New Report on Inclusionary Housing & Fees-in-Lieu

The Center for Housing Policy released a report this week on the status of inclusionary housing policies after the housing crisis.  Inclusionary Housing policies are policies that require or encourage developers to include a modest share of homes for low- or moderate-income households in otherwise market-rate developments.

The report is available here.

One thing that caught my eye in the report is a section highlighting the shortcomings of “fee-in-lieu” programs.  “Fee-in-lieu” programs allow developers the option of satisfying their inclusionary requirements by paying an “in-lieu fee” rather than constructing new affordable homes.  For example, Austin operates several density bonus programs that  fall under the inclusionary housing umbrella and allow fee-in-lieu to access to the program benefits.

The Center for Housing Policy report finds:

  • “The primary issue with an overreliance on in-lieu fees is that it can work against the goal of creating inclusive communities, particularly if fees are used to support affordable housing outside the area where new market- rate development is occurring.”
  • “A second challenge is that in-lieu fees are sometimes set too low to produce an equal number of affordable units elsewhere in the community — regardless of the setting.”
  • “A third issue is that some communities lack local, affordable housing developers with the capacity to use fee revenues to produce new affordable homes.”

I agree with these findings, especially the first two.  Setting the fee, and ensuring it is properly used, are the most difficult parts of designing an Inclusive Housing policy that allows fee-in-lieu.

Localities should take these warnings to heart when designing their programs.