Homes in Maple Lawn by Dan Reed licensed under Creative Commons.

Like many places across the country, Maryland residents are navigating a housing crisis. A 2020 report commissioned by the Maryland Department of Housing and Community Development (MDHCD) reported a shortage of 85,000 affordable apartments in Maryland for families and individuals earning less than 30% of median income. Meanwhile, an additional 97,200 families and individuals earning less than 50% of median income are expected to move to the state by 2030, the study also noted, which will require a dramatic increase in affordable housing supply over the next 10 years.

In the midst of the housing crisis, and a general consensus that Maryland needs more affordable housing, some lawmakers have referenced inclusionary zoning policies interchangeably with their support for affordable housing.

Inclusionary zoning, however, was not created for the purposes of meeting affordable housing needs. Instead, IZ helps ensure that new development, in which units are commonly the most expensive on the market and draw high-income purchasers, is not made up of exclusively wealthy families. But when efforts to integrate such communities take the place of meaningful efforts to create affordable housing, we all lose.

What is inclusionary zoning, anyway?

The term “inclusionary zoning” describes a regulatory requirement whereby a certain percentage of new units in a development must be sold at below-market rates. Most commonly, these units are targeted toward “Moderate Income” families with an annual income at or below 80% of the “area median income” as determined by the US Department of Housing and Urban Development (“HUD”).

Inclusionary zoning is a tool for socioeconomic integration. Due to the fact that new development often comes with the highest price tags, policy-makers who support inclusionary zoning policies do so with an eye toward ensuring there are not pockets of extreme wealth situated amongst relative poverty. This is particularly important in areas that are experiencing gentrification or the conversion of older, more affordable, housing stock to new “luxury” units.

The wealthy suburbs of Maryland, Baltimore, Howard and Montgomery counties in particular, have expended significant political attention on “fee-in-lieu” provisions that allow developers to pay the local housing department a fee rather than build large subsidized Moderate Income Housing Units (“MIHU’s). Inclusionary zoning requirements are increased under the auspices of “creating affordable housing” while projects for low-income families go unfunded or face administrative delays.

With this practice, inclusionary zoning has become a useful replacement for those who want to create the appearance of supporting affordable housing while doing very little to address the greatest needs of the housing crisis, which are units for low-income families. (This piece is focused on IZ for units that are sold, and the dynamics for IZ rentals are similar but not identical.)

But inclusionary zoning is challenging in other ways too.

First, it’s inefficient. Even the most ambitious inclusionary zoning requirement of 20% will only provide two subsidized units for every eight market-rate units. As the cost of market-rate units increase, the disparity between those who can afford new housing and those who are selected to receive an MIHU will increase resulting in a lopsided barbell income distribution whereby 80% of the housing is for the “very rich” and 20% of the housing goes to the “relatively poor”.

Second, inclusionary zoning policies offload a societal obligation of providing affordable housing from the body politic to private interests. In order to tackle the gaping deficit of units for low-income families, state and federal governments will need to dedicate resources to build housing and subsidize rents. Inclusionary zoning allows the fiction that our affordable housing needs can be met by developer mandates. This crisis will not be solved by a for-profit industry with a relative intolerance for profit-losing requirements. Governments can and should do more.

Third, inclusionary zoning fails to meet the housing needs of low-income families, which have the greatest need for new subsidized units. Most families making 80% of the area median income can afford homes within the existing housing stock. In central Maryland, families with six-figure incomes would qualify for many MIHU programs. While housing insecurity touches every part of the income spectrum, the greatest needs for new affordable housing are found for those making 60% of the area median income or less. Inclusionary zoning provides huge benefits to a small percentage of moderate-income households, while making it more difficult for the rest to pay market rate.

Finally, and most importantly, inclusionary zoning requirements raise housing prices on the whole. All regulatory burdens, whether they be forest conservation or design requirements, operate like a tax that is passed through to the home-buyer. The costs of inclusionary zoning compliance will be borne by the market rate purchaser, not the developer.

And as the price of market-rate units increase, so too do the costs of surrounding housing stock. A 2019 study of Maryland’s inclusionary zoning policies conducted by Emily Hamilton* at George Mason University’s Mercatus Center demonstrated that in the absence of “density bonuses” to ameliorate the cost of selling units at below-market rates, inclusionary zoning increases home prices an additional 1% over what they would be in the absence of such policies. In effect, this means everyone not buying a subsidized unit, including those who may be eligible for an MIHU, is spending more on housing just so a select few will pay less.

There are caveats to all of this. Inclusionary zoning serves an important purpose in the redevelopment of existing housing stock. When “naturally occurring” affordable housing (i.e., older homes) is replaced by new homes with higher price tags, inclusionary zoning reduces displacement and integrates the new development with the surrounding community. Similarly, high density multifamily housing can more easily distribute the cost burden of inclusionary zoning and creates substantially more affordable units than when applied to single-family developments.

But in all circumstances, inclusionary zoning should be viewed for what it is – a mechanism for integrating new development, not a tool to generate enough affordable housing to meet our communities’ needs.

*Editor’s note: Emily Hamilton is a past GGWash contributor.

Tom Coale is an attorney with the law firm of Talkin & Oh, LLP. His practice concentrates on affordable housing, land use, and zoning. Mr. Coale has served on numerous nonprofit and government boards and commissions, including the Howard County Charter Review Commission, the Ellicott City Master Plan Committee and the Maryland Comptroller's "Reform on Tap" Task Force. Mr. Coale serves on the Board of Trustees for the Maryland Science Center, the Board of Directors for the Baltimore Regional Housing Partnership, and the Steering Committee for the Howard County Housing Affordability Coalition. He lives with his wife and three children in Ellicott City, Maryland.