The term “inclusionary zoning” refers to the wide array of zoning schemes that encourage developers to set aside a proportion of housing units in new projects for low- and moderate-income residents. Depending on the jurisdiction, these provisions may be either mandatory or optional, and may be adopted by a municipality, a county or statewide. When inclusionary zoning is optional, developers generally receive incentives for participation such as allowances to build denser and larger projects. The incremental benefits from these allowances are intended to outweigh the costs of constructing the below-market rate units.

Inclusionary zoning arose in the late 1960s as a response to exclusionary zoning practices, whereby local authorities enacted ordinances mandating minimal lot sizes and single family housing – often in suburban settings - that effectively priced out lower-income residents. Inclusionary zoning, by contrast, ensures that a population area bears a robust mix of housing affordable to a range of income levels. Critics of inclusionary zoning argue that mandatory policies or optional policies with insufficient incentives may discourage developers from undertaking new projects. In this manner, cost-prohibitive inclusionary zoning requirements could result in a reduced supply of housing and the adverse effect of raising housing prices even higher. Critics also argue that deed restrictions preventing resale at market rates deny homeowners the potential to build personal wealth through homeownership.

This debate is unlikely to be resolved any time soon. Inclusionary zoning arrangements vary significantly from one jurisdiction to another, and their relative impact depends more on specific terms and circumstances than on any underlying principles. Research conducted by the Furman Center for Real Estate and Urban Policy indicates that older and more flexible inclusionary zoning policies generally produce the most affordable housing units. The Furman Center also found evidence that inclusionary zoning policies are most likely to appear in affluent areas that have adopted other forms of land use regulation or that adjoin other jurisdictions with inclusionary zoning regulations.

New York City first adopted an optional inclusionary zoning program in 1969, but this early effort lacked sufficient developer incentives and failed to generate a significant number of affordable housing units. In 1987, the City revamped the Inclusionary Housing Program, implementing more effective incentives to prospective developers. The new terms offered developers in the densest areas of Manhattan – those zoned R10 – the opportunity to increase a building’s floor area by up to 20 percent in exchange for producing a proportional amount of affordable housing. The program allowed for the affordable units to be built off site, as long as they were located within a half mile of the original development. The new program saw modest success in the 1990s, with more than 20 new developments participating in the early 2000s. Critics of the program argued that it is inefficient to build affordable housing in the most expensive parts of the city when units can be built more cost effectively in outer boroughs.

In 2004, the Bloomberg administration announced the City’s New Housing Marketplace Plan, a decade long initiative to construct or rehabilitate a total of 165,000 homes and apartments. This ambitious plan proposed expanding inclusionary zoning citywide as on means of achieving this goal. In 2005 the New York City Department of City Planning (DCP) and Department of Housing and Preservation and Development (HPD) revised the 1987 provisions, expanding the program to medium-density areas of the city. The revised terms also increased the potential floor area bonus to as much as 33% for qualifying projects. HPD has historically targeted programs towards households earning less than 60% of the Area Market Income (AMI) – around $40,000 for a family of four – but the Housing Marketplace Plan also targeted moderate and middle income New Yorkers earning between $50,000 and $100,000.

Inclusionary zoning schemes, by definition, must address the unique circumstances of each neighborhood where they are implemented. For this reason, the inclusionary zoning provisions vary across the City. The first big opportunity to implement the New Housing Marketplace Plan’s inclusionary zoning policies came in the 2005 Greenpoint and Williamsburg rezoning. The comprehensive rezoning initiative included an optional inclusionary housing provision. The terms offered participating developers tax incentives as well as a “floor-area bonus” for properties that reserved at least 5 - 20% of the units for low- and moderate-income residents. Developers also have the choice of building the affordable units off-site. By March of 2007, the City reported that 459 affordable housing units had been generated through this program, although investment in new projects has slowed considerably as a result of the 2008-2009 economic downturn.

Other recent rezonings in New York City implemented similar affordable housing provisions. In June of 2005 the City Council approved zoning changes in the West Chelsea neighborhood of Community District 4, around the recently opened High Line Park. The measure created the Special West Chelsea District, an area with unique zoning provisions to encourage development of affordable housing in the area. The revised terms allowed for a “tiering” arrangement that would tie rights to build high-income housing to the construction of commensurate affordable housing units on or offsite. The terms also allowed for the use of affordable housing subsidy programs to fund construction of the units, extended the bonus and density provisions to conversions (which previously applied only to new construction), and planned for an Affordable Housing Fund. Once established by the City Planning Commission, developers wishing to increase their allowable floor area will be able purchase rights to do so by contributing to the fund. The expansive 2005 rezoning of Hudson Yards on Manhattan’s west side also expanded inclusionary housing provisions in the area, allowing developers of residential properties to nearly double the height of qualifying projects.

Until recently, New York City’s Inclusionary Housing policies only applied to rental units. In July of 2009, the City Council adopted an amendment to the HPD’s 2005 zoning changes. The amendment extended inclusionary housing policies to include a permanently affordable homeownership option. Under these changes, participating residential developments intended for resale receive bonuses in exchange for reserving some units at below market rates for qualifying buyers. The resale value of these units would be permanently restricted, but would be allowed to fluctuate modestly to allow owners to benefit for some growth of home equity.

Related Topics

421-a Tax Incentive Program
Affordable Housing Preservation
Greenpoint-Williamsburg Rezoning
Hudson Yards Rezoning & Far West Side Development
High Line Redevelopment

Last Updated: Feb. 25, 2010