Incentive zoning is a zoning ordinance that incentivizes developers to build specific types of properties that will produce economic development for the city. This type of zoning creates strong private-public partnerships to further the city’s goals.
For example, the city may permit a developer to build an apartment complex that exceeds standard zoning heights in exchange for reserving a portion of those apartments for lower-income individuals.
Incentive zoning also permits property owners to go above and beyond standard land use regulations by fulfilling specific conditions to alter the existing land use regulations. An example of incentive zoning might be a government requirement for a landowner to build 4 parking spots in return for adjusting the land use regulation. In this situation, if the landowner builds 4 parking spots they will be able to build in a manner that is not fitting with the existing land use regulations.
In urban areas, one of the main ways to adjust existing land laws is to dedicate a portion of new developments to affordable housing. A landowner’s effort to build affordable housing curtails the standard subdivision and development standards to allow the landowner to build more units. Prior to purchasing land, many prospective developers see if it is possible to adjust existing land use laws in order to maximize the land they are purchasing. Oftentimes, the number one thing developers do is verifying how many units they can develop with or without dedicating unit(s) to affordable housing.
An example of when a landowner can increase the size of the property they develop is if they dedicate a portion of the property to affordable housing. In this example, the developer might propose to develop a 50 unit building, when existing law only permits 30 units. The developer in this situation can apply to the city and see how many of those units need to be dedicate towards affordable housing. The city might say 10 of the proposed 50 units must be affordable housing units.
Assuming this is the case, the developer would dedicate 10 units to affordable housing and return be able to develop 20 more units than had they not developed them. This is a common example of when it would make financial sense for the developer to spend extra money and time applying for the land variance in return for making more money in the long term.