Inclusionary zoning relies on private developers to create affordable housing. It requires a percent of units in new housing developments to be set aside for households who earn less than the area median income.
Inclusionary Zoning Basics
1. Requires a percent of units in new housing be affordable for income-eligible households.
2. Relies on private developers to create Affordable Housing with no public subsidy.
3. Must carefully balance elements of the policy to minimize costs, otherwise there’s a risk of increasing rents or dampening development.
Housing is Expensive to Build
The cost to build an affordable home exceeds the cost the developer is allowed to rent or sell it for. For that reason, developers need something to help offset costs of building this type of home.
A critical component of the technical assistance provided by Metropolitan Area Planning Council for the Affordable Housing Trust Fund was to develop a financial feasibility model to test the market implications of various inclusionary zoning scenarios.
The model is based on a pro-forma analysis that is typically used by a developer to understand whether a real estate project is financially feasible. A development proforma takes into account several project specific variables. The variable assumptions are based on housing market data from the Warren Group and the US Census Bureau and through qualitative data collected via focus groups and interviews with Salem residents and local housing experts which lenders, developers, and land use board members.
What is area median income?
The federal government calculates income limits for Affordable Housing programs using the Area Median Income (AMI)—what a household right in the middle of the income distribution earns.