Double Wide Dudes Podcast

What is Inclusionary Housing and How Does It Affect Affordable Housing?

This week we met with Rick Jacobus about Inclusionary Housing. Inclusionary housing is a way to work with developers to create affordable housing alongside of market rate housing in a way where ideally the neighbors, the community, and the developer all “win.”

Mr. Jacobus has a broad background perfect for helping us explore inclusionary housing.  He is the principal of Street Level Advisors, a consulting firm specializing in inclusionary housing strategies.  Mr. Jacobus has a bachelor’s degree from Oberlin College and a Master of City Planning degree from the University of California at Berkeley.  He also has decades of experience working with cities on affordable housing and other community issues.

Mr. Jacobus is founder of Cornerstone Partnership, a national initiative focused on building more inclusive communities, served as a fellow at CoMetrics and the Lincoln Institute of Land Policy, and is a partner in Burlington Associates in Community Development.  He is a lecturer at UC Berkeley and is Senior Program Officer for the Local Initiatives Support Corporation.

The following transcript has been lightly edited for clarity purposes.

Mauricio Chacra:  Welcome back to another episode of the Doublewide Dudes. Today we’re going to continue the conversation of affordable housing. We are joined by Rick Jacobus. Thanks for joining us today, Rick. 

Rick Jacobus:  Thanks for having me. 

Alberto Pina:  Yeah, you’re out in Oakland, California, right? 

Rick Jacobus:  That’s right. 

Alberto Pina:  Very cool. Our podcasts as of late have almost been a way of us recording history with everything going on and with COVID. How’s that affected y’all out there in Oakland?

Rick Jacobus:  There’s nothing it’s not affecting. It’s amazing to me how much people are able to keep moving in spite of it. People are still building, there’s still programs being developed, but it’s definitely slowed everything down.

Alberto Pina:  I think I’ve been most amazed by the coalition of minds we’ve got all across the world trying to solve this problem. When we all come together it’s awesome what we can accomplish. 

Rick Jacobus:  We will get there. That’s for sure. 

Alberto Pina:  Absolutely. Like Mauri said, thank you for joining us. For our listeners, Rick is the principal at Street Level Advisors. They’re a consulting firm specializing in inclusionary housing strategies, a lot of which we’re going to be discussing today. He got his degree from Oberlin College, his bachelor’s and then he got a Master’s of City Planning from Ucal Berkeley. He’s been working with cities on affordable housing and other community issues for decades now.

Rick is the founder of the Cornerstone Partnership, national incentives focused on building more inclusive communities, he served as a fellow at CoMetrics and the Lincoln Institute of Land Policy. We know a guy there and had him on the podcast, big fan of what they’re doing. He’s a partner at Burlington Associates in Community Development, a lecturer at UC Berkeley and the senior program officer for the Local Initiative Support Corporation.

I’m excited to discuss this topic with you and it sounds like you’ve been doing work for decades to help solve this problem. So, I guess to start us off, what is inclusionary housing? 

Rick Jacobus:  Inclusionary housing is a catch all term for a set of policies that cities or counties will adopt that require affordable housing when we produce new market rate housing.

And so, it’s a little bit of an in-between for the private market solution and the government solution. Most of the affordable housing is built as purpose-built affordable housing for lower income people, but in inclusionary, we’re sort of piggybacking on market rate development.

And what’s great about that is that we haven’t been building enough market rate housing in a lot of the country, partly because people just don’t see what’s in it for them. They see new housing is gonna be really expensive and it’s going to just be for rich people. And so there’s this conscious attempt to sort of broaden who benefits from new housing.

And the result is that a lot of times we’re able to get a lot of support for denser buildings, taller buildings, more development, because people can see that it’s going to help not just the people who can afford to buy the market rate product, but some other people as well. 

Alberto Pina:  So it’s this kind of a hybrid between the more expensive custom homes that are continuously being built and then government subsidized homes for lower income?

Rick Jacobus:  So a typical program would be a growing suburb or a central city. We’ll say, ‘if you want to build new housing here, we’re going to zone it for this much housing and you can come in and you can build an apartment building, or you can build new homes, but you have to set aside some of those homes for lower income people.’

