The FWD #B04 • 1,245 Words
Land use codes can be effective tools to increase the supply of affordable housing in your community.
Among the many ways that local governments can help increase the supply of affordable housing, inclusionary zoning is steadily becoming more common in policy conversations across Virginia. Due to recent changes in the state code that enables this practice, inclusionary zoning may now be easier than ever to implement in the Commonwealth. So how does it work?
Inclusionary Housing
Inclusionary Housing is an umbrella term for any policy that helps low- and middle-income households afford new homes built for sale or for rent.
Inclusionary strategies could be as simple as expanding areas where apartments, townhomes, and other less-expensive construction types are allowed—especially “by-right” and without the need for additional layers of approval, such as rezoning or special use permits (SUPs).
Sometimes, localities may even require some dedicated below-market rate units in new residential construction. For example, if a multifamily developer is building a complex with 100 units, 10 of those units could be reserved to be affordable to households making less than 80% of AMI. In exchange, the developer can be “rewarded” with incentives in an attempt to offset costs incurred by accepting below-market rents.
Specific affordability requirements like this are generally written into a municipality’s land use code. This is called Inclusionary Zoning.
(Sidebar: In Virginia legalese, inclusionary zoning laws are often called Affordable Dwelling Unit (ADU) ordinances, and the housing units created in accordance with these laws are called ADUs. These are not to be confused with Accessory Dwelling Units, also known as in-law cottages, granny flats, alley flats, etc., which use the same initialism. Accessory Dwelling Units are also an important tool for increasing the supply of affordable housing.)
Affirmatively Furthering Fair Housing
The first inclusionary zoning policies appeared shortly after the federal Fair Housing Act of 1968. They were intended to help combat exclusionary zoning, a method of racial discrimination in which local land use policies intentionally prohibit developments that would allow for economic (and therefore racial) integration. In the terms of the Fair Housing Act, inclusionary zoning affirmatively furthers fair housing, rather than preventing or prosecuting specific fair housing violations.
The first inclusionary zoning ordinance in the United States was actually adopted by Fairfax County in 1971. However, immediately afterward, it was challenged by a private developer in the Virginia Supreme Court and found to be invalid. The court gave two reasons: 1) the Commonwealth’s zoning enabling legislation did not specifically grant this power to localities, and 2) the ordinance offered no incentives to offset costs to the developer, and so violated a provision in the 1971 Constitution of Virginia against eminent domain seizures without just compensation.
To address these issues, in 1989 the General Assembly passed a revision to the enabling statute that explicitly allowed for inclusionary zoning in six localities: the counties of Albemarle, Arlington, Fairfax, and Loudoun, and the cities of Alexandria and Fairfax. This section (§ 15.2-2304) gives those localities broad powers to craft local inclusionary zoning ordinances, as long as they provide incentives to developers. It puts no restrictions on the magnitude of set-aside requirements, depth and term of affordability, the extent of incentives, nor does it guarantee the granting of incentives to developers in exchange for affordable unit set-asides.
Later legislation (§ 15.2-2305) extended very limited inclusionary zoning powers to all other localities. This legislation only allows localities to require set-asides if a developer applies for a rezoning or SUP. As well, municipalities must impose an affordability term of 15 to 50 years. And finally, the law sets the maximum set-aside requirement at 17% of units, with an associated density bonus of 30%; if a set-aside requirement is below the maximum of 17%, the law requires that it maintains the 17:30 ratio with the density bonus.
There is broad consensus among the residential development community and local governments that the provisions of § 15.2-2305 are fairly complex, burdensome, and challenging to implement.
Density Bonuses
A density bonus allows a developer to add more housing units to a development, which can offset the cost of keeping the affordable units below market rate. Density bonuses are usually given only when a developer meets a certain percentage of affordable units in their development.
To revisit our previous example, let’s say an inclusionary zoning ordinance sets the density bonus threshold at 17%, the maximum allowed under Virginia code § 15.2-2305. That would mean that if our developer committed to making 17 of the original 100 units affordable, they could build 30 more market-rate units than the 100 originally planned. That would mean 113 market-rate units, which would increase revenue for the developer, offsetting the additional below-market units.
So what has changed?
Given the mixed results achieved by local ADU ordinances under both existing laws, legislation was introduced during the 2020 General Assembly Session to create an additional inclusionary zoning enabling statute (§15.2-2305.1). This removed the ambiguity and uncertainty of § 15.2-2305 related to density bonus calculations and affordable unit set-asides and removed (or made voluntary) the various cumbersome “required ordinance provisions” contained in § 15.2-2305.
This new statute, which localities are not required to implement, replaces the 17% set-aside requirement maximum and associated density bonus with a minimum threshold that localities (outside the Big Six of § 15.2-2304) must include in their inclusionary zoning ordinances.
To qualify for any density bonus at all, a project must set aside at least 10% of units for low income (<80% AMI) households, or at least 5% for very low income (<50% AMI) households. The code also includes a table of set-asides and their associated density bonuses:
| Low income units (%) | Density bonus (%) |
|---|---|
| 10% | 20% |
| 11% | 21.5% |
| 12% | 23% |
| 13% | 24.5% |
| 14% | 26% |
| Very low income units (%) | Density bonus (%) |
|---|---|
| 5% | 20% |
| 6% | 22.5% |
| 7% | 25% |
| 8% | 27.5% |
| 9% | 30% |
The pattern continues on up to 35% set-asides. Mathematically minded readers will notice that for low income set-asides, every additional percentage point above 10% gets you 1.5% more density. For very low income set-asides, every percentage point above 5% gets you 2.5% more density. This gives more weight to very low income units. A project with 35% of units set aside for low-income households would get a 57.5% density bonus, whereas a project with the same amount of very low-income units would get a whopping 95% bonus.
In addition to the density bonus provisions, Virginia Code § 15.2-2305.1 provides applicants with the authority to request the waiver or reduction of local development standards. This provision was intended to provide developers an additional “tool” to incorporate below market-rate units into their developments.
This new law still has some of the more prescriptive aspects of the previous section, but makes these optional instead of required in local inclusionary zoning ordinances. These include the term of affordability and the exclusion of projects that are allowed by-right.
The included definitions of “low income” and “very low income,” the elimination of the 17% maximum, and the greater weight of very low income units could make inclusionary zoning ordinances across Virginia much more common and effective.
Since these changes took shape right as the COVID-19 pandemic shifted policymakers’ priorities overnight, it’s unclear whether any localities have adopted—or are currently drafting—new inclusionary zoning ordinances using § 15.2-2305.1. If your community slipped our radar and is headed down this route, send us a note.
Special thanks to Joh Gehlbach at Richmond Association of REALTORS® and Andrew Clark at the Homebuilders Association of Virginia for advising on this article.
What programs, policies, and issues do you find most challenging to explain to policymakers? Let us know, and your suggestions may show up in a future edition of Back to Basics.