• Current Market Trends Impacting Inclusionary Zoning
  • March 9, 2015
  • Law Firm: Lerch Early Brewer Chartered - Bethesda Office
  • Lerch Early Legal Update

    “Inclusionary zoning” refers to municipal ordinances that require a percentage of new residential construction to be made affordable. Montgomery County’s Moderately Priced Dwelling Unit (MPDU) Program was the first inclusionary zoning ordinance in the country and differs from traditional “affordable housing" programs that typically target residents with incomes below the poverty level. Under the MPDU Program, developers who build more than 20 units at one location must provide a minimum of 12.5 percent of the total number of dwelling units as MPDUs. The eligibility standards to buy or rent MPDUs are set annually based on income and family size. Currently, the maximum income is set at 65-70 percent of the DC Metropolitan Area median income. The MPDU Program also requires a minimum annual household income, which is above the poverty level. Thus, the MPDU Program has broad applicability.

    Because the provision of new MPDUs is tied directly to new construction, changes in county land use patterns and the housing market directly affect the success of the MPDU Program. The following highlights recent residential trends in Montgomery County and their impact on the MPDU Program.

    Scarcity of Land and Changing Demographics
    Because raw land in Montgomery County is increasingly scarce, the ability to develop single-family, detached homes has become more challenging. This, in combination with changing market demands, has led to an increase in multi-family and in-fill townhouse development. Of these multi-family projects, there has been a recent rise in condominium developments.
    There is also a growing demand, especially among younger demographics, for smaller living spaces located closer to public amenities and transportation options. Although residents are foregoing larger dwelling units, they are increasingly demanding greater building amenities.

    Fewer Choices as Housing Stock Changes
    These trends directly affect the supply of MPDUs (e.g., type, location, size, affordability), and thus, impact the program’s ability to achieve its stated objectives. A fundamental goal of the MPDU Program is to provide for a wide range of housing choices for all incomes, ages, and family sizes. But, as the trend in residential development shifts to multi-family and townhouse development, the range of housing choices narrows. And, as unit sizes within new developments become increasingly smaller, it gets more challenging to accommodate larger families in MPDUs. Another impediment toward achieving this overarching goal is the recent surge in condominium development and the demand for greater building amenities, as condominium fees in high-end developments are often too high for program participants to afford.

    How MPDUs Can Weather the Trends
    So the question is - how might the MPDU Program successfully weather all the various “trends?” One answer is through alternative compliance, which includes the ability to pay a fee in lieu of providing MPDUs or to provide MPDUs at an alternate location. For example, a condominium development with high condo fees and smaller units could either (1) pay a fee in lieu of providing MPDUs on-site, or (2) provide MPDUs at an off-site location that may be more suitable for larger families. Expanding these alternative compliance mechanisms is crucial for the long term success and viability of the MPDU Program, regardless of the challenges that residential trends may present over time.