Are there downsides to upzonings?

screen shot 2019-01-14 at 10.02.33 am
A rendering of a proposed development on Alamo St, south of Manor.

As I explained yesterday, the proposal by Greg Casar to exempt affordable housing projects from various city regulations is entirely separate from the ongoing conversation about incentivizing market-rate developers to include affordable units in their projects. Typical developers will not be the least bit impacted by this proposal.

Now, there are other types of density bonuses that do aim to get developers, including luxury developers, to offer some units at discounted rates to low(er)-income tenants. The city has a number of such programs, which tend to offer developers additional building height or additional floor-to-area ratio if they provide 10% of their units to tenants at 60% of area median income or homeowners at 80% AMI. (Here are the AMI levels in Travis County)

There are two perennial critiques of our density bonuses. The first, often levied by neighborhood preservationists, is that such deals demand far too little from developers. That is what Leslie Pool suggested in her comment on the Council message board yesterday.

Developers and density enthusiasts counter that clearly the deal is not too generous, as evidenced by the fact that many of these programs have generated very little interest from developers. In many cases they have calculated that the additional entitlements are not enough to make up for the money they lose by providing the affordable units.

Some market urbanists criticize density bonuses because they don’t believe that the “bonus” the city is offering the developer (increased height, reduced parking etc) should be the city’s to give. Why should developers ever be forced to dedicate money and concrete to parking spaces if the market doesn’t demand it? Rather than offering some developers a reprieve from some of our worst regulations, why not just get rid of the bad regulations completely?

And yet, even some of the more density-inclined activists and politicians, across the country and in Austin, figure that we have to keep at least some annoying land use regulations so that city government has some leverage that it can use to negotiate with developers, particularly in its efforts to boost affordable housing stock. This was one of the arguments put forward by opponents of a California bill that sought to upzone all properties near transit hubs. Here’s an editorial from the LA Times (h/t to APN subscriber Jake Wegmann):

But here’s a potential problem with the bill: By setting blanket height and density increases statewide, the bill, as currently written, could eliminate key affordable housing incentives and protections designed to reduce displacement in gentrifying neighborhoods.

The problem is, Austin’s current density bonuses have not produced all that much housing. As of 2016, 12 years after the first program had started, the ten different bonuses had generated 1,653 units, about half of which had come in the West Campus area.

Instead, the great majority of income-restricted units in Austin (and the U.S.) are provided by developments that are financed via a combination of the Low Income Housing Tax Credit and city funds. Now that the city has approved a $250 million housing bond, it will be able to provide much more assistance to those projects and hopefully generate thousands of units.

But creating as much affordable housing as possible is not the only goal. We also want economic integration. And if they work the way they’re supposed to, density bonuses accomplish that beautifully.

Now, simply by legalizing cheaper forms of housing that are now barred from certain neighborhoods (apartment buildings, triplexes), a deregulated housing market would probably be much more integrated than the status quo.  We can support additional integration by trying to put subsidized housing projects in as many parts of town as possible. Of course, if you look at where the affordable projects are going up, you’ll see that that is a challenge, simply because land values in the nicest parts of town are so high.

The other major environmental and affordability benefit of universal upzoning would be that it would facilitate public transit and reduce sprawl. That part is pretty obvious.

To bring this to an unsatisfying conclusion, I suppose if there was strong evidence that we could produce lots and lots of affordable housing via density bonuses, then it would be tempting to shy away from universal upzonings and try to cut deals with developers. But so far, it doesn’t appear that that is a very effective tool. We might be better off trying to get as much housing as possible out of the market and then building income-restricted housing to serve those who are not being served by the market.

Another conversation about upzonings is whether they increase property values and lead to gentrification. That is a topic I’ll explore in a future post.

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2 thoughts on “Are there downsides to upzonings?

  1. A couple things to say about this:

    1) 1600 units at $120,000 each [which I think was the figure cited in the Grove fight for the average cost of an Affordable unit from the Housing Trust Fund] is $198mm. That doesn’t count the money generated for the Affordable Housing Trust Fund from Fee In Lieu payments either. I know the Housing Bond we just passed is bigger, but it’s the same order of magnitude here, even for just the on-site.

    2) I don’t think we should be surprised that the program that has generated the most units is the one that (seems to) offer the largest amount of development rights for the smallest percentage of Affordable units “in return”. Many of our programs are calibrated such that profit-seeking developers rarely opt for the bonus; UNO is calibrated such that profit-seeking developers almost always opt for it. 5% of a big number is a lot bigger than 15% of almost zero.

    3) Market-rate rents converge toward the (per unit) marginal cost of making a project a few units bigger. When we add a cost of making a project bigger (in this case, a requirement to subsidize a Affordable units), we’re raising the long-term equilibrium value of market rate rents. Now, maybe that’s worth it for the integration benefits of having subsidized housing share a building with much more affluent tenants — but, compared to just giving the development rights away, tying them to a costly bonus program doesn’t help the overall affordability picture for the vast majority of low- and middle-income Austinites.

    4) There’s also a question of values here. Housing is a community benefit, especially if it’s in the parts of our city where people most want to live. Does it really make sense to restrict someone from providing _some_ community beneifts until they agree to also provide more? What’s in it for the community to disincentivize doing a little bit of good?

    1. Josiah and I have commented equally on what is a community benefit, but in different way. The statement above is that Housing is a Community Benefit, of which I agree, it is. Broadening this to my statement in the past of Density is a Community Benefit, captures all realms of development, not just housing. YES, by all means please address housing as that is in desperate short supply. But do not knock the benefits of all types of development for the jobs they bring to the area, the increased transit ridership, the creation of walkable environments, etc.. We all know those benefits and all I ask is that we not make every urbanist statement about housing only. There are a lot of opportunities out there for commercial sites to be redeveloped to provide for housing and commercial jobs. One would think that a mixed-use development would be held in higher desire by a community than a single-use only development. Incentivize mixed-use over single-use to bring sites to market that helps add supply and lessen the impacts on the neighborhoods, though they could all use some density increases.

      Totally agree with Josiah on the numbers of AH % for each site. Seems the city recognizes they have squandered redevelopment opportunity by creating too many regualtions and they feel the need is to have any one project make up for the shortage. Whittling at the regs is important and providing reasonable relaxations in exchange for a bit of increased development capability can go a long way in the long term. Imagine Capitol Plaza north of Mueller on the IH 35 frontage road being redeveloped and that site having 5% of the units for AH – that would be a lot of units. Imagine Southwood Mall redeveloped with 5% AH. Many others. Give those sites the incentives. Don’t give incentives to a few developers to use 9% tax credit monies, or if you do, also pile on the incentives for these other tracts that have set idle from the 1960’s. Supply capability for many properties helps settle the equations on gentrification and also AH.

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