Could Atlanta make affordable housing mandatory in hot markets?

When the city of Atlanta adopted inclusive zoning guidelines in 2018 to increase the stock of affordable housing in Atlanta’s rapidly gentrifying areas around the Beltline and on the West Side, it gave multifamily developers two options: Either price a percentage of multifamily units below market rates , i.e. lower, to determine residents with incomes could afford them – or price all units at market rate (or higher) and give the city a check for the cost of building those affordable units at another exhibit location.

The goal is to create mixed-income communities rather than concentrating low-income housing in impoverished areas, Mayor Andre Dickens said in 2017 as an Atlanta City Council member. He supported legislation the City Council passed this year to create Atlanta’s first inclusionary zones for the Beltline and Westside Overlay districts.

But Atlanta could better address its housing affordability crisis if it changed its inclusive zoning policies require Housing policy experts have said developers are not only encouraged to set aside some units for low- and middle-income renters Atlanta Civic Circle.

Currently, developers building multifamily projects with 10 or more units in Atlanta’s inclusionary zones must price either 15% of the units to make them affordable to people earning 80% of the Atlanta area median income, or 10% of the units to make them affordable are affordable to people earning 60% of AMI. The Atlanta Planning Department sets the AMI for metro Atlanta at $82,700 for a family of four.

If developers do not wish to provide affordable housing in an inclusionary zone, they may elect to pay the in-lieu fee, which goes into a City of Atlanta trust fund suitable for affordable housing initiatives.

Until recently, the get-out clause wasn’t a problem because the only developer taking advantage of it was Capital City Real Estate, which avoided pricing The Indie, a 91-unit residential tower on the Beltline, just 10 units below market set Eastside Trail. Instead, it paid the city $1.5 million in in-lieu fees — or about $152,000 per unit.

But then the Centennial Yards Company opted to pay the city a roughly $8 million compensatory fee rather than 61 affordable apartments for its first 304-unit residential tower, The Mitchell, as part of the massive redevelopment of downtown Gulch to provide.

This sets a troubling precedent as Centennial Yards recently announced plans to build 3,000 housing units at the Gulch instead of the 1,000 originally planned. That equates to a total of 600 affordable units that the developer could create or forego providing and instead pay the replacement fee.

Additionally, Centennial Yards has another affordable housing offer with the city. In 2018, the company committed to making 20% ​​of its housing units affordable to people earning 80% or less of AMI in exchange for up to $1.9 billion in tax breaks and incentives – a 20- year property tax abatement and the ability to collect city and state sales taxes on the development for 30 years.

In this regard, the city has undercharged developers in compensation fees, so the money it collects isn’t enough to replace the housing those companies didn’t want to build, according to a recent study Atlanta Civic Circle Gulch Redevelopment Deal Investigation Revealed.

The city charged Centennial Yards only about $132,000 per unit — the fee set by the Atlanta Planning Department in 2017 when the Westside Inclusion Zone was signed into law. As with the $152,000 per unit the city charged Capital City Real Estate in the Beltline Inclusion Zone, that is far less than the cost of building an affordable unit elsewhere.

Developers “choose the in-lieu fee option because it is profitable,” Thompson Hine public finance attorney Sherman Golden said in an email.

“If you want them to build the affordable units on-site, you simply increase the cost of the fee-in-lieu option by reducing the difference between building the units on-site and choosing the fee-in-lieu option,” says Golden, who specializes in state funding programs for affordable housing, said Atlanta Civic Circle.

A 2020 study by the Urban Institute, an urban planning policy nonprofit, reached the same conclusion: “Critics see (in-lieu fees) as a loophole that allows developers to avoid providing on-site (affordable) units,” it said it. “For example, if replacement fees are less than the cost of building on site, developers will pay the fee instead of building new units.”

Could Atlanta eliminate replacement fees?

To solve these problems, why not eliminate the opt-out option altogether – or increase replacement fees so high that no smart developer would ever pay them? Would this be a better way to advance Atlanta’s stated goal of creating affordable housing along the Beltline and on the West Side?

For the city, that’s easier said than done, thanks to Georgia’s decades-old blanket ban on rent control measures. State law prohibits local governments from adopting “any ordinance or resolution that regulates in any way the amount of rent to be charged on privately owned, single-family, or multi-family rental properties.”

While Atlanta’s inclusive zoning laws require higher-density multifamily projects to charge below-market rent for 10% or 15% of units – it gives developers the choice to opt out and pay the in-lieu fee. This makes it possible to circumvent the state ban on rent control.

Additionally, developers are only required to meet the affordable housing requirements for inclusionary areas if they build 10 or more housing units. You can choose to build fewer homes and price them all at market rate or higher.

In other words, since developers have the choice to exit by paying the equalization fee or simply build less densely, the demand for cheaper housing could not be viewed as city-imposed rent control in the eyes of the state.

Given the state’s ban on rent control, would it be possible for Atlanta to waive the opt-out fee altogether and require developers to price 15 to 20 percent of multifamily housing in these hot areas as affordable?

City Councilman Matt Westmoreland declined to comment directly on the issue, saying it would be up to the city’s attorneys to decide whether amending Atlanta’s inclusive zoning guidelines to remove the in-lieu fee option was feasible. Westmoreland, for example, has expressed concern about the scenario in which Centennial Yards decides to pay in-lieu fees rather than advertise its new housing units as affordable at 80% AMI – and the precedent that could be set.

Numerous local land use attorneys also declined to comment on whether eliminating the equalization fee would conflict with the statewide ban on rent control — a reflection of the thorny politics and legal issues city officials face in creating affordable housing are .

What other cities are doing

Like Atlanta, most cities with inclusive zoning policies allow developers to escape their affordable housing requirements. However, for a significant number – around a third – this is not the case. Instead, developers in parts of San Francisco, for example must Set a percentage of units that are affordable to people making less than AMI — or build them elsewhere, the Urban Institute report says.

Conversely, other cities like Chicago rely heavily on equalization fees to fund affordable housing. They prefer to collect in-lieu fees in certain areas and use them to build affordable housing elsewhere. “If a jurisdiction’s goal is to create flexible revenue streams for affordable housing, it could establish a low equalization fee that would help provide those funds,” the Urban Institute report said.

However, the in-lieu fees Chicago charges for downtown developments start at $217,482 per unit, with 20% deferred, and rise to $434,964 per unit, with only 10% deferred. These fees are significantly higher than what Atlanta charges, although Chicago’s policy is to set fees low enough to give developers an incentive to opt out.

Since Atlanta’s stated goal is to create mixed-income housing in its inclusionary zones, excluding a replacement fee undermines this. Does the solution increase the current replacement fee per unit – or does it eliminate the opt-out option altogether?