Real Estate

A closer look at affordable housing as Newark adopts IZ measure

Baxter Park on Wellington Way is listed as one of Newark's residential buildings that offers affordable housing units Credits: Elana Knopp
Newark's Harrison Park Square on Spruce Street is a senior residential development offering lower-income housing units Credits: Elana Knopp

After a months-long debate over affordable housing in the City of Newark, the city council voted Wednesday to adopt an inclusionary zoning measure that would require new residential developments to set aside a certain number of units for lower-income residents.

The council voted unanimously to pass the much-anticipated legislation, which was created to ensure that as the city grows and attracts new market-rate residential development, it addresses the region’s affordable housing need.

The ordinance amends Title 41 of the city's municipal code and would require all new residential and mixed-use developments of 30 or more units and substantially rehabilitated residential developments of 40 or more units to set aside 20 percent of units as income-restricted housing for low and moderate-income residents.

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James Powell, of the housing justice advocacy group Homes for All Newark, said he was pleased with the outcome.

"We're ecstatic," he said. "We've expected if for a while. We were cautiously optimistic and we're just glad they did the right thing."

MX-3, a controversial development proposal that would allow for high-density residential and commercial buildings in the Ironbound neighborhood, also passed at Wednesday's meeting, with East Ward Councilman Augusto Amador the sole council member to vote against the measure.

The MX-3 development measure will now increase building heights to 12 stories in the Ironbound neighborhood near Penn Station.

Although Amador asked the council to defer the proposal in order to make amendments to the current ordinance, he was ultimately unsuccessful at delaying the vote.

Drew Curtis, community development and environmental justice director for the Ironbound Community Corporation, said that Newark residents deserve better.

"I am extremely disappointed to see this pass without meaningful community participation," Curtis said. "Newark residents deserve to have a say in how our city develops and to ensure that the development is beneficial for us."

Powell noted that traffic studies have not been performed in the Ironbound in order to determine the full impact of the measure.

“There are parking and traffic problems there,” he said. “Putting up all those buildings will make it a nightmare.”

Powell also stated that opponents of the measure have questioned the environmental impacts of the measure, noting the area of redevelopment’s close proximity to the flood zone.

“We don’t know who’s been driving this agenda,” Powell said. “People feel locked out.”

A measure to amend the redevelopment plan for the Riverfront to allow buildings to increase their maximum height was deferred for a second time to Oct. 11.

The adoption of the measures comes after months of contentious council meetings, with debates on both affordable housing and redevelopment repeatedly erupting into chaos.

Just two weeks ago, members of the public clashed with city employees, with both sides ultimately taking the near-physical fight out into the hall escorted by security officers.

Residents spoke out at the raucous Sept 21 meeting on the lack of low-income housing in the city, while others questioned the mayor and council as to why their pleas for better housing have fallen on deaf ears. Many spoke of uninhabitable living conditions and decried the gentrification that they believe may ultimately serve to displace them.

While inclusionary zoning and development measures have been at the center of the debate, it has been the horror stories of some Newark residents that have ignited the most emotion.

Throughout months of council and community meetings, residents have spoken out, stating that their housing issues have been ignored by both the mayor’s office and city council.

Newark Mayor Ras Baraka, who has been an outspoken supporter of inclusionary zoning, lauded Wednesday’s adoption of the measure, calling it a “groundbreaking step” for the city.

Approximately 78 percent of the 93,000 households in Newark are renters, according to the 2015 five-year American Community Survey.

Households who pay more than 30 percent of their gross income are considered to be rent overburdened. With a median gross income for households at about $34,000 a year, or $2,762 a month, 57.34 percent of households who rent are overburdened in Newark.

The measure--backed by advocacy and social justice groups like the New Community Corporation (NCC), the Ironbound Community Corporation, the Newark chapter of the NAACP, La Casa de Don Pedro and the LISC of Greater Newark, among others--has been in the making for years and is a collaborative effort by city officials, real estate developers and affordable housing advocates to maintain a balance between Newark's rapid growth and affordability for Newark’s residents.

Many have looked to Jersey City and Hoboken as paradigms of doom, as both cities have gone through massive redevelopment and gentrification that has ultimately priced out many low to moderate-income residents.