So, they’re not generally targeting poor families. They’re generally sort of a lower price than what you would otherwise see in the market. But you still are paying a rent or you’re buying a house, but in the middle of a country, you might see a home builder building homes that are $700-800,000 and then selling some of them for $400,000 or $500,000. They’re discounted units for folks who income qualify, and the result is you get kind of a more diverse group of families that move into the neighborhood. You get a kind of range of incomes instead of just everybody who could afford the most expensive thing was being built.

We usually only see inclusionary housing in places that are expensive. If the market’s not strong enough that the housing has already kind of expensive there, it’s hard to also provide affordable housing. Sometimes there’s government money that goes into it, but sometimes it just becomes another cost of development. We’re going to provide some lower cost units in order to get the right to build here. 

Mauricio Chacra:  So when builders are taking on projects to expand land and things like that, they’re saying, ‘Hey, let’s make inclusionary housing part of this project’, and the government then steps in to say, ‘Hey, the difference of what someone that has lower income can pay, we can make up the difference.’ Is that where these builders will have that incentive? Or how does it work for these construction companies? 

Rick Jacobus:  It’s a little different in different places. Some places the city says, ‘we have funding that we would put into affordable housing anyway, and we’ll make it available to a builder that’s going to build affordable units.’ And sometimes it’s the city has the land, like in Austin, it was the Miller Airport redevelopment, a bunch of years back the city decided they were going to build a new airport and they said, ‘we’re going to build housing on this airport. But if you want to buy the land from us to build that project you have to agree to provide affordable homes in the new development. And so, it was in a sense, instead of paying for land, they paid for the affordable homes, but they got access to the city’s land. It looks different in different places.

The other thing that we see a lot is where it’s optional. So, we say ‘you can build a three-story apartment building here under the current zoning. But if you agree to provide affordable units, we’ll let you go up to five stories.’ It’s given the developer value in the form of additional density and we’re taking some of that value back in the form of lower cost units. But it’s not all of the units. It’s just some of the units in the building.

Mauricio Chacra:  That part makes sense. ‘Hey, let’s just be able to fit more affordable housing within that square footage of expansion.’ Now, I think back to here in San Antonio, where we’re expanding outside of the loop here, new developments being around, but closer to the highways. You’ve obviously got the commercial and then that can feed off into where apartments that are affordable housing can come into play.

 How long has this idea of inclusionary housing been around? 

Rick Jacobus:  The term was created back in the seventies in the suburbs outside of DC. They were growing and they started doing this and it has spread across the country gradually since then.

And so now there’s about a thousand jurisdictions in the country that have an inclusionary housing policy and they’re in most states, but it’s only in certain places. So, it’s kind of an uneven landscape. There are certain communities in every state that have it.

And then there’s a few states like California is one where, a large share of the cities and counties in California have inclusionary housing, but most states, it’s just a few places here and there. 

Alberto Pina:  You know, if I think back to the last few developments I’ve seen come out of San Antonio, particularly downtown, I know there’s a certain portion of those that had to be reserved for this market rate housing. And I think in exchange there may be tax incentives or tap fees were waived on the utility side. 

Rick Jacobus:  That’s inclusionary housing. That’s exactly what that is.

Alberto Pina:  In San Antonio, we’re seeing a ton of that here. So obviously, across the country there’s this affordable housing crisis. Why is inclusionary housing one of the better choices to help solve that? 

Rick Jacobus:  You know, that’s a great question. I don’t know that it is. I think it’s a really good choice, but there’s a whole lot else that cities should do first. So, in inclusionary housing, it’s kind of like it’s icing on the cake.

The cake is, you put public money into affordable projects that are built (on) purpose for affordability, where every unit is affordable. You do that by raising money through taxes or by issuing government bonds or by reusing public land. And you get a private builder or a nonprofit to come in and build just affordable housing.

I think that’s the main way that we produce affordable housing in the country, and we do it well, and it’s the right thing to do. Once you’re doing that, you realize there’s just only so much you can do there. Right? You have to compete for land with private projects and it’s difficult to line up opportunities.

And then we have this particular problem, which is that where we’re building housing that’s just affordable, we end up building it in certain kinds of neighborhoods and not in others. Partly because there’s opposition, partly because land is expensive. It’s hard to get affordable housing spread out everywhere. And the research is pretty solid showing that it’s helpful to have people be able to access all parts of the area.

