The Case for Letting Developers Pay Not to Build

The question of integrating affordable housing units required by inclusionary zoning on-site versus allowing developers to pay a fee to locate them off-site has long been a contentious one. In this Q&A, Sam Moss, executive director of the Mission Housing Development Corporation in San Francisco, explains why he thinks that the fee-out option is unfairly demonized.

Miriam Axel-Lute: Last year on social media you posted saying something to the effect of, “Hey, look: everybody talks about on-site units as the holy grail of inclusionary zoning, but I think off-site fees are actually better.” Why do you think people go for the on-site units, and why do you think that off-site is better?

Sam Moss: If a developer chooses to fee out, [and if that fee is] properly disseminated to nonprofit affordable housing developers through something like a housing trust fund or an affordable housing fund, that is the most efficient, most valuable use of the fee. Building on-site is supported by a lot of people, mainly because of how long it takes to build the 100 percent–affordable projects. It can take years longer than the market-rate project that produced the fee. There is something to be said for getting below-market-rate units built at the exact same time as the market-rate development.

But at the end of the day, using the fees on affordable housing nonprofits leverages each dollar into $3 or so, because of tax credits and bonds and things like that. I believe that’s the most valuable use.

[Why do I think that off-site is] better? I don’t know that it’s necessarily better. [But] I am disappointed and frustrated over the demonizing of the fee-out option. I can see why people would just default to demanding on-site, but I do still believe that the most valuable, efficient use of the funds is to allow a nonprofit developer to utilize the fee.

Miriam Axel-Lute: So you’re saying more units would be built using the fee-out option?

Yes, because the nonprofit can leverage the fee dollars with other sources of funding, you essentially get more units. So, for every dollar that the market-rate developer would have spent building units on-site, that same amount of money can be utilized to, in some cases, triple the amount of overall funding that’s available for the affordable units, and thus build more units.

Miriam Axel-Lute: One of the reasons people like on-site is it can be a way to force affordable units into areas that would put up a NIMBY fight against a totally affordable development. How would you respond to this?

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