Using Affordable Housing Overlay Zones to Reduce the Risk of Displacement

Affordable housing is a complicated and challenging issue facing many communities in Washington State. While affordable housing is defined by the U.S. Department of Housing and Urban Development (HUD) as “housing with monthly costs, including utilities other than telephone, that do not exceed 30% of a household's monthly income” (households that spend more than 30% of their income on housing costs are considered ‘cost burdened’), a disproportionate share of the negative impacts fall primarily on lower-income people and people of color. Several techniques have been identified as ways for local governments to address the affordable housing issue (see the Washington Department of Commerce’s Guidance for Developing a Housing Action Plan - June 2020 for more details).

At the state and local level, a major emphasis has been placed on increasing housing supply to meet the local demand for all types of housing, which is one of several actions that need to be undertaken to address all of our state’s affordable housing challenges. One action step that is often taken to increase the housing supply is to change local zoning, or ‘upzone,’ to allow for a greater amount of housing. One unintended consequence of such upzoning, however, is the potential for an increased risk of gentrification and displacement. This blog will identify a new zoning tool that could potentially address this gentrification/displacement risk: Affordable housing overlay zones.

What is Gentrification and Displacement?

The Puget Sound Regional Council (PSRC) offers the following definitions in its Vision 2050 Draft SEIS:

• Gentrification: The influx of capital and higher-income, and oftentimes more highly educated residents into lower income neighborhoods.
• Displacement: The involuntary relocation of current residents or businesses from their current residence. This is a different phenomenon than when property owners voluntarily sell their interests to capture an increase in value. Physical displacement is the result of eviction, acquisition, rehabilitation, or demolition of property, or the expiration of covenants on rent- or income-restricted housing. Economic displacement occurs when residents and businesses can no longer afford escalating rents or property taxes. Cultural displacement occurs when people choose to move because their neighbors and culturally related businesses have left the area.

David Price defines gentrification as “revitalization and reinvestment causing a relatively sharp increase in rents and home values in low- and moderate-income urban neighborhoods resulting in actual or imminent displacement of residents.”

Increasingly local governments are examining the negative effects of gentrification and displacement on those community members impacted by it, as well as looking at the role of the upzoning process. As a result, they are starting to consider taking steps to counter these unintended consequence. For example, Burien’s Housing Action Plan contains Policy A3: Monitor Neighborhoods at Highest Risk of Displacement and Act with Caution with Proposing Land Use Changes, which includes the following explanation:

With a nuanced understanding of the areas that might have the most vulnerability to physical, economic, and cultural displacement, the City can employ its anti-displacement recommendations in a geographically-focused way… In addition, city-led changes in zoning allowances and entitlements to allow more intense housing development can increase the chances that households vulnerable to displacement see increased displacement pressures. Consequently, displacement risk should be assessed before rezones and safeguards should be developed in response to the findings.

Effect of Rezoning to Increase Housing Supply

Zoning deals with how property can actually be used and developed, which affects the price of land in that it determines what types and densities of development that is allowed. Increased zoning, such as what can be achieved through upzoning, results in an increased capacity for a community to accommodate new development, both housing and nonresidential. One common assumption is that increased supply will result in lower housing prices. While this supposition is broadly true, especially on a macro scale, it does not always result in an increased amount of housing that is affordable to low and low-moderate income households (such as those at 50-80% and 80-100% AMI levels), especially in hot real estate markets where demand greatly exceeds supply.

Additionally, the private sector is generally able to outbid nonprofit and local housing developers for prime development parcels of land, which makes it even more challenging for affordable housing developers to acquire properties for their housing projects (especially those aimed at the 50-80% AMI levels and below).

Again, while the intent may be to promote redevelopment that would benefit the entire community, public rezoning efforts often result in gentrification and displacement for the most marginalized families and individuals. How to address those unintended consequences is a complicated issue for any local government to tackle.

