Guest Column

The Truth about Inclusionary Zoning and its likely impact on Newark

New residential developments like Court Street tower in Newark would be required to include 20 percent affordable housing under an inclusionary zoning ordinance proposed by the Baraka administration.

It’s taken 30 years for Hoboken and Jersey City to become an overnight success. Newark? Well, we’re still fighting to sustain a renaissance 50 years in the making.  

If we’re not careful, we can severely undermine the delicate balance of a market that is still struggling to achieve scale and a new sense of place, especially in the Central Ward.  

How can such a thing happen? Newark is hot, right?  Yes, and for all the right reasons that we are so cognizant of – location, infrastructure, transportation, culture, sports, and corporate leadership to name just a few.   

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With all that going for us, we have still needed massive and multi-source subsidies to jumpstart development both in the Central Ward and the neighborhoods.  

The state sponsored Urban Transit Hub Tax Credit program, followed by the Economic Redevelopment and Growth Grant (ERGG), Low Income Housing Tax Credits, Redevelopment Area Bonding, Grow New Jersey Grants, New Market Tax Credits, Historic Tax Credits, Community Development Block Grants, Qualified School Construction Bonds (in the case of educational development), collectively had an enormous positive impact on development activity in Newark over the last several years.  

Pioneering projects such as Teachers Village, Springfield Avenue Marketplace, Hahnes, NJPAC Residential, Rector Street residential and more, surely could not have been financed and implemented without such a powerful combination of financial incentives.  

This layering of public subsidy single handedly enabled the voluntary inclusion of affordable residential units in projects such as Hahnes and NJPAC.  

The availability of these incentives are now either vastly reduced or gone completely, including the single most potent weapon in the residential developer toolbox, the Residential ERGG.  

How can Newark sustain its nascent redevelopment effort in the Central Ward along with the neighborhoods? How can we achieve that critical mass in the downtown (commonly defined as 10,000-15,000 housing units) that we so desperately need to create that new sense of place with a vibrant retail, live/work environment that we’ve been hearing so much about for the last several decades? How do we accomplish this, especially given the sensitivity of demand to market rents in a residential market that is still out to prove itself?  

I’m not an economist, but I can tell you how we fail to do this…by self-imposing a tax on new market-rate multi-family development in the city.  Yet, this is precisely what the Baraka administration and some members of the governing body are advocating for – the imposition of an Inclusionary Zoning Ordinance, which would require a 20 percent affordable set aside for projects in excess of 30 units or an in-lieu payment to an affordable housing trust.  The proposal comes at a time in Newark’s development cycle when it can least afford such a measure.  

Inclusionary zoning is nothing new.  The concept has been around for 25 years or more starting in California.  There are hundreds of municipalities across the country with either some form of inclusionary zoning already in place or under consideration.  Newark would hardly be a pacesetter for the rest of the nation in this space, as many large and medium sized cities have pursued such a policy with minimal or no real impact (according to many national urban economists, including Rutgers Business Center for Real Estate).  

When did market-rate development become such a bad thing?  Ask the political and community leaders in places such as such as Harlem, Brooklyn, the Bronx, lower Manhattan, Jersey City and Hoboken how horrible market-rate development has been for their neighborhoods. 

The free market has worked very well in these locales.  Government intervention? Not so much.  To believe inclusionary zoning will work in Newark at this point in time is not only misguided, but will most likely further handicap the very low-income residents we are trying to serve.    

Those who advocate for inclusionary zoning would have people believe that market rate development prices out residents who already live in the locale. But who, exactly, has or will be displaced from the Central Ward?  Many of the residential units being created downtown are either in former office buildings, buildings that have been vacant for many years or built on vacant land.

Worse still, the proposed legislation would not only hit the Central Ward hard, but would be particularly damaging to the viability of smaller projects in marginal areas where there is a critical need to radically change the perception of a neighborhood.   

A blanket policy for the entirety of the city would have a strong negative impact on the South Ward, West Ward and vulnerable locations in the Central Ward where nascent development progress is most at risk.   

Imposing a 20 percent affordable housing set aside could end up derailing many residential housing projects on the drawing board while not addressing the need for affordable housing, which stems from the lack of good-paying jobs.

The inclusionary zone tax has to be paid by someone, and the Newark market is simply not mature enough for either landlords (in the form of lower net operating income) or tenants (in the form of higher rents) to bear the cost of this tax on new development.

Newark’s options to incentivize developers to move forward in the face of such a financial handicap are severely limited.  Other more established markets with inclusionary zoning, such as New York, Boston or San Francisco, could award developers density bonuses, higher Floor Area Ratios, other regulatory relief, or larger property tax abatements.  

Given Newark’s already liberal pro-development zoning, particularly in the downtown where we are focused on achieving scale, developers will be singularly focused on maxing-out on property tax relief in order to offset the inclusionary zoning tax.  

As chairperson of the Tax Abatement Committee, I can attest to the fact that project economics without the old subsidies in place are already extremely challenging and in many cases can only be viable with long-term tax relief. 

The city simply cannot afford to get even more aggressive on the tax abatement front and lock-in concessions, which will impact the city’s budget and ratable base for a generation to come. This kind of concession will have a negative effect on the city’s economy and its ability to serve the housing needs of low-income families with more direct and effective measures.  

We absolutely cannot disincentivize developers from building in the city at this critical time in the business and development cycle, yet this is precisely what will occur if we enact the kind of inclusionary zoning ordinance that is being considered. 

Haven’t we learned by the countless other failed examples of inclusionary zoning across the country that government intervention in a market that is otherwise dictated by free-market fundamental economics will most likely lead to waste, inefficiency and an overall reduction in private development activity?  

Why shift the burden of paying for the implicit inclusionary zoning tax back on the city with its negative multiplier effect, when we can and should be focused on direct and more efficient means of providing affordable housing for our residents by way of both the city and its Housing Authority.  Why rush to lock-in such legislation when the investigation of viable alternatives and best practices have scarcely been considered?  

Yet here we are, emboldened by a still developing bull market in multi-family real estate development, on the verge of enacting legislation for all the wrong reasons; driven by what appear to be political motivations that will not serve this city well; and will likely drive a stake in the very heart of a Newark renaissance 50 years in the making.  

I have to remind my colleagues in the governing body that Newark still has a long way to go re-establish the city as a high profile, desirable and safe place to live, work and shop, on par with its more notable tri-state neighbors. Enacting legislation to impede our progress now would be incredibly damaging and myopic.  

I cannot in good conscience support this misguided legislation and will insist the process is managed with thoughtfulness, professionalism and respect for all of Newark’s stakeholders. 

Gayle Chaneyfield Jenkins is a member of the Newark City Council representing the Central Ward.

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