And so inclusionary winds up being a tool for, ‘how do we make sure that we’re going to get some affordable housing, where the schools are really great? How do we make sure we’re going to get some affordable housing where there’s great access to parks?’ And not have all of it be clustered in a few low-income communities.

Alberto Pina:  The affordable housing is now affecting well beyond the low income. It’s very much affecting the middle class. We’ve discussed in some parts of the podcast, the “missing middle.” What does the missing middle have to do with housing and this inclusionary housing?

Rick Jacobus:  “Missing middle” is a term that different people use differently, but I think what you’re talking about is middle income, right? How do we serve people who wouldn’t qualify for a sort of government subsidized housing, but who don’t really have enough income to get market rate housing? I think inclusionary is one of the better strategies, particularly when we’re talking about for sale.

So, when people build a new for sale project, whether it’s a subdivision or a condominium kind of building, they cost so much to build that they can’t sell to normal people, to middle income people anymore. When I was a kid, home builders built for the middle of the market. That was the sensible business. Right? You don’t want to just build for rich people. You want to build for the bulk of people, but now it’s just too expensive and we’ve limited it so much that there’s kind of nothing for folks in the middle and inclusionary housing creates a framework that makes it worthwhile for the developer to provide some houses at those at those middle price points.

It’s where we get housing that people can afford, who would in any other point in recent American history have been homeowners but are priced out right now. 

Mauricio Chacra:  It’s crazy how that shift has just really happened over the past 50 years. The majority of working folk, that’s a big percentage of the population in each growing city. So, it’s got to be addressed. The impacts for local communities… what impact would inclusionary housing have on local communities?

Rick Jacobus:  The thing that I think is motivating the communities that adopt inclusionary is that people have kind of gradually recognized that we’ve created this economic isolation and that that’s bad for us. So, we have a handful of neighborhoods where people have had the least income and the most challenge. And we had a while where we just had sprawl, like you could just go out and just build further and further out. And we sort of have in most of the country stopped doing that.

And it’s made us have people say, ‘well, now we want to build a little more compact, right? We want to live in a more limited geography, but it means we’re going to live together more. People are going to be in the same space, more than if we just kept going forever with the sprawl.

And that means that we have to figure out how to have it not be so us-and-them. Have it not be so everybody’s out for their own, because, like COVID is a really great example, you know? So, if you look at the stats on who’s coming down with the illness, it’s low income people, people of color, but you can’t just run away because we’re all in it together in a certain sense, right? The disease doesn’t know what your income level is or what your race is. So, the challenge has been, how do we figure out a way to have our housing policy kind of make healthier places instead of continuing to produce this kind of unhealthy outcome. That’s not impossible task, but it’s a far-sighted task.

So inclusionary housing is something that communities turn to when they’re looking ahead and they’re saying, how are we going to make this a place that we all want to live in for the long term? 

Alberto Pina:  I know some of the public feedback on that isn’t always positive. When San Antonio announces a new development where this amount of housing will be affordable, there is some public backlash that in their opinion it looks like developers are getting help from the government to get richer and enhance their pockets. To that constituent. to your average taxpayer, how are they and their family benefiting by our city support of this?

Rick Jacobus:  There’s two different things. And so, one is that we all benefit from affordable housing because we all need the spectrum of folks to live in our communities in order for them to function. So, for example, you hear in a lot of places, people will say, well, my kids can’t afford to live here. You know, they grow up, they go to college, they can’t come back because it’s too expensive. Or, you know, we’re dependent on, the people who work in service jobs and we need, we need those people in our communities. And sometimes they’re forced to commute enormously long distances and that makes every business a little bit fragile, a little bit unstable.

And, when people are challenged with their housing, it’s harder for them to focus on other parts of their lives. And so, one of the big things that we have a lot of data on is kids and what the results are for kids. And so, when we see families have stable housing, when they have housing that’s within their means, they’re much more able to attend to their kids’ education and kids end up doing better in school and things like that.

In some sense, it’s just really important to that one family, but in another sense, that’s our future workforce. Those are the voters in our society. These are the people we’re going to be dealing with. We need everybody on the same team. And so, we have to kind of have a strategy for that.

The shorter-term issue that you’re asking about, like developer profits, everybody loves to hate real estate developers. I don’t know why they don’t have better P, but it really is like it’s the common ground in America. We all hate real estate developers, but the reality is we need real estate.

