Guest Column

Inclusionary Zoning Makes Affordable Housing More Challenging

We hope Whitefish and the Flathead Valley will look closely at this issue and consider leaving Inclusionary Zoning out of the tools in the toolbox

For residents and families in the Flathead Valley, affordable housing is an important issue and one the Flathead Building Association takes seriously. While our communities are seeking solutions to this challenge, there is one tool proposed by the City of Whitefish – Inclusionary Zoning – that we feel will create more challenges and complications to the affordable housing problem than it solves. We urge Whitefish to reconsider their mandatory Inclusionary Zoning (IZ) proposal. We hope we can shed some light on why this option would be better left out of an affordable housing plan.

In 2017, the Whitefish City Council adopted a Strategic Housing Plan aimed at remedying a 980-affordable unit shortfall. A key component of this plan is a mandatory Inclusionary Zoning policy named the “Whitefish Legacy Homes Program (WLHP).” Under the current draft, the WLHP would require 20 percent of homes in all major or minor subdivisions to be deed restricted for long-term affordable housing. To delve a little deeper into this issue, it is helpful to look at challenges to deed restrictions. A major challenge to deed-restricted lots is that finding qualified buyers for them is difficult as most banking institutions are unable to lend on them making them available to cash buyers only, which is obviously prohibitive to most people in need of affordable housing.

Affordable housing in Whitefish is being defined as no more than 30 percent of a two-person annual household income. What that means in Whitefish is that no more than $1,200 a month can be used for expenses such as mortgage payment, property taxes, insurance, and homeowner’s association dues. Assuming typical city taxes and homeowners insurance, the loan amount cannot exceed $190,000. With townhouses going for $300,000-plus and new homes starting well above $350,000, there is a large spread between cost and what Inclusionary Zoning will allow. These IZ practices and prohibitions would be applicable to new starter home subdivisions and new luxury home subdivisions alike.  Under Inclusionary Zoning, affordable units are to be held to the same architectural standards as their non-subsidized neighbors, so the builder or developer is forced to take a massive loss on these units, as construction costs would remain the same.

The incentives portion of the WLHP includes reductions in lot sizes, parking, setbacks, lot width, and increase in building height, to allow the builder/developer to recoup some of their subsidies to lower price units. However, implementing these incentives is not always achievable in today’s approval process that includes frequent citizen opposition to higher density development, and they do not begin to make up for the subsidized costs. It is difficult enough to obtain the density theoretically already allowed by zoning, and so the inclusionary zoning density bonuses end up only restoring part of what should have been allowed initially.

One excerpt from the Whitefish plan is that “The developer is expected to provide deed restricted workforce housing units on site even if the intention is to sell individual vacant lots.” An appropriate question would be who would build these units and how? As most developers are not builders, there are two ways this could be implemented.

Scenario 1: If a developer plans to build out the whole subdivision, then he or she would be required to build 20 percent of the units to the same quality as of the remaining units only to sell them at a loss. Given that the builder/developer cannot sell the home for any more than $190,000 and that applies to all strata of homes, it is safe to say that the builder/developer would lose hundreds of thousands of dollars per unit. To make the project pencil out, the developers would inevitably have to pass that increased cost on to the remaining 80 percent of their units, further raising the cost of housing in Whitefish.

Scenario 2 is no less grim. If the developer plans on selling the lots to individual homeowners and builders, the best knowledge we have is that the City of Whitefish plans on requiring the developer to forfeit 30 percent of their lots, in lieu of building the units themselves, to the City of Whitefish and the city will build them. It is worth asking how this would work. Who is the city going to get to build the homes at a loss or how will they subsidize the building costs? Will these costs be passed onto residents? This element seems to be an unresolved and unclear component, yet critical part of this plan and local residents and voters deserve more clarity.

The Flathead Building Association is affiliated with the Montana Building Industry Association and the National Association of Home Builders. These entities have watched Inclusionary Zoning plans fail time after time, nationwide, in many case studies. Closer to home, Bozeman has implemented a similar plan, resulting in expensive lawsuits for the city and the plan being scrapped unless radically revamped. We hope Whitefish and the Flathead Valley will look closely at this issue and will consider leaving Inclusionary Zoning out of the tools in the toolbox for our community effort to find solutions to affordable housing. Better options include reducing or waiving impact fees to bring down building costs, and a reduction in current barriers to multi-family or more dense units that can be more easily and inexpensively approved and built. Creating incentives for builders and developers for affordable units will go much further to produce the needed affordable units in Whitefish.

This column was submitted by the Flathead Building Association Board of Directors.