dec 08, 2020 4:15 pm
smh wrote:
Tue Dec 08, 2020 3:56 pm
At the moment, I'm struggling to recall the state of zoning in KC
I find this hard to believe.
smh wrote:
Tue Dec 08, 2020 3:56 pm
but my guess is this might be of limited effectiveness given that IIRC, most projects of any size tend to go through the UR process, i.e., the sky is the limit at that point so a density bonus doesn't achieve anything. Is there an opportunity to add requirements to the UR rezoning process? I'm kind of thinking out loud here.
My oversimplified understanding is that incentives require a UR rezoning, and URs create a loophole in the underlying zoning. I'm sure there is a way around this, but AFAIK that doesn't exist right now.
1. Touche;
2. Well that sorts that part out.

I understand the motivation behind the policy, and generally agree with it, but my further reaction is that 20% seems like too much of any given project. Would a better path be to reduce overall incentives below current levels and then provide "bonus" incentives if developers include affordable units? That could get us back to the carrot approach--but is perhaps is politically unrealistic because it requires two maneuvers.

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Re: Inclusionary Zoning

Post by CrossroadsUrbanApts »

Yeah, my sense is that generally density bonuses are of limited use in Kansas City because the zoning rarely binds on the number of units you can build. Certainly throughout downtown and Midtown, zoning isn't the limiting factor. Maybe in the Plaza but I'm not as familiar with zoning there.

In contrast, density bonuses are extremely valuable in California where the underlying zoning very much does limit the number of units on any given site. So inclusionary zoning can make more sense (still not great, but a "second best" policy) because the cost of the affordable units can be more than offset by the value of the increased number of market-rate units that can be built, so everyone is better off.

In Kansas City, I agree that it would be almost all stick with none of the carrot. Unless the incentive could be made more valuable, like a larger abatement for a longer-period of time. But that goes against all the politics of the moment in that area, which are running in the direction of shorter abatements for lower amounts.

KC zoning very much limits how many units you can build in residential areas like Brookside and Waldo but those areas aren't seeing $20M+ 200+ unit apartment developments anyway. I would love to see those areas modestly upzoned to allow for duplex, quads, and six-plexes but that is another conversation.

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Re: Inclusionary Zoning

Post by normalthings »

CrossroadsUrbanApts wrote:
Tue Dec 08, 2020 6:27 pm
Yeah, my sense is that generally density bonuses are of limited use in Kansas City because the zoning rarely binds on the number of units you can build. Certainly throughout downtown and Midtown, zoning isn't the limiting factor. Maybe in the Plaza but I'm not as familiar with zoning there.

In contrast, density bonuses are extremely valuable in California where the underlying zoning very much does limit the number of units on any given site. So inclusionary zoning can make more sense (still not great, but a "second best" policy) because the cost of the affordable units can be more than offset by the value of the increased number of market-rate units that can be built, so everyone is better off.

In Kansas City, I agree that it would be almost all stick with none of the carrot. Unless the incentive could be made more valuable, like a larger abatement for a longer-period of time. But that goes against all the politics of the moment in that area, which are running in the direction of shorter abatements for lower amounts.

KC zoning very much limits how many units you can build in residential areas like Brookside and Waldo but those areas aren't seeing $20M+ 200+ unit apartment developments anyway. I would love to see those areas modestly upzoned to allow for duplex, quads, and six-plexes but that is another conversation.
No reason why downtown Brookside and Waldo shouldn't be.

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Re: Inclusionary Zoning

Post by DaveKCMO »

Neighborhood opposition is the limiting factor to density bonuses.

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smh
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Re: Inclusionary Zoning

Post by smh »

DaveKCMO wrote:
Tue Dec 08, 2020 9:50 pm
Neighborhood opposition is the limiting factor to density bonuses.
But mostly they just don't make sense in KC, right? If everything ends up UR then there's no such thing as a "bonus" because the zoning is whatever gets decided upon in the UR process.

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Re: Inclusionary Zoning

Post by normalthings »

CrossroadsUrbanApts wrote:
Fri Dec 04, 2020 11:03 pm
CW Robinson and Mayor Lucas have introduced Ordinance 201038 that would impose an affordability requirement on all multifamily projects that seek any kind of tax incentive, including abatements. The requirement would be to set aside 20% of all residential units for low income (10%) and very low income (10%) households, or pay an in lieu fee.

The initial reception (at least on Twitter) seems positive. I'm curious as to the thoughts of those of you all on this board.

I am a skeptic as to the policy impact of such an inclusionary zoning requirement, even while I acknowledge that it is likely good politics. I believe the likely result will be that multifamily developers, including myself, will choose not to seek any kind of tax incentive that would trigger this requirement, which effectively acts as a tax from an economic standpoint. The result, at least in the short-term, will be fewer apartment developments because a key tool (tax abatements) has effectively been taken away. Development margins are thinner than ever compared to the past decade as rents (at the high end) have plateaued and construction costs have escalated. Reducing a project's revenue by requiring the affordable set asides means that fewer projects will be feasible economically.