The measure allows for five percent income-restricted units at 40 percent of the Area Median Income, or AMI; five percent income-restricted units at 60 percent of the AMI; and 10 percent income-restricted units at 80 percent of the AMI, for a total of 20 percent.

Although there is diversity in the structure of inclusionary zoning programs throughout the country--some IZ programs are voluntary while others are mandatory; affordable units are targeted toward different income levels; mandates vary as far as the location of these units--the zoning typically requires housing developers to sell or rent a certain percentage of units at below market rate.

In return, cities offer developers anything from long-term tax abatements to allowances to build more units. Developers also have the option of paying a fee into an affordable housing fund rather than building the units themselves.

Roughly 500 communities in 27 states across the U.S. have adopted inclusionary housing policies.

Several key questions seem to lie at the core of the IZ debate: Has IZ thwarted the growth of market-rate housing? Are developers driven away by IZ mandates? And has inclusionary zoning been successful at producing affordable housing for everyone?

Proponents of IZ claim that the legislation offers desirable housing options for residents who otherwise would not have access to certain kinds of housing. In addition, those who support IZ say that affordable housing is a way of financing housing without the requirement of raising property or sales taxes. And then there is the issue of economic integration--proponents claim that including below-market units in newer, high-end buildings offers up a strong statement about how much real inclusion is actually valued.

Many who oppose inclusionary zoning argue that IZ does not address those who fall below the threshold of low to middle-income housing while simultaneously driving up the price of non-subsidized housing.

In addition, those opposed to the measure make the argument that the zoning mandates will scare developers away, while supporters of the legislation claim that those who present the ordinance as a drawback for developers are misleading the public and that reciprocity is the backbone of the agreement.

Richard Cammarieri, director of special projects at NCC, said that the issue of inclusionary zoning in the city has been looked at for years.

“It never got any political traction until now,” Cammarieri said prior to adoption of the measure. “Now is a good time with all the development going on.”

Cammarieri said that the NCC was invited to the table by Baraka, along with representatives of the Department of Economic and Housing Development, city council members and developers, to discuss and help draft the legislation.

According to Cammarieri, the issue of inclusive zoning has been misrepresented by some opponents.

“This is nothing radical,” he said, noting that the ordinance would come into play in the event that a developer would need a variance or tax abatement from the city. “This has been around since the '70s. The major pushback you’ll get is that it’ll impede progress and stifle growth. Studies show that IZ does not stop development. We want to try to address the needs of people right now and the IZ ordinance does that.”

Curtis said the legislation was drafted based on an inclusionary zoning ordinance that ultimately failed to pass in Hoboken.

“We want our city to be diverse,” he said, listing off the city's many ethnic and cultural groups. “We don’t want this to turn into another Hoboken.”

Although the ordinance does not deal with "extremely low income" and homeless residents, said Cammarieri, providing for workforce and low-income housing is a step in the right direction.

Powell noted that the ordinance is a step in the right direction.

"It's not a perfect ordinance," he said. "But the process has been respected and negotiated over several months. The public has had fair input."

Stephen Malpezzi, emeritus professor from the University of Wisconsin and a research associate at the Rutgers Center for Real Estate, said that while implementation of inclusionary zoning shows concern on the part of politicians, it does little to actually solve the affordable housing problem.

"I have yet to find information about an IZ program put in place that has been a rip-roaring success and that has made a huge impact on solving the problem," Malpezzi said. "In the end it's basically a tax on the developers. The housing created is not really addressing much of the issue. If you're going to do inclusionary zoning, at least do it in a way that helps people."

Malpezzi argues that housing vouchers would do far more to solve the affordable housing issue than IZ.

"On the one hand, IZ is not very effective and we have better ways to tackle this," Malpezzi said. "While most housing economists are saying this, cities continue to include IZ and the government is decreasing vouchers."

But Robert Silverman, a professor at the University of Buffalo's Department of Urban and Regional Planning, said that whether or not IZ neglects lowest-income residents depends on the way the policy is structured at the local level.

"It usually sets aside a percent of units in a new development that should be affordable," Silverman said. "That percent can range from roughly 10 percent up to 30 percent in some instances."

