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Inclusionary Zoning Regulations Finalized

Thursday, January 4, 2018
Rules that Simplify, Improve Affordable Housing Program Now in Full Effect

(WASHINGTON, DC) – Final regulations implementing changes to the Inclusionary Zoning (IZ) program were published in the DC Register on Friday, December 29, 2017.

The IZ program is one of many tools used in the District of Columbia to help address the affordable housing crisis, where in exchange for bonus density, developers of larger projects must set aside a percentage of newly constructed housing units as affordable.

The regulations were issued in proposed and emergency form on September 1, 2017 based on feedback the agency received from current program participants and an order by the DC Zoning Commission. That order made changes to IZ such as setting aside most affordable rental units for households earning 60 percent or less of Median Family Income (MFI) and most affordable for-sale units for households earning 80 percent or less of MFI. Those earlier regulations, now superseded by the final rules, were issued to both effectively administer the Commission’s changes and rapidly provide needed affordable housing.

The final regulations are substantially identical to the earlier rules, except for several simplifications and clarifications, the most substantive of which are as follows:

  • IZ lottery rankings: The proposed language that would have streamlined how IZ lottery selectees are ranked by combining lists of those who live and work in the District was, “after careful consideration,” dropped from the final rules. Therefore, the rules revert back to the previous system of giving first priority to those who live in the District and second priority to non-District residents who work in the District.

  • Definition of utilities: Based upon comments, the final regulations include mandatory amenity fees and other mandatory fees in the definition of utilities, which limits the amount of rent to be charged, so that households are not paying more than the maximum allowed percentage of their annual income on housing costs.

  • Income limits on lease renewals: In codifying current practice so that more households can remain in their IZ units, the regulations provide that the maximum household income upon renewal may be up to 140 percent of the higher of: (1) the then-current maximum household income; or (2) the maximum household income at the time of initial lease execution. The final regulations clarify that the property manager or inclusionary development owner must notify DHCD in writing that a re-designation of an IZ unit based upon the higher amount is necessary as soon as it is determined and identify the unit to be re-designated.

  • Clarifying the household registration process: Households must attend an IZ orientation before registering for the lottery, and households interested in purchasing an IZ unit should attend the homeownership training program after registering for the lottery. Based upon comments, the final rules provide further clarity on this process.

Other key provisions of the final regulations include:

  • Clarifying the lottery process: In conforming to DHCD’s current practice, the regulations provide that households must confirm interest in an IZ unit prior to a lottery, so that only interested households are included and therefore the pool of households chosen is strengthened.
  • Allowing flexibility to housing cost limitations: Because so many households are paying even more for their current housing, the final regulations allow households to spend up to 50 percent of their income on housing costs. The prior maximum of 38 percent for rental IZ units or 41 percent for purchase units; however, remains as an explicit program recommendation.
  • MFI: The final regulations use the term “Median Family Income” or “MFI” in place of “Area Median Income (AMI),” “Low-Income Household” and “Moderate-Income Household.”

In August 2017, DHCD released the Fiscal Year 2016 Annual IZ Report, which documents the growth of the IZ program and its increased importance in producing more affordable housing for District residents.

Bowser Administration’s Commitment to Affordable Housing

Since coming into office, the Administration of Mayor Muriel Bowser has sparked the preservation or production of more than 9,600 affordable units, with another 3,300 units in preconstruction. In Fiscal Year 2017, the District made historic investments in affordable housing, getting more than $138 million in HPTF financing out the door to support 23 projects that will produce or preserve more than 1,900 affordable units.

In October, Mayor Bowser announced that eight projects from the Spring 2017 RFP were awarded $75 million in HPTF financing. Those projects are anticipated to produce or preserve more than 500 affordable housing units and create about 70 permanent supportive housing (PSH) units. In September, the District was recognized for its multi-pronged approach to housing production and preservation, homeownership, and development of vacant properties when it was selected for the Urban Land Institute’s Larson Housing Policy Leadership Award.