Unfortunately the result is that fewer apartment projects get started and therefore the existing supply gets even more expensive, which is at odds with what I believe is the intention of the ordinance.

If I'm mistaken, and the true intention of the ordinance is to kill the use of tax incentives all together by multifamily developers, then I think it will do its job. But I think that bad for the city's affordability problem in the short term. In the longer term, land prices might adjust downwards and make new developments feasible again, but it will take several years as land prices tend to be very "sticky".
Development is about to crawl to a halt. I know many developers and businesses who had already hit pause due to Lucas's past actions. This will only make things worse.

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Re: Inclusionary Zoning

Post by flyingember »

normalthings wrote:
Mon Jan 18, 2021 4:23 pm
Development is about to crawl to a halt. I know many developers and businesses who had already hit pause due to Lucas's past actions. This will only make things worse.
Lucas has no legislative control, he’s one vote of 13.

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Re: Inclusionary Zoning

Post by TheLastGentleman »

Is there precedent for this policy in any other cities? How have they faired since implementing it?

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Re: Inclusionary Zoning

Post by alejandro46 »

It's a stupid policy. We need to get rid of parking minimums and make it easier to build more total units. Completely a political move. THIS IS NOT SAN FRANCISO people. We need more housing on vacant lots. Our mayor has the time to roast a small townhouse development on the east side for asking for basic infrastructure incentives, he is doing what he thinks will win with voters not actually solve the problem. "More luxury housing, eww." So misguided and will not solve anything. Instead-

Minimum height requirement along transit lines.
Replacement laws- you tear down X sq ft building, you have to rebuild X sq in the same area or something like that - no more sitting on vacant lots in the urban core without some tax/penalty.
ELIMINATE PARKING MINIMUMS ALONG TRANSIT.
Eliminate single family zoning.

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Re: Inclusionary Zoning

Post by normalthings »

alejandro46 wrote:
Mon Jan 18, 2021 8:55 pm
It's a stupid policy. We need to get rid of parking minimums and make it easier to build more total units. Completely a political move. THIS IS NOT SAN FRANCISO people. We need more housing on vacant lots. Our mayor has the time to roast a small townhouse development on the east side for asking for basic infrastructure incentives, he is doing what he thinks will win with voters not actually solve the problem. "More luxury housing, eww." So misguided and will not solve anything. Instead-

Minimum height requirement along transit lines.
Replacement laws- you tear down X sq ft building, you have to rebuild X sq in the same area or something like that - no more sitting on vacant lots in the urban core without some tax/penalty.
ELIMINATE PARKING MINIMUMS ALONG TRANSIT.
Eliminate single family zoning.
Yes Yes Yes

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Re: Inclusionary Zoning

Post by chaglang »

TheLastGentleman wrote:
Mon Jan 18, 2021 7:59 pm
Is there precedent for this policy in any other cities? How have they faired since implementing it?
My question also.

This isn't a good policy, and we need to build way more housing than we currently do... but I'm also skeptical of developers saying they're going to shut down their KCMO developments. It seems like they're trying to maintain some rather generous incentives policies. I hate to be the "prove it" guy, but I've never seen any data that the Lucas incentives policies slowed development, when controlling for outside factors like the economy. Both here and professionally I've heard people say things are slower, but I also have the sense that this is essentially talking about weather when we think we are talking about climate.

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Re: Inclusionary Zoning

Post by kenrbnj »

alejandro46 wrote:
Mon Jan 18, 2021 8:55 pm
It's a stupid policy. We need to get rid of parking minimums and make it easier to build more total units. Completely a political move. THIS IS NOT SAN FRANCISO people. We need more housing on vacant lots. Our mayor has the time to roast a small townhouse development on the east side for asking for basic infrastructure incentives, he is doing what he thinks will win with voters not actually solve the problem. "More luxury housing, eww." So misguided and will not solve anything. Instead-

Minimum height requirement along transit lines.
Replacement laws- you tear down X sq ft building, you have to rebuild X sq in the same area or something like that - no more sitting on vacant lots in the urban core without some tax/penalty.
ELIMINATE PARKING MINIMUMS ALONG TRANSIT.
Eliminate single family zoning.
I agree wholeheartedly. Eliminate silly contingencies for development; begin thinking like a true, "big city".

The KC City Council has taken a series of positions, which pander to the left-most ideals in terms of "wealth re-distribution".

What they fail to acknowledge is that with greater opportunity brought into the city; greater opportunity is presented to those the government is trying to help.

In the past, the preponderance of opportunities were in the suburbs, requiring a car, car insurance, etc. That was generally by design*. Encourage as much development downtown, bring wealth downtown, the poorest residents will be a bus ride or tram ride from employment and access to a better life.

*Sears famously vacated their namesake tower in Chicago for new digs in the far suburb of Hoffman Estates. Conventional wisdom suggested Sear's decision would encourage many from the inner city to seek alternate employment, rather than to move/commute to the suburbs.

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