Small Project Exemption

Many inclusionary programs apply only to residential projects above some threshold size. Smaller projects are exempt from providing affordable units.

A 2014 survey of 20 programs found that the minimum size of projects subject to the affordable housing requirements ranged from two to 50 units with the most common threshold being 10 units.*

Advantages

  • Ensures that inclusionary requirements won’t be overly burdensome on small projects.
  • Reduces the administrative challenges associated with approving and monitoring small projects.
  • Makes the overall program easier to implement without greatly reducing the total number of affordable units produced (in many cases).

Disadvantages

  • In communities with primarily smaller projects, can dramatically reduce the number of affordable units built.
  • Can create an incentive for developers to build smaller projects.
  • Can lead to an increase in developments with one less than the threshold number of units.

When developments below a given unit size are exempt from inclusionary regulations, some communities may experience a “one-under syndrome.” This refers to an increase in proposals falling just under (or one unit under) the inclusionary limit. For example, a developer may submit multiple four-unit subdivision proposals for contiguous lots that, absent the inclusionary requirement, would have been brought as a larger single proposal.

Denver, Colorado

The city of Denver, which applies its inclusionary regulations to developments with 30 or more units, addresses the one-under syndrome by clearly defining in its Inclusionary Zoning Ordinance the terms “Applicant” and “At one location,” as follows:

“Applicant means any person, firm, partnership, association, joint venture, corporation, or any other entity or combination of entities, or affiliated entities and any transferee of all or part of the real property at one location, which after this article takes effect develops a total of thirty (30) or more new for sale dwelling units at one location in Denver.

At one location means all real property of the applicant if:

  1. The properties are contiguous at any point;
  2. The properties are separated only by a public or private right-of-way or utility corridor right-of-way, at any point; or
  3. The properties are separated only by other real property of the applicant which is not subject to this article at the time of any building permit, site plan, development or subdivision application by the applicant.”

Instead of exempting small projects, some cities adjust their in-lieu fees based on the size of the development (typically by offering a lower fee for small projects). There can be multiple reasons for this, including cities wanting to simplify management of their program by discouraging a pattern where market-rate buildings have one or two affordable units. Also, the economics of smaller developments may be more marginal and a lower in-lieu fee could help make them feasible.

Montgomery County, Maryland

The county lowered their minimum lot exemption from 50+-units to 20+-units. Since the program was first adopted in 1974, the availability of large parcels for new development had declined and the scale of new developments dropped, meaning most new developments were exempt from their inclusionary regulations. They considered implementing an in-lieu fee for developments under 50 units, but instead opted to lower the threshold requirement to 20 units. Developments under 20 units are exempt from inclusionary fees or any other requirements.

Boulder, Colorado

Boulder imposes a 20 percent inclusionary requirement on developments proposing five or more units. Development on site is the preferred for meeting the requirements. For developments under five units, an in-lieu fee is required. Technically, under Boulder’s ordinance, no development is fully exempt from the inclusionary regulations.

Rental or Ownership Exemption

Most inclusionary housing policies apply equally to both rental and homeownership projects. In some cases, communities have designed programs that apply inclusionary requirements only to one or the other tenure type. The challenge in implementing this kind of open-ended waiver is that it creates an opportunity for favorable treatment of developers with stronger political connections. It is difficult to maintain transparency in a system that allows for case-by-case judgment calls.

Hardship waivers/appeals

Some cities set relatively high inclusionary requirements but allow any developer to request a waiver or reduction in the inclusionary requirements when they can prove that compliance would make a project economically infeasible.

Evanston, Illinois

Evanston requires 10% affordable units in all new market rate housing developments but offers developers a waiver or reduction if a developer can:

“provide clear and compelling financial evidence to the City Council that full compliance… would render the development financially infeasible.”

San Jose, California

San Jose’s inclusionary housing ordinance applies only to new ownership projects. California courts have held that inclusionary housing requirements applied to rental properties violate the state’s ban on local rent control ordinances. For this reason, San Jose exempts all new rental properties from its inclusionary housing ordinance.

However, San Jose has also adopted an affordable housing linkage fee, which requires rental developers to pay into a trust fund for affordable housing. The combination of the two policies means that all new residential projects contribute to the need for affordable housing but only ownership units must provide affordable homes on site within new market-rate projects.

Common Questions

Should all developers pay the same in-lieu fee?

When considering in-lieu fees, it is important to decide if a city wants to always allow developers the option to pay the fee or restrict its use to some developers. Some cities allow an in-lieu fee by right, while others require developers to demonstrate either some net benefit to the city, or a substantial hardship.

Generally, whatever method cities use to arrive at a fee level, they should apply that single fee level to all projects of the same type. Many cities will have different fee levels for rental and ownership projects. Some cities adjust their in-lieu fees based on the size of the development. These cities typically offer a lower fee for smaller projects. Cities often do this because they want to simplify the management of their program by discouraging a pattern where market rate buildings have only one or two affordable units. Also, the economics of smaller developments may be more marginal and a lower in-lieu fee could help make them feasible.

Should off-site development be encouraged?

It depends: Off-site production can be a valuable tool for cities if it is done right. Offsite units can be constructed by the developer of the market-rate project that generates the requirement, by another private developer or by a nonprofit partner. In addition, a number of cities offer developers the option of donating land to the city or an approved partner which facilitates offsite production without requiring the market-rate developer to actively participate in the affordable project.

On Site

Off Site

Advantages Advantages
Ensures access to high-opportunity neighborhoods Can be more cost efficient (i.e., can often produce more total units)
Is easier to enforce design quality Can leverage other affordable housing subsidies to produce additional units or serve lower-income residents.
Has low risk of ongoing maintenance problems Can design and operate properties to meet the needs of the local population (family units, amenities, social services, etc.)
Provides integration in the same building, which can be symbolically important and help build public support
Disadvantages Disadvantages
Can be difficult to monitor scattered units May concentrate affordable units in lower-income areas
May produce fewer family sized units May produce lower-quality buildings
May not be economically feasible for all project types May lead to lower-quality long-term maintenance
Is harder to incorporate very low-income or special-needs residents Presents risks of “double dipping,” whereby developers reduce their costs by relying on scarce affordable housing subsidies

 

Can we exempt small projects without creating a loophole for all developers?

When developments below a given unit size are exempt from inclusionary regulations, some communities may experience a “one-under syndrome.” This refers to an increase in proposals falling just under (or one unit under) the inclusionary limit. For example, a developer may submit multiple four-unit subdivision proposals for contiguous lots that, absent the inclusionary zoning requirement, would have been brought as a larger single proposal.

The city of Denver, Colorado, which applies its inclusionary zoning regulations to developments with 30 or more units, addresses this by clearly defining in its inclusionary zoning ordinance the terms “Applicant” and “At one location,” as follows:

“Applicant means any person, firm, partnership, association, joint venture, corporation, or any other entity or combination of entities, or affiliated entities and any transferee of all or part of the real property at one location, which after this article takes effect develops a total of thirty (30) or more new for sale dwelling units at one location in Denver.

At one location means all real property of the applicant if:

  1. The properties are contiguous at any point;
  2. The properties are separated only by a public or private right-of-way or utility corridor right-of-way, at any point; or
  3. The properties are separated only by other real property of the applicant which is not subject to this article at the time of any building permit, site plan, development or subdivision application by the applicant.”