A New Approach: Affordable Housing Overlay Zones

Creating affordable housing overlay zones (AHOZ) is a relatively new approach being considered by several communities throughout the U.S. to address the issue of gentrification and displacement that can result from upzoning. This type of overlay zone would be added to a local government’s zoning map and zoning/development codes, which would provide substantial density bonuses (beyond what is normally included in more traditional density bonuses) and other development incentives for housing projects with high percentages of below-market-rate housing units. While it appears that this specific AHOZ tool has not yet been used in Washington State, it has been adopted and incorporated into local zoning codes in other parts of the U.S.

How does an overlay zone system actually work? In essence, an overlay zone ‘floats over’ over existing, designated zone(s) on the zoning map and affixes to a specific parcel only if a developer met certain conditions. For example, a sample city’s AHOZ program might look like this: Single-family zoning standards would apply to all parcels within a designated ‘single-family zone’ and would only allow single-family residences to be built at a set intensity level, unless a developer proposed a 100% affordable housing project on a specific development site. If that proposal met the program requirements, then the AHOZ would be triggered and ‘overlaid’ onto that piece of property, which would allow the increased density and height limits, as well as expedited development review.

Benefits of an AHOZ

Affordable housing development is challenging and difficult, due in part to:

1. High land costs;
2. Competition from market-rate developers who can usually afford to pay more than nonprofit and public affordable housing developers; and
3. Discretionary review (such as those triggered by a ‘conditional use’ designation), which can add significant cost, unpredictable delays, and risk for any housing developers

AHOZ density bonuses allows more units per acre to be built, which reduces the per unit cost. Because the density bonus will likely only be used by nonprofit and public housing developers, the market price of land will presumably be based on how the land could be developed without the density bonus, which should make it easier for those types of developers to acquire land for their housing projects. Treating AHOZ projects as ‘by right’ permitted uses in a zoning code will reduce the extra time and expense needed when an applicant is required to go through a discretionary development review process (such as those typically required for conditional uses).

Examples of AHOZs

Cambridge, Massachusetts, home of Harvard University, has been struggling to effectively address the issue of affordable housing, with a particular focus on addressing the three challenges identified above (i.e., high land costs, competition for scarce development sites, and discretionary review). To provide an incentive for affordable housing developers, Cambridge adopted an AHOZ in 2020 which allows more density, greater height, and faster administrative approval for housing projects that provide 100% of their housing units at below-market rates. This includes:

• Allowing 4-story buildings in every residential zone (including single-family zones), with up to 7 stories allowed along commercial corridors;
• Removing maximum density standards, although there are dimensional and lot coverage requirements;
• Reducing minimum parking standards; and
• Treating AHOZ developments as permitted uses and allowed ‘by right’ (i.e., no conditional use or other extra review processes).

Since adoption of the Cambridge AHOZ provisions, there are now over 350 affordable units, either constructed or in the development pipeline. Somerville, a neighboring city, adopted its own 100% AHOZ provisions soon after Cambridge’s action. Closer to home, Berkeley (CA) recently decided to undertake adoption of a 100% affordable housing overlay and will be including that action in its upcoming housing plan update process.

In addition to the zoning provisions listed above, there are other examples of adopted AHOZs that do not require a housing development be 100% affordable to trigger the AHOZ density bonuses/incentives, including:

• Ablemarle County (VA)
• Princeton (NJ) Ordinance #2020-18 – AHOZ
• San Clemente (CA) Ch. 17.56.090 – AHOZ District
• Temecula (CA) Ch. 17.21 – AHOZ District

Conclusion and Resources

Affordable housing will continue to be a challenging issue for most communities in our state. It is important for local governments to take a wide variety of different actions to effectively address this enormous problem. Affordable housing overlay zoning is an emerging and innovative approach that some communities throughout the U.S. are starting to adopt. This zoning mechanism attempts to counter some of the unintended gentrification and displacement consequences when property is rezoned, especially when those zoning actions are being taken to address affordable housing. Adopting a 100% AHOZ may not necessarily be the right fit for you, but it is a zoning approach worth at least some level of consideration, either in its entirety or certain components of it, as a potential tool to help address affordable housing in your community.

Here are additional resources:

• UC-Berkeley, Terner Center for Housing Innovation Case Study: Affordable Housing Overlay Zones: Oakley, April 2019
• U.S.Department of Housing and Urban Development: Displacement of Lower-Income Families in Urban Areas Report, May 2018