As Denver weights mandating affordable housing in new development, Atlanta provides a case study

While crafting a mandatory affordable housing policy that could become law this summer, Denver officials looked at more than a dozen other communities that have embraced so-called inclusionary zoning.

That’s the regulatory tool that requires developers to build or financially contribute to affordable housing when they construct new market-rate projects.

As Denver’s version of inclusionary zoning inches forward (and some development industry groups cringe) the city of Atlanta and its program stand out as a comparable example of the concept in action.

Atlanta officials have celebrated their city’s program as a success, one that may have even helped propel its chief architect on the Atlanta City Council, Andre Dickens, into the mayor’s office. But it has faced many of the same criticisms now being levied at the Denver proposal; that it unfairly shifts cost burdens onto developers; that it could torpedo projects and stile development in the very areas it is designed to help.

Like Denver, Atlanta is in a state that prohibits rent control. And like Denver’s draft policy, available for public comment through March 14, the Atlanta program is focused on offering incentives to developers to help offset the costs of capping rents while also having high fees in lieu of construction to discourage developers from choosing to swap in cash in place of affordable units.

Unlike Denver, Atlanta’s program is focused largely on new apartment projects of 10 or more units in targeted parts of the city. It was recently expanded to cover for-sale housing in one neighborhood. In Denver, the policy would apply to any new development of 10 or more rental or for-sale units anywhere within city borders. Other new projects — office buildings, townhomes, shopping centers — would also pay increased linkage fees to fund Denver’s affordable housing efforts.

How is inclusionary zoning working out for the city roughly 1,400 miles east of Denver? That depends on who you ask.

According to a study published by the Atlanta Department of City Planning last January, over the first three years of its program, it helped bring about the creation of hundreds of new affordable places for renters to live in growing and desirable neighborhoods. Furthermore, inclusionary zoning did not slow down the construction of new apartment projects in the areas where it was applied as some worried it would.

“It’s not a subsidy tool. This is saying you have to do it,” Joshua Humphries, Atlanta’s director of housing and community development, said. “Inclusionary zoning ensures there is more affordable housing in a district than there likely would be otherwise.”

The 2017 city ordinances establishing the program specifically cover the BeltLine Overlay District, a loop around the city’s core where public investment in things like bike and pedestrians paths were already drawing heavy developer interest. The policy also covered the western Atlanta neighborhoods near the Mercedes-Benz Stadium sports arena.

Between late January 2018 and the end of 2020, the program resulted in 362 units of affordable housing either being constructed or in the pipeline in those areas, Atlanta officials found. Of those, 302 were set aside to be affordable for people making no more than 70% or 80% of the area’s median income and 60 were set aside for people making 60% or less of the median income.

Denver’s policy is targeting similar levels of affordability. A summary of the policy provides a scale of what portion of an apartment or condo building must be set aside for lower-income renters or buyers. The specific number of units that must be set aside depends on if the developer chooses to cap prices at levels affordable to people making 60% or 80% of the area median income. Denver’s median income is $84,000 for a two-person household this year, according to the city.

Atlanta officials have been keeping an eye on if the program is stifling development, Humphries said, emphasizing that policymaking is an iterative process. Leaders are prepared to adjust if they spot something that is not working. But the city’s 2021 report did not find that the program slowed down development in the neighborhoods it applied to.

“We saw nothing that showed a significant change,” Humphries said. “Multi-family (development) has continued at a comparable pace to the three years before inclusionary zoning and comparable to the rest of the city.”

The Atlanta Apartment Association, meanwhile, argues that the city program can’t claim full credit for the influx of new affordability. Developers went out of their way to find other sources of support to make their projects work.

The association put together its own report in response to the city’s findings on Years 1-3 of the program. Outside help was a key in determining which projects were built, according to its findings.

“The biggest takeaway for us is that the only way new residential developments within the inclusionary zoning overlay have been able to move forward since the adoption of the policy is with significant financial subsidy, most commonly through a tax abatement from the local development authority, which are not guaranteed,” Chelsea Juras, the organization’s director of advocacy and public relations, said.

