Inclusionary Zoning: What is it and What Does it Mean for Housing in Santa Cruz?

The issue of affordable housing in Santa Cruz has grown to become near unavoidable. From college students cramming more and more peoples into single bedrooms, to illegal garage units and add ons, to those who are forced out of their homes altogether and on to the streets–the evidence is everywhere. For those seeking to find a place to rent, or even to a more difficult degree, to purchase a home–there are increasingly few options. The problems of housing availability and affordability in Santa Cruz are not going anywhere. In fact as Silicon Valley expands and as more students enroll at UC Santa Cruz the problem will only continue to grow.

So where does this leave us?

Faced with what seems to be an increasingly dire situation many are once again considering a concept called inclusionary zoning. Inclusionary zoning is the process through which all developers must provide a certain proportion of deed restricted affordable units for every market rate residential unit created. Basically, for every market rate unit developers create they must make a percentage of affordable units to prevent all middle and lower income consumers from being driven out of specific areas.

This policy protects individuals with occupations that are indispensable to communities such as educators, law enforcement, mechanics, and many other paths that come with incomes that are relatively fixed. These are career paths that are considered not only admirable but are skills that are sought after in every area. And, as anyone who lives in Santa Cruz is probably aware, having a fixed income is not advantageous when the cost of living is anything but fixed. So by mandating inclusionary zoning these individuals are given some opportunity to live in units they would otherwise not be able to afford while their communities are able to continue to benefit from their skill set.

As far as Santa Cruz is concerned, the first inclusionary zoning ordinance was passed in the unincorporated area of the County as a voter-approved initiative under Measure J in 1978. It was later passed in the City of Santa Cruz as Measure O, becoming effective in its first resolution on January 15th of 2007 (each City has their owner version of an ownership inclusionary ordinance). Under Measure O 15 percent of units must be sold at a cost that is attainable to the median or below the median total income of Santa Cruz County–and must be the principal place of residence of the buyer. This maximum total income of potential buyers is designated through a formula and monitored by the local government.

Given that inclusionary zoning has been practice locally for close to 4 decades, why is housing still so unaffordable? Like most policies, while inclusionary zoning is a clever and helpful practice, it does come with its own set of pitfalls.

Primarily that developers do not want to take a mandated loss on the residential units they create, construction and development is afterall a business. For the developers who do choose to proceed, they feel compelled to raise the prices of other units within their project to cover the costs. This has been shown to create a net increase the price of housing on the open market and make things more difficult for other young families and skilled workers–as only a lucky few will be allotted a space within the limited inclusionary zoning restricted units.       

This all becomes very sticky because without the practice of inclusionary zoning not only will even more individuals be driven out by the high cost of housing, but developers and policy makers will be hamstrung in what they can do, thus making them more likely to inadvertently create concentrated areas where more lower income people live–instances that can lead to gentrification and an even larger socio-economic divides.

Is there a way to balance the pros and cons of this policy approach?

The answer is yes, and there is already a growing body of research and some relevant case studies from which to build on. For instance, in San Diego, they chose to implement an incentives based, voluntary inclusionary policy, rather than simply mandating the units. The way this works in practice is that developers can choose to build a certain percentage of their units as deed restricted affordable on site, in exchange for other concessions like waiving parking requirements or getting added density.

Let’s say a hypothetical developer wants to build 100 units. If they elect to restrict 15 of those units to be sold to those earning below the median income, the local government will allow them to build 25 more units total. If they build 30 units of deed restricted affordable units they will be allowed to build 25 more units, and have the required number of parking spaces be reduced from 1 per bedroom to .75 per bedroom. This not only makes the project more financially feasible from the development side of things, but also generates more housing, both affordable and market rate(!).

The San Diego program has proven to be so successful that they have seen a 900 percent increase in the number of projects applying to build on site units, and a near 500 percent increase in the number of on site units actually being built.

This is important to keep in mind because both the County of Santa Cruz and the City of Santa Cruz are considering amendments to their program in 2018 and beyond. This presents housing advocates and members of the business community with a real opportunity to work together to implement a more balanced ordinance, one that could end up producing more units of housing, of all types, to meet the broad housing needs of our community.