Some Cities Force Housing Developers to Include Affordable Units

Government programs to provide affordable housing for workers aren't keeping pace with the need, so an increasing number of cities are turning to a different tactic -- forcing private housing developers to pitch in.

From Chicago to California to Twin Cities suburbs, local ordinances require some new private-sector apartment complexes to include at least a few units with rents affordable to lower-income workers. Advocates for affordable housing tend to support the tactic while private developers have opposed it, taking the issue all the way to the U.S. Supreme Court.

In Mankato, Minnesota "inclusionary zoning" hasn't gotten past the most preliminary discussions in City Hall.

"That's something that's been kicked around," said Patti Ziegler, housing coordinator for the city and for Blue Earth County. "... We haven't done that, but it's an option."

For government officials, the attraction is obvious -- desperately needed housing units are created for working-class renters and there's no direct cost to city, state or federal budgets. The pushback from private developers also is predictable -- the requirements reduce the revenue that will be produced by costly new apartment buildings, which could threaten the profitability or even the financial viability of a project.

"We're supportive of it," said Jeremy Schroeder, policy director of the Minnesota Housing Partnership, a nonprofit that promotes better housing for low-income Minnesotans. "It's something we've seen used pretty well in the metro area."

Minnetonka, Woodbury and Edina have tried the approach, which Schroeder said helps ensure affordable housing is spread throughout a community rather than concentrated in low-income neighborhoods.

In Chicago and California, private developers reacted with lawsuits alleging the ordinances were unconstitutional. Mandating that some new apartment units must be rented at below-market rates was equivalent, the attorneys argued, to government confiscation of private property "for public use without just compensation" -- a violation of the Fifth Amendment.

Most ordinances give developers the option of, instead of creating the mandated affordable apartment units, contributing to a city's affordable housing fund -- $50,000 to $100,000 in Chicago for each required unit that wasn't built.

In California, where more than 170 communities had inclusionary zoning ordinances by 2016, the state Supreme Court unanimously ruled in favor of the cities. The U.S. Supreme Court later declined to hear the developers' appeal.

Calls by The Free Press seeking opinions on the issue from two of Mankato's most active housing developers were not returned, but Pepperdine University economics professor Gary Galles summarized the opposition to the mandates in a Los Angeles Times column last year.

"An analogy reveals the foolishness of inclusionary zoning," Galles wrote. "Suppose there was a law that if you opened a new supermarket you had to sell 15 percent of your groceries to low-income people at far-below market prices to improve their access to good nutrition. This would clearly be an unfair burden ... . Those eligible to buy the cheap food would benefit ... (But) to cover the cost of this forced charity, new supermarkets would charge higher prices for the remaining 85 percent of their groceries."

While inclusionary zoning won't solve the shortage of affordable housing, it can be one of the numerous tools used to ease the problem, said Justin Eilers, a project manager for CommonBond Communities, a nonprofit that has developed and manages thousands of affordable apartment units in Minnesota.

"It's a very good approach in my mind, especially for communities that are seeing a lot of luxury units built," Eilers said.

The key, according to Schroeder, is to make sure requirements for a certain number of affordable units don't make projects financially unfeasible and depress the construction of new housing -- which would backfire by actually reducing the size of the overall housing market.

"You have to watch to make sure that it's not stopping any development," Schroeder said of an ordinance. "And there's ways of doing it. ... In a hot market, one that's really developing, it's an amazing tool."

The level of private-sector enthusiasm for apartment development needs to be high for a city to be in a position to make demands that affordable housing be included in the project, said Mankato City Manager Pat Hentges. Otherwise, the developer might be inclined to move a project to a nearby community with lower land costs and fewer mandates.

Mankato isn't the Twin Cities, where developers compete for the right to build high-density housing along a light-rail line or other prime location, Hentges said. But Mankato could ask for affordable housing to be included in a new market-rate apartment complex if the developer is asking for city subsidies or other assistance.

In some cases, that assistance might not even be financial, he said. It could be a variance to zoning regulations, including rules that limit an apartment building's size based on the size of the lot.

For instance, a plot of land might be restricted to no more than a 100-unit apartment complex under city zoning rules. The City Council could propose allowing a developer to build a little bit bigger -- on one condition. "If you want to build 120, 10 percent of them have to be affordable," Hentges said, noting the developer would get eight more market-rate units under that scenario -- even after 12 are set aside for low-income renters with below-market rents.

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