We live in it, we shop in it, we have to have somebody build something. And so, the question that we all struggle with is what do we get out of their profitable project, what’s in it for us? And more and more, what people are saying is they want affordable housing. They want some degree of affordable housing in their community.

And I think it actually does help. If you only build super expensive housing, it makes your community a little bit more expensive. But if some of your housing is attainable, it actually puts downward pressure on the rest of your housing market. Cause the people who move into that affordable housing move out of an apartment somewhere else, and that apartments available for somebody else who has a lower income.

So, it adds supply at the level where people are actually living in the middle instead of just at the top.

Alberto Pina:  It seems like supply is the target, right? That’s the bullseye of solving this problem. With everything going on with COVID. But I think here locally, and even nationally, we’re seeing that the people that have kept this country going, the essential workers, these are the people that we need to make sure we continue to include in our society and make sure they can have a place to live. And those aren’t typically the jobs that are paying enough to support what these brand-new homes are running. 

Recently we saw a tweet on Twitter or the news that talked about how preventing some of these would, would keep bad apples out of certain neighborhoods, the suburbs, and that there’s certainly a group that has those concerns. What do you say to someone that’s worried about inclusionary housing bringing more crime to where they live? 

Rick Jacobus:  That’s a fantastic question, because that is something that people worry about a lot. Let me give you two different answers if that’s okay. So, the first thing is, affordable housing in general. There was a brief period of time in America when public housing authorities built the projects and they really were mostly well-run and et cetera, but they weren’t always. And we now have this collective image of the projects that’s, you know, based on some real failed projects, where crime really was an issue. 

But for the most part, when we build affordable housing, it’s bringing property values up in the neighborhoods that surround it, because the affordable housing developers have to do higher quality. They have to do better design. They have to do better property management.

So, we don’t see negative impacts. And in fact, we see positive impacts in the surrounding areas. And the problem is that people have made a mistake in thinking, which is that they’ve associated the problems that you see in low income neighborhoods with the people, when in fact they’re mostly problems of the place.

When you concentrate all the low-income people in one neighborhood, you’re going to have a lot of problems. And then when you don’t invest, when you can’t invest in that neighborhood, it falls apart and you see deterioration and distress. Low income people generally face a little bit more challenge than their higher income neighbors, but not the kinds of crime and drug use, et cetera, low income people are not more likely to commit crimes. 

They’re more likely to be involved with the police. There are challenges around alcoholism and substance abuse, but low-income people are not more likely to be alcoholics or substance abusers. It’s just that when they are, they’re more in the law enforcement purview. And when they’re concentrated together, when people are concentrated together, you see those problems. 

When we are helping people access high opportunity neighborhoods, the results that we see for those families are exactly the kinds of results that we see for higher income families. People don’t live or behave differently. So, with a lot of the inclusionary housing in the country, you can’t tell which unit is the affordable unit. You can’t tell which are the low-income families.

They did a survey in San Francisco of neighbors in the buildings where these inclusionary units were. And most people didn’t know that there were low income people living in their building. Because people are just people. We’ve also looked at the data for kids and when kids move from disinvested urban neighborhood into a middle-income urban neighborhood their school test scores are lower on average at the beginning. And after just three years, they’re average. It makes a big difference what environment you’re in. 

So, the idea behind inclusionary housing, it’s not as an alternative to improving and investing in low income neighborhoods. It’s just another option. It’s just another thing we need to do at the same time to give some people the choice to live in the same places where brand new housing is getting filled, where the schools are stronger and where we already have the resources.

Mauricio Chacra:  That’s a very interesting point that if you’re surrounded by crime, you’re more likely to participate in that. And explaining on why these neighborhoods that don’t get any attention can deteriorate over time, just because of the density issue. And then moving to a place where it’s overall healthier, right? The environment, schools, jobs, all that. Yeah, it just makes sense. And it is a recurring theme of affordable housing in these low incomes where distance is a big issue, and then kids’ environments, because what they’re surrounded by. 

For the city, say there’s an ordinance that’s really looking to set inclusionary housing as one of their options. Is it a set it and forget it type solution, where they can just enable an ordinance and then just let it run by itself?

