When the city of Atlanta adopted inclusionary zoning policies in 2018 to increase Atlanta’s affordable housing stock for fast-gentrifying areas around the Beltline and on the Westside, it gave multifamily developers two options: Either price a percentage of multifamily units below market rates, so lower income residents could afford them — or price all the units at the market rate (or higher) and write the city a check for the cost of building those affordable units somewhere else.
The goal was to create mixed-income communities, rather than concentrate low-income housing in impoverished areas, said Mayor Andre Dickens in 2017, as an Atlanta city councilmember. He championed the legislation that the city council enacted that year to create Atlanta’s first inclusionary zones for the Beltline and Westside Overlay Districts.
But Atlanta could better battle its housing affordability crisis if it amended its inclusionary zoning policies to actually require — not just encourage — developers to earmark some residential units for low- and moderate-income renters, housing policy experts have told Atlanta Civic Circle.
Right now, developers building multifamily projects with 10 or more units in Atlanta’s inclusionary zones must either price 15% of the units so that they’re affordable to people making 80% of the Atlanta area median income or 10% of the units so they’re affordable to people making 60% of the AMI. The Atlanta Planning Department sets the metro-Atlanta AMI at $82,700 for a family of four.
If developers don’t want to provide any affordable housing in an inclusionary zone, they can opt to pay the in-lieu fee, which goes into a city of Atlanta trust fund dedicated to affordable housing initiatives.
Until recently, the opt-out clause wasn’t an issue, since the only developer to take advantage of it was Capital City Real Estate, which avoided pricing just 10 units below market at The Indie, a 91-unit apartment tower on the Beltline’s Eastside Trail. Instead it paid the city $1.5 million for in-lieu fees — or about $152,000 per unit.
But then Centennial Yards Company opted to pay the city a roughly $8 million in-lieu fee, instead of making 61 apartments affordably priced for its first 304-unit residential tower, The Mitchell, in its massive downtown Gulch redevelopment.
That sets a troubling precedent, since Centennial Yards recently announced it would build 3,000 housing units at the Gulch, rather than the initially planned 1,000. That represents a total of 600 affordably priced units that the developer could create — or opt out of providing by paying the in-lieu fee instead.
What’s more, Centennial Yards has a different affordable housing deal with the city. It committed in 2018 to make 20% of its residential units affordable to people earning 80% or less of the AMI in exchange for up to $1.9 billion in tax breaks and incentives — a 20-year property-tax break and the ability to collect the city and state sales taxes for the development for 30 years.
Relatedly, the city has been undercharging developers for in-lieu fees, so the money it’s collecting isn’t enough to replace the housing those companies declined to produce, a recent Atlanta Civic Circle investigation of the Gulch redevelopment deal revealed.
The city charged Centennial Yards only about $132,000 per unit — the fee the Atlanta Planning Department set in 2017 when the Westside inclusionary zone was legislated. As with the $152,000 per unit that the city charged Capital City Real Estate in the Beltline inclusionary zone, that’s far lower than the cost to build an affordable unit elsewhere.
Developers “choose the in-lieu fee option because it is profitable,” said public finance attorney Sherman Golden of Thompson Hine in an email.
“If you want them to build the affordable units on site, you simply raise the cost of the in-lieu fee option by reducing the delta between building the units on-site and electing the in-lieu option,” Golden, who specializes in government subsidy programs for affordable housing, told Atlanta Civic Circle.
A 2020 study from the Urban Institute, a city-planning policy nonprofit, came to the same conclusion: “Critics see [in-lieu fees] as a loophole that allows developers to avoid contributing on-site [affordable] units,” it said. “If in-lieu fees are set below the cost of on-site construction, for instance, developers will pay the fee instead of building new units.”
Could Atlanta cancel in-lieu fees?
To solve these issues, why not do away with the opt-out option altogether — or raise in-lieu fees so high that no savvy developer would ever choose to pay them? Would that be a better way to advance Atlanta’s stated goal of creating affordable housing along the Beltline and on the Westside?
For the city, that’s easier said than done, thanks to Georgia’s decades-old blanket ban on rent regulation measures. State law bars local governments from adopting “any ordinance or resolution which would regulate in any way the amount of rent to be charged for privately owned, single-family or multiple-family residential rental property.”
Atlanta’s inclusionary zoning laws do require higher-density multifamily projects to charge below market rent for 10% or 15% of the units — but it gives developers the choice of opting out and paying the in-lieu fee. That allows it to get around the state ban on rent control.
What’s more, developers only have to abide by the affordable housing requirement for inclusionary zones if they build 10 or more residential units. They can choose to build fewer apartments and price them all at market rates or higher.
In other words, since developers have the choice of opting out by paying the in-lieu fee, or just building less densely, the lower-priced housing requirement, in the eyes of the state, might not be considered rent control imposed by the city.
Given the state’s rent-control ban, would it be possible for Atlanta to dispense with the opt-out fee altogether and require developers to price 15% to 20% of multifamily units as affordable in these hot areas?
City Councilmember Matt Westmoreland declined to comment directly on that question, saying it was up to the city’s attorneys to determine whether amending Atlanta’s inclusionary zoning policies to axe the in-lieu fee option was doable. Westmoreland, for one, has expressed concern over the scenario where Centennial Yards decides to pay in-lieu fees, instead of pricing its new housing units as affordable at 80% of the AMI — and the precedent that could set.
Numerous local land-use lawyers also declined to comment on whether getting rid of the in-lieu fee would run afoul of the statewide rent-control ban — a reflection of the sticky politics and legal conundrums city officials face in the pursuit of creating affordable housing.
What other cities do
Like Atlanta, most cities with inclusionary zoning policies allow developers to pay their way out of their affordable housing mandates. However, a sizeable number — roughly a third — do not. Instead, developers in parts of San Francisco, for instance, must designate a percentage of units affordable for people earning less than the AMI — or build elsewhere, according to the Urban Institute report.
Conversely, other cities, like Chicago, rely heavily on in-lieu fees to fund affordable housing efforts; they prefer to collect in-lieu fees in designated areas and use them to build affordable housing elsewhere. “If a jurisdiction’s goal is to create flexible revenue sources for affordable housing, it might set a low in-lieu fee that would help seed those funds,” the Urban Institute’s report pointed out.
That said, the in-lieu fees Chicago charges for downtown developments start at $217,482 per unit, with 20% set aside, and rise to $434,964 per unit, with only 10% set aside. Those fees are markedly higher than what Atlanta charges, even though Chicago’s policy is to set fees low enough to incentivize developers to opt out.
Since Atlanta’s stated goal is to create mixed-income housing in its inclusionary zones, offering an in-lieu fee opt-out undermines that. Is the solution raising the current per-unit in-lieu fee — or dispensing with the opt-out option altogether?
Has anyone in a position to know said what a prohibitive in lieu of fee would be here in Atlanta?
From a recent example in downtown Atlanta, projected cost for affordable housing units will be over $400/ sq. ft.