The apartment association report found that 12 of the 16 projects constructed or in the pipeline for the BeltLine during the study period had received tax abatements. Two of the 16 were owned and managed by nonprofit organizations focused on affordability. Three were “non-traditional” developments, meaning they were either micro-apartments, co-living arrangements or age-restricted senior housing. And at least two were supported by the federal low-income housing tax credit program, the go-to method for financing affordable multi-family housing in most places across the country.

The report also disputed that the new policy didn’t slow down development, pointing to news coverage in the Atlanta Business Chronicle that showed only two projects had pulled permits in the BeltLine zones as of November 2018, the first year of the program.

“Meanwhile, new developments were being permitted just outside the overlay and in other high demand areas of the City while projects stalled within the (inclusionary zoning) program overlay to determine how and if workable financing could be achieved as it was not guaranteed by the City’s ordinance or Invest Atlanta,” the report said.

Humphries acknowledged that a significant number of the apartment projects that got started in the parts of the city covered by the program did get additional subsidies during those first three years.

Denver staff members working on the housing policy have been providing briefings on elements of the city’s proposed program to the City Council’s land use committee in recent weeks.

During a Feb. 15 briefing before that committee, Denver city planner Analiese Hock said that the city is preparing for a surge in new site plans over the next few months as developers race to get their projects in the pipeline ahead of the new policy. If everything goes according to schedule, city officials aim to have the policy before the City Council for a public hearing in mid June. Should the council approve it, it could take effect after June 30.

“What that means is after June 30, we’ll probably see a substantial decrease in applications coming forward … ” Hock told the committee. “But what we typically see after about a year is development bubbles return to the kind of a standard trajectory … That’s likely just the reality of what occurs whenever you advance a substantial regulatory change.”

Atlanta’s policy allows developers to choose from a menu of incentives for building affordable units. They include increasing the density of their projects, doing away with on-site parking requirements and speedier plan reviews.

Denver’s proposed incentive package is similar. It includes decreased permit fees and parking requirement reductions. Denver is also looking at allowing developers that build more on-site affordable units than required to build taller in parts of the city where that is allowed.

Drew Hamrick, senior vice president of government affairs for the Apartment Association of Metro Denver, scoffed at the incentives Denver is putting forward. He argues they don’t come close to offsetting the cost of lost rent the affordability mandate will bring about. Developers will recoup those losses on the backs of market-rate renters, he has warned.

Another common thread between Atlanta’s program and what Denver is proposing is high fees in lieu of construction. Atlanta set its fees based on what officials estimated it would cost for the city itself to build affordable units in the neighborhoods covered by the policy. As of the publication of the three-year report, no developer had chosen that option.

At the Feb. 15 committee briefing, Brad Weinig with Denver’s Department of Housing Stability said policymakers intentionally set the city’s proposed fee in lieu levels at a high level. The reason is the same as Atlanta’s.

“We would rather see the units built than receive the money,” he said.

There are wings of the development community in Denver that aren’t opposed to chipping in more for affordable housing. Sue Powers, president of the firm Urban Ventures, added her name to a letter emailed to City Council members this week urging them to support the policy.

Powers and her company are focused on building mixed-income developments. She has experience developing subsidized housing and market-rate projects. She also sits on the advisory committee that worked with city staff on the affordable housing proposal. The policy has evolved from its early stages, she said, and it is now a “fair approach to dealing with a very small portion of the affordable housing problem in the city.”

There is an economic argument to be made for embracing inclusionary zoning and higher linkage fees, Powers feels. She doesn’t want to see Denver follow in the footsteps of the San Francisco Bay Area where workers often have to commute into communities where they can’t afford to live.

“We have to look at where we are in Denver right now,” she said. “For new businesses looking to move here, if they can’t hire here or if they are moving people here who can’t afford to live here that is going to be a very big issue.”

Source: Read Full Article