Rick Jacobus:  Definitely not. One of the reasons why I don’t think inclusionary housing is the first housing policy for most communities is because it is kind of complicated. You have to get the economics right. In terms of the housing market, you don’t want to give too much support to a developer that doesn’t need it. You don’t want to require too much from a developer that can’t afford it. You have to kind of balance. In a way it involves government being a partner in a private enterprise. And that government can be either over burdening the private enterprise or can be taken advantage of. So, it requires some degree of sophistication from the local government.

What I generally recommend is that a city or a county would adopt an inclusionary policy and then they would revisit it again every five years. Then you rethink the basic, how much are you doing? How’s it working, all the rules every five years. And most programs don’t require that kind of attention. But I think inclusionary housing does. 

Where we’ve had problems with the programs not doing what they’re supposed to is because they got set in place and left and no one wanted to change them. Because it can be really controversial. So, it’s hard to change it. 

Alberto Pina:  I think, as a city, San Antonio, now that I understand more of what inclusionary housing is, it sounds like this is kind of at their forefront with developers. Just with the sheer volume of projects that have been built or are being built with this as part of it, especially by the Pearl in downtown. Sounds like someone thought this stuff through, which is awesome. 

You discussed how this was icing on the cake, right? It’s not the silver bullet to solving affordable housing or to getting that inventory, that supply we need in the market. Do you feel that factory build housing is on more on the cake side before the icing? Or where do you see our industry playing a role in solving this problem? 

Rick Jacobus:  I’ve been doing this inclusionary housing work for 20 years or so, and, what’s changed really dramatically just since the great recession is the cost of constructing.

Every new unit has just been climbing so fast, and it seems like factory-built housing is one of the few rays of hope that we have out there, that we could see meaningful shifts in the underlying costs. And the problem with the high cost is that we can say, ‘well, we want 10% of the units in this new building to be affordable.’

But in San Francisco, it’s $750,000 to build a housing unit. We can say that should be affordable, but we can’t come up with that kind of money. There’s no way. So, we’re starting to see factory built, dense, urban infill housing, and the cost numbers are much more encouraging, and it just feels like we have a whole industry that needs to be grown up around that.

 The other one is, I just think there’s a lot of places, a lot of parts of our cities where nobody can build anything right now because the only thing that works is really expensive. And so, then there’s no market, but there’s a lot of geography where if you could lower the price, you can put in more modest cost housing and find a, service that niche. Because there’s just so many people that need housing and that are willing to pay for it, but they just can’t pay the top price. 

Alberto Pina:  think we’re seeing that with some of the infill lots around this new urban core, where we’re building as a city. The market still can’t sustain the cost of a custom site. We’re just not there as a market, nor are the jobs around there able to sustain that either with what those jobs pay. 

Current zoning laws currently don’t allow for other types of housing. Although I think our city is open and exploring new ways to solve that, so again, kudos to their affordable housing task force for helping that out.

Rick Jacobus:  You have a very forward-looking city there, I think. They do a much better job than a lot of cities in terms of thinking about these things. 

I was going to say, I think that the icing on the cake issue is just that whatever we do with government regulations or government subsidies, it’s just always going to just be a piece of it. And then we need the market to be able to provide housing for people in the middle. And right now, it’s not able to do that. There’s no amount of government programming that’s ever going to make up for that, for not being able to deliver housing to the middle (class). We can have the government serve the lowest income people. It’s not going to work to have government housing be the primary way we serve middle income families, not in America. 

Alberto Pina:  I agree. You gotta find a way. And going back to the real estate developers, you’ve got to find a way to make it profitable, to give them a reason to want to continue to build supply. That’s the bullet we’ve gotta hit. But I think, and I know this is certainly what we’re trying to build at Braustin, I think we’re seeing more and more companies that are realizing you can be for profit and for people simultaneously. You don’t have to pick one or the other.

Rick Jacobus:  Yeah. I think there’s a trust issue, that you have to build trust with the public.

And we, we got ourselves into an underbuilding dynamic in this country, partly because people don’t trust builders to be helping the whole community. And it’s just a little bit of a process to win people over and let them see what you’re trying to do and how important it is.

Because we can’t have the kinds of communities we want if you guys don’t let us build some new housing. We need it to happen. 

Alberto Pina:  Thanks for joining us. I definitely learn something every time.

Mauricio Chacra:  That does it for this episode. Rick, thanks for joining us. I learned a lot and really appreciate your time.

Rick Jacobus:  Thanks a lot!

Mauricio Chacra:  We’ll catch you guys in the next one.