What Apartment Developers Are Saying About D.C. Increasing Affordable Housing Requirements

D.C. Mayor Muriel Bowser is looking to increase the affordability requirements for certain projects as a way to address the housing crisis, and leading multifamily developers in the city largely say they support the plan.

Bowser announced a proposal Friday to increase the inclusionary zoning requirement for projects that request a zoning map change to between 10% and 20%. The proposal represents one piece of her administration's plan to reach its stated goal of building 36,000 new housing units, including 12,000 affordable units, by 2025. 

The city's inclusionary zoning program went into effect in 2009 and currently requires projects with 10 units or more to set aside between 8% and 11% of their units as affordable.

The proposed change would apply to developers that request additional density through the Map Amendment process, and the required percentage of affordable units would depend on the size of the density boost they are seeking. The smallest density boost, a floor-area-ratio increase of 0.5, would come with a 10% IZ requirement, and the requirement scales up to 20% for projects seeking an FAR increase of at least 2.5. 

Setting aside more units as affordable can add costs for developers at a time when rising construction costs are already making deals difficult to pencil, but multiple developers told Bisnow that tying the increased requirements to density boosts makes it an idea they can get behind. 

"We're supportive of the effort because the city is not just saying 'you have to build more affordable housing.' It's saying 'We want you to build more market-rate housing and more affordable housing,'" EYA Executive Vice President Aakash Thakkar said. "That seems to be the right approach from a policy perspective."

MRP Realty Managing Principal Bob Murphy also said the District is taking a smart approach, because it gives developers the option of seeking more density if they can make the affordability math work, but not requiring more affordable units for all projects.  

"People that I talk to in the development community — we talk a lot — everybody is pretty much in line with the mayor and the administration to do our part to deliver more affordable housing," Murphy said. "I think there's a real opportunity here, and it could be an effective way to add more density."

MidCity Development Executive Vice President Jamie Weinbaum, who formerly served as a D.C. planning official, said the most important thing for developers is certainty. As long as developers know exactly how many IZ units will be required at the beginning of the acquisition and planning process, he said they should be able to fit it into their financial underwriting and make a deal work. 

"What this proposal could allow is for enhanced density, where even if you're providing more affordable housing, the carrot of being able to provide additional FAR and more housing overall can offset those costs," Weinbaum said. 

D.C. Director of Planning Andrew Trueblood said the inclusionary zoning program has spurred the creation of about 1,000 affordable housing units over the last decade. He expects the new affordable units created by this proposed change would likely number in the hundreds, but he said they will be in areas that have not historically built much affordable housing. 

"In the entirety of the District's stock of housing, [1,000] is not a lot, but you look at where that housing is located, it is critical housing in high-opportunity, high-cost areas that we have trouble creating affordable housing in," Trueblood said. "I think this is an important tool."

Trueblood said the Office of Planning understands that setting aside affordable units can be expensive for developers and make a deal harder to pencil, so requirements need to be at a level that can still allow projects to move forward. 

"The reality is that nothing is free, despite what some people believe, and we have done a really good job of making sure our Inclusionary Zoning fits within market realities and doesn't hamper the housing market," Trueblood said. "If we start requiring too much, that could impair our ability to reach our overall goals. It is a fine balance."

He said he believes the proposed changes strike that balance, but he said stakeholders will have the opportunity to weigh in before the rules are finalized. The Office of Planning submitted the proposal to the Zoning Commission, which will hold a public hearing before voting on the measure. 

Urban Investment Partners principal Steven Schwat said the inclusionary zoning policy sounds good in theory, but he said it has not worked out as well in practice.

He said he has buildings with IZ units that have remained vacant, because the leasing team could not find tenants. He has heard other developers complain about having the same problem, he added. UIP's 100-unit Tenleytown project is now fully occupied except for two vacant IZ units, which he said his team has been unable to lease.

"I think the city has got to do a better job of promoting and filling the inclusionary units that we create before they start thinking about increasing the percentage of inclusionary units in a building," Schwat said. 

Goulston & Storrs Director Jeff Utz, a land-use attorney who co-chairs the D.C. Building Industry Association's Public Policy and Regulation Committee, said he supports the idea of expanding the Inclusionary Zoning program, but wants to make sure the percentages are set at a level that doesn't act as an impediment.

"There is a need to look at the formulas and the impact on the costs of projects themselves to see if they will actually pencil," Utz said. "Now that the idea has been proposed, that's great and it opens up a potentially powerful tool, but now it's about trying to figure out exactly what the right percentage is."

Murphy said the math needs to work out so that a project receiving a density bonus in exchange for more affordable units becomes more profitable than it otherwise would have been. He said if the cost and benefit fully cancel each other out, the time it takes to go through the process could add costs that don't make it worth it. 

"At a minimum it needs to be neutral, but frankly it probably needs to be somewhat accretive, because any time you add additional time, there's costs and risk associated," Murphy said.

The administration is proposing the Inclusionary Zoning changes alongside its efforts to amend the District's Comprehensive Plan. The round of amendments it released in October included changes to the Future Land Use Map that envision higher densities on properties throughout the city, largely in areas near transit and on high-traffic corridors. 

Even if the Comprehensive Plan is enacted — it still needs approval from the D.C. Council — developers looking to build to the density levels it envisions will still have to request zoning changes through the Map Amendment or Planned Unit Development processes.

The PUD process has led to appeals that have blocked or delayed dozens of projects throughout the city in recent years. Experts say the Map Amendment process, which would now have a higher affordability requirement under the new proposal, may be a more viable option going forward. 

"I think it's something that will be fairly immediately pursued once the Comprehensive Plan is effectuated, I think we'll see a move toward doing that, filing map amendments and trying to drive additional housing," Utz said. 

Murphy said MRP controls at least two sites where he is considering the map amendment process. Weinbaum, whose firm has had a Rhode Island Avenue project delayed by an appeal for more than 18 months after its PUD approval, said the Map Amendment process could be an attractive option to pursue in the future. 

"In certain neighborhoods that have been resistant to development, it could be a tool for those developers, because the PUD process has become fraught with appeals," Weinbaum said.