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The Minneapolis City Planning Commission held a preliminary discussion about inclusionary zoning on Thursday night. Inclusionary zoning is a requirement that new apartment construction include a certain percentage of affordable units.
Until a permanent policy can be adopted, City Council President Lisa Bender wants to implement an interim policy alongside the Minneapolis 2040 Comprehensive Plan. As outlined in a staff report, "The interim inclusionary housing ordinance would apply only to projects that propose a substantial increase in the allowable residential development capacity."
City staff said the interim policy would be triggered at a 60 percent increase in development capacity, related to "rezoning, variance, density bonus, or other application or combination of applications." The policy would likely exempt small-scale rezoning that allows for things like triplexes and fourplexes.
Because downtown Minneapolis has few limitations on development capacity right now -- meaning it would be hard to propose a "substantial increase" -- Commissioner Rockwell suggested there needed to be a downtown trigger in the interim policy.
When asked about setting a threshold on the number of units that would trigger the policy, staff said that wouldn't be necessary because most projects requesting a 60 percent density increase are already quite large.
The city's "inclusionary housing" consultant, Grounded Solutions Network, is recommending a policy that gives developers two options to comply with an affordability mandate:
- Unsubsidized, with 10 percent of units affordable to 60 percent area median income.
- Subsidized, with 20 percent of units affordable to 50 percent area median income.
The mechanism for the subsidized option would be what's called tax increment financing. TIF diverts the additional tax revenue resulting from new development to offset development costs. The advantage to using the subsidy is that it allows the city to require the building to remain affordable for 30 years. State law prevents an affordability term longer than 20 years unless a subsidy is provided.
Commissioner Ryan Kronzer noted that the process of securing a TIF subsidy is long and uncertain: "If you start today, you'll be building your project in 2020." City planning staff say they are "exploring the TIF option" to streamline the process and give developers the assurance that the subsidy will actually come through.
Magrino said if there's a construction slowdown, "It's gonna be hard to tell if [the policy] is working for a while." He's observed that the housing market may already be softening; a few projects have been cancelled and rental incentives for tenants are getting more generous.
In the last few weeks, I've talked to experts who worry nobody is checking the math on the consultant's report. They point out the feasibility study only included buildings of 100 units or more. They also raised questions about whether land costs factored into the study are accurate.
One developer told me that in the uncertainty leading up to the passage of an interim policy, developers have stopped buying sites. They predict a "mad rush" to get projects approved by the end of the year, and that development focus would then shift to the suburbs and St. Paul.
Supporters of the policy, including the city's consultant, admit there may be a period of a few years where inclusionary zoning discourages new construction. They insist that to the degree the policy makes development more expensive, those costs will eventually be factored into the price of land.
At Thursday's meeting, Commissioner Magrino predicted a very long final meeting of the year for the Planning Commission. Planning staff expects the interim policy would go into effect on January 1st. It's possible that a permanent inclusionary zoning policy would be adopted later in 2019.
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