Posted on by John Edwards

Council Considers Details of “Inclusionary Zoning” Affordable Housing Mandate

Inclusionary zoning is a done deal in Minneapolis. It’s happening. All that remains are the details.

City Council President Lisa Bender’s mantra during most of 2018: the Minneapolis 2040 plan was a “nonstarter” without an inclusionary zoning policy. Bender made it clear that she and her Council colleagues wouldn’t do one policy without the other: as the city makes it easier to build more housing in more places, some portion of that housing would need to be affordable. So last December, when the City Council passed what has now become the nationally heralded 2040 plan, they also passed an interim inclusionary zoning ordinance.

Here’s how she spoke about it last July:

The rough outline of IZ in Minneapolis gives developers a choice:

  • 10% of new units affordable to those with incomes at 60% AMI; no city subsidy.
  • 20% of new units affordable to those with incomes at 50% AMI; with city subsidy.

On Wednesday, as City Hall continues to work on a permanent IZ ordinance, the Housing Policy and Development Committee was presented with ideas for alternative compliance with the policy. The questions: Should all units should be required on-site? Or would a developer be allowed to comply with the policy in other ways, like building the units in another part of the city, paying a fee, or donating land for affordable housing.

One advantage of collecting a fee from developers, according to the city’s IZ consultant Stephanie Reyes, is that money can be leveraged by the city to acquire additional affordable housing money from federal, state, and local sources, “which can lead to a greater number of affordable units being built than would have been built on site.”

Reyes cited a study of Seattle’s IZ policy that showed the city leveraged $3.50 for every $1 in fees collected for a specific type of affordable housing project. Council President Lisa Bender, who has pursued inclusionary zoning for years, responded that the city uses the affordable housing trust fund to leverage those dollars already. She added, “I don’t think policymakers have been looking at this as a revenue generating source for the trust fund.”

Other benefits of alternative compliance include the flexibility to focus resources to other neighborhoods or different types of housing — ownership or larger units with more bedrooms. Reyes gave the example of very high-end luxury housing where the cost of an on-site unit could otherwise be spent providing multiple units of affordable housing elsewhere.

Bender said that her sense was that the council would “only look at in-lieu fees if it was a question of feasibility, which we are already attempting to address through [TIF subsidy].” In other words, the subsidy addresses the question of feasibility, so letting the developer buy out of the requirement isn’t necessary.

Bender said that for her colleagues who’ve seen significant development in their wards, the desire was to have the units built on site. Citing the thousands of units built in Ward 10 over the last decade, she said “Having hundreds of units available in my ward at 50 or 60% AMI would make a difference to my constituents.”

Bender and Ward 11 Council Member Jeremy Schroeder expressed frustration after hearing that developers hadn’t offered feedback on these ideas for alternative compliance. Reyes said it was the position of the developers she’d met with that the entire IZ policy isn’t financially feasible.

When developer Steve Minn showed up touting Bloomington’s IZ policy, Lisa Bender got a chance to try out her “Minneapolis is not Bloomington” routine:

“We have very little way to do an incentive-based inclusionary zoning policy like the suburban communities around us. It’s not an option for Minneapolis unless we downzoned our entire city.”

Minneapolis has already pursued a lot of the policies that other cities use to incentivize affordable housing, like offering reduced parking minimums. Rules for building downtown are already very persmissive.

Is inclusionary zoning an effective policy?

Skeptics of IZ make the argument that it’s good politics, but bad policy: affordable housing shouldn’t be solely the responsibility of residents of new apartment buildings, it’s on the entire community to fund it. If you believe new housing is part of the solution, taxing/disincentivizing that housing does more harm than good.

Here’s the case the city’s IZ consultant Reyes made last year:

Supporters of the policy, including the city’s consultant, admit there may be a period of a few years where inclusionary zoning discourages new construction. They insist that to the degree the policy makes development more expensive, those costs will eventually be factored into the price of land.