What is considered affordable is typically spelled out as a percent of the Area Median Income, said Silverman. As an example, a local ordinance may require units to be affordable to people earning 80 percent of the AMI.

According to the Department of Housing and Urban Development (HUD), while the annual median gross income for households in Newark is $34,012, the Area Median Income for a family of four is $94,200.

The AMI includes the entire metropolitan region, rather than just the city itself.

According to HUD, "low income" for the Newark Metro Fair Market Rent Area (FMR) for a family of four is $68,000 annually, while "very low" income comes in at $47,00 and "extremely low" at $28, 250.

In response to whether IZ leaves out those most in need, Silverman says that it may.

"Yes, it probably does in most cases," he said. "The lowest income households are usually very far below the AMI, maybe 30 percent of AMI or lower. Most IZ ordinances don’t provide for housing at that income level. In some cases, developers are given the option of putting money into a housing fund designated for affordable housing in lue of on-site development. That could be a mechanism for localities to pool resources for housing targeted toward those with greater housing needs."

New York-based developers, Lotus Equity Group, which bought Bear Stadium last year with plans for a mixed use project, said that as longstanding members of the Newark community, they support inclusionary zoning but that the current legislation needs to be reworked.

“As longstanding members of the Newark community, Lotus is committed to supporting the growth of a 24/7 city that provides increased opportunity to people from all backgrounds and income levels," a spokesperson for Lotus said before adoption of the measure. "While the past few years have brought some tremendously exciting development, there is still a lot of work to do to achieve the critical mass required to position Newark as the live-work-play destination that everyone thinks it should be; and continued growth is far from assured."

Lotus says that the impacts of the nuanced regulations must be carefully considered.

"Newark needs a holistic policy to harness this critical moment to encourage more diversity, grow the communities of Newark and spur additional developments that would bring new housing, retail, cultural spaces, businesses and jobs to the city," the spokesperson said. "The impacts of these regulations are nuanced and should be carefully and thoroughly considered to ensure a brighter future for Newark and all of its residents. We trust that the City administration and the City Council will pass an ordinance that achieves these goals.”

Malpezzi also notes that while many cities like Newark, once on the decline, have enjoyed a revitalization, the progress does not always branch out into individual neighborhoods.

"There can be a tension between downtown areas and other neighborhoods," he said. "Downtown revitalization helps other neighborhoods come back but only very slowly, and it doesn't cross over into all neighborhoods. It's not a silver bullet; it takes a long time for that to happen. There is, quite rightly, a tension. but choking off downtown revitalization doesn't help--it'll have some positive economic impact."

Silverman believes that IZ does not really thwart real estate development.

"In most places with IZ ordinances, the real estate market is hot, so development is going to happen," Silverman said. "What IZ does is it ensures that affordable housing, at some level, is part of the development process. It can also add to a developer’s profits since IZ typically allows developers to build more units, both affordable and market rate."

That is because developers usually get density bonuses when they augment affordable units under IZ rules, said Silverman.

"In a hot market, that could mean that a developer can add floors to a property or get a zoning variance to build more units on a piece of property, so a developer could do a much larger project," he said.

An example of this would be to go from a 100-unit market-rate project to a 150-unit project, with 10 percent of those being affordable units. Developers also get access to affordable housing programs and subsidies when they pursue affordable housing development like low-income housing tax credit dollars, subsidized rents, and other programs.

One thing developers are wary of, said Silverman, is the expertise required to remain in compliance with some of the affordable housing programs that go along with IZ development strategies.

"Some developers are not prepared to participate in low-income housing programs, so they need to partner with non-profits or get management training from people with that expertise," he said.

Raymond Ocasio, Executive Director of La Casa de Don Pedro, said that developers want the security of a booming market before making any deals.

"Developers want the market to flourish before they have anything imposed on them," Ocasio said. "We think differently. You build a market--you don't wait for a market. There should be a reasonable exchange, and this is in the form of affordable units."

Cammarieri notes the basic reciprocity of the zoning, stating that, "The developers are getting a tax abatement from the city. The payback is providing low-income housing. You want something, you give something. It’s a simple equation.”

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