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The Basics of Inclusionary Zoning

November 13, 2015 | by Michael Wilt

Categories: Affordable Housing, Construction, Homeownership

As cities across Texas struggle with how to increase the availability of affordable housing, incorporating affordable housing into market rate developments, known as "inclusionary zoning," often comes up as a possible tool to accomplish that goal. "Inclusionary zoning" or "inclusionary housing" refers to any policy requiring a certain portion or percentage of housing built or preserved to be affordable to low or moderate income households.

It's a tool that can evoke strong opinions and confusion on what is legal or not in Texas. In this blog entry, we take a closer look at how communities may or may not use inclusionary principles to incorporate affordable housing into market rate developments.

What Municipalities May or May Not Do

Per the Texas Local Government code, a municipality may not pass an ordinance or set a regulation "that establishes a maximum sales price for a privately produced housing unit or residential building lot." This is the language housing policy experts point to when referencing Texas' ban on inclusionary zoning. For example, a municipality can't tell a private developer that 10% of for-sale residential units have to be sold at a certain price or less.

Municipalities may "create or implement an incentive, contract commitment, density bonus, or other voluntary program designed to increase the supply of moderate or lower-cost housing units" or allow for income restrictions in "homestead preservation districts" created by the Legislature.

Density Bonuses

The most common incentive cities offer in exchange for affordable units is a density bonus. Cities allow a developer to build more units - and thus increase their profit - in exchange for providing a certain percentage of affordable units. The challenge is creating a program that is attractive enough for developers. The City of Austin is working to make its current density bonus program more appealing as evidenced by an October 2015 resolution.

Other Incentives

Cities can also provide other types of perks to promote the development of affordable units like streamlining the development process, offering parking reductions, providing tax abatements, reducing development fees, offering cash incentives, or dedicating general obligation bond dollars for affordable units. Cornerstone Partnership, a Virginia-based network of housing professionals, created an Inclusionary Calculator that allows users to plug in these incentives to demonstrate how a project can be profitable with affordable units included.

Homestead Preservation Districts

These districts allow for the creation and preservation of affordable housing in districts with boundaries created by a municipality. They can establish tax increment financing, land banks and land trusts to build or preserve housing in the district that is restricted to households at certain income levels. TSAHC operates a statewide land bank and land trust through our Affordable Communities of Texas program. 

As Texas cities continue to struggle with increasing housing prices, more local governments may find themselves experimenting with some of these tools as a mechanism to include housing for a variety of income levels in more developments.

On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.

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