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Inclusionary Zoning – where and how?

MacroPlan has been undertaking research into the affordable housing issue in Australia. Part of this work has focused on the concept of Inclusionary Zoning which is a means to increase the access to affordable housing by households on low income.  Affordable housing continues to be a challenge confronting many developed economies. In terms of a solution, some advocate a free market approach while others suggest that a more interventionist approach is sometimes required. Inclusionary Zoning represents one interventionist approach which involves establishing a regulatory regime that requires development of land to deliver a specified quantum and standard of affordable housing product.  It has been applied in various jurisdictions around the world and in several States in Australia, with varying levels of “success”.

Historically the concept is rooted in American history. Inclusionary Zoning was a response to the undesirable practice of exclusionary zoning. Exclusionary Zoning is the practice of communities, particularly affluent suburbs, creating barriers for entry by requiring large minimum lot sizes and large minimum floor areas, prohibiting mobile homes and limiting multifamily residential areas. In the United States, these practices were prevalent in the 1960s and 1970s.

There are many aspects that relate to Inclusionary Zoning which need to be addressed ahead of any potential implementation. These include:

  • What is an appropriate definition of Inclusionary Zoning;
  • How applicable is Inclusionary Zoning for affordable housing in a regional context;
  • Can it be voluntary or should it be mandatory;
  • Which governance and administrative arrangements could apply and what are the potential advantages and disadvantages of each option;
  • What are the options for delivering Inclusionary Zoning for affordable housing specifically to identify the relative costs, benefits and implementation options; and
  • Which option in consideration of the above represents the best opportunity for the successful implementation of Inclusionary Zoning?

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One domestic example of Inclusionary Zoning is provided by the South Australian Government. The Government adopted Inclusionary Zoning policies through the ‘Housing Plan for South Australia 2005’. This policy mandates that significant development in South Australia must realise a minimum 15% affordable housing.

It is notable that South Australia has not adopted a statutory definition of Inclusionary Zoning. The South Australian Housing Trust Regulations 2010 define Affordable Housing as a dwelling or land that is:

  • Offered for sale at or below a nominated affordable price point (below), and updated periodically by notice in the Government Gazette.
  • Offered for sale to eligible low to moderate income earners (up to $75,000 for singles, up to $95,000 for couples and families) or affordable rental providers.
  • Subject to a legally binding agreement that ensures these requirements are met.

The Inclusionary Zoning policies adopted in 2005 mandate that development provides 10% affordable housing and 5% high need housing within all significant new housing developments.  The statutory requirement for the provision of Affordable Housing in SA is contained within Regulation 4 of the South Australian Housing Trust Regulations (2010) which allows the Minister to determine the criteria that are to be applied for the concept of affordable housing.

In research undertaken by MacroPlan several themes have emerged in the literature regarding the implementation of Inclusionary Zoning. These include:

  • Inclusionary Zoning has been implemented globally using different policy frameworks and legislation, whilst different policy, key themes emerge throughout.
  • Affordable Housing Targets – In most cases, targets for the number of affordable houses that should be built within a set period are set giving the parties responsible for the program a goal to work toward.
  • Development Thresholds – Most policy outlines if a development is of a certain size it will need to include affordable housing. Despite being a common theme this threshold varies significantly across the world. In London the threshold is 10 units, in Montreal 200 units.
  • Planning Bonuses – To encourage the development of affordable housing, many government bodies provide incentives. One of the major tools used is planning bonuses such as density bonuses or allowing smaller units to be constructed.
  • Not-for-profit organisations – These have played a large role in the overall success of affordable housing programs. In most countries not-for-profit organisations construct/and or manage the affordable properties.
  • Geographic – Whilst not a theme in all countries, many countries aim to provide affordable housing in affluent locations where low income families would not usually have the means to live. This is particularly prevalent in the United States, Adelaide and Sydney (such as Green Square).
  • Cash-in-lieu concessions – Cash-in-lieu is used widely, that being a payment made by developers to avoid constructing affordable units. Whilst this doesn’t result directly in the construction of affordable units, this money is often directed, for example, to government or not-for-profit organisations in order to build affordable housing elsewhere.
  • The concept of what is ‘Affordable’ – Most countries around the world have adopted the rule that if a house is considered affordable if the household is paying no more than 30% of gross income on rent or mortgage payments.

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Presently there is a range of Government studies investigating potential solutions for affordable housing and Inclusionary Zoning in particular. It is notable that measuring the success of Inclusionary Zoning for each of these studies will most likely be problematic. It is important that the “problems” being solved in these investigations are those which have been clearly defined.  Should Inclusionary Zoning be targeted for people who live in a certain region or area, for those who have an income profile in the bottom or bottom two quintiles of median income, for families or single people, for people with a particular skill set, and should it be provided in greenfield or in infill locations? And what about the potential implications of Inclusionary Zoning? One of the most frequently raised criticism is that without “bonuses” being provided there is no clear incentive for developers to adopt the scheme. Another criticism is that Inclusionary Zoning will decrease housing supply because it negatively impacts the feasibility of development which in turn creates upward price pressure – the antithesis of what any affordable housing program should achieve. Naturally, the benefits including reduced journey to work times and access to better employment opportunities also need to be measured. Understanding these aspects is important for the successful implementation. Without defining the targets, the issue and its scale there is no meaningful way to confirm the success or otherwise of the implementation of any Inclusionary Zoning program.

To know more about Inclusionary Zoning please contact Mark Courtney, General Manager – Queensland.


 

About the author:

Mark Courtney
General Manager – Queensland
courtney@macroplan.com.au

Mark Courtney is MacroPlan’s General Manager – Queensland.  Mark’s is an accomplished property professional whose experience uniquely positions him to provide leadership in property research and consultancy. He has considerable experience in the analysis and development of Australia’s industrial property sector, as well as extensive market trend analysis, feasibility assessment and land demand and supply modelling expertise.

About MacroPlan:
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Mark Courtney, General Manager – Queensland, today to discuss your property research requirements.

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