Incentive Strategies:
Density Bonuses, Fee Waivers & Expedited Approvals
Introduction
Density bonuses, fee waivers, and expedited approvals are strategic tools used by local governments to incentivize private developers to align their projects with community goals. Among these, density bonuses are one of the most widely used mechanisms to address housing shortages and promote affordable housing. By allowing developers to build more units than typically permitted, density bonuses encourage the creation of housing that meets public needs while still being financially viable for developers. Below, we explore these tools in detail, with a particular focus on density bonuses, their purpose, benefits, challenges, and real-world applications.
Density Bonuses
Density bonuses are a zoning mechanism that allows developers to increase the number of units on a given parcel of land beyond what is normally allowed under existing zoning regulations. In exchange for this increased density, developers are often required to provide public benefits, such as affordable housing units, green building features, or community amenities like parks or public plazas.
Purpose and Benefits
The primary purpose of density bonuses is to address housing affordability and supply issues. By permitting developers to build more units, municipalities can increase housing stock without expanding urban boundaries. This helps reduce sprawl, preserve open spaces, and promote efficient land use. Density bonuses also enable the creation of diverse housing options, including smaller, more affordable units that might otherwise be financially unviable.
For developers, density bonuses can make projects more financially feasible. By increasing the number of units, developers can spread fixed costs—such as land acquisition, infrastructure, and construction—across a larger number of units, potentially lowering the per-unit cost. This is especially important in high-cost urban areas where land prices are steep, and profit margins are slim. Density bonuses thus serve as a win-win solution, benefiting both communities and developers.
Challenges
Despite their benefits, density bonuses are not without challenges. One of the most significant issues is community opposition. Residents often resist higher-density developments due to concerns about increased traffic, strain on public services, or changes to the neighborhood’s character. For example, a proposal to build a high-rise apartment building in a traditionally low-rise neighborhood might face pushback from residents who fear losing the area’s charm.
Another challenge is ensuring that the affordable housing units created through density bonuses remain affordable over the long term. Without proper safeguards, these units may revert to market rates after a certain period, undermining the program’s goals. Additionally, if not carefully designed, density bonuses can lead to overdevelopment in certain areas, exacerbating infrastructure challenges such as overcrowded schools, congested roads, and overburdened public transit systems.
Examples
California’s Density Bonus Law is one of the most well-known examples of density bonuses in action. The law allows developers to increase density by up to 35% in exchange for setting aside a percentage of units for low- or moderate-income households. Similarly, cities like Seattle and New York have implemented density bonus programs to encourage the inclusion of affordable housing in new developments. In Seattle, for instance, the Mandatory Housing Affordability (MHA) program requires developers to either include affordable units in their projects or pay a fee to support affordable housing elsewhere in the city.
Fee Waivers
While density bonuses focus on increasing the number of units, fee waivers address the financial burden of development by reducing or eliminating certain fees, such as building permit fees, impact fees, or utility connection charges. These fees can significantly increase the cost of development, so waiving them can make projects more financially feasible, particularly for affordable housing or other community-priority developments.
Purpose and Benefits
The primary goal of fee waivers is to lower the cost of housing production, making it easier for developers to include affordable units in their projects. By reducing upfront costs, fee waivers can also encourage the development of smaller, infill projects that might otherwise be financially unviable. This can help revitalize underutilized urban areas and reduce sprawl by promoting development in existing neighborhoods rather than on the urban fringe.
For municipalities, fee waivers can be a cost-effective way to promote affordable housing without directly subsidizing developers. Instead of allocating funds for housing projects, cities can forgo revenue from fees, which may be a smaller financial burden in the long run. Additionally, fee waivers can be targeted to specific types of projects, such as those that include green building features or are located in designated priority areas.
Challenges
One of the main challenges with fee waivers is the potential loss of revenue for local governments. Development fees often fund critical infrastructure and services, such as roads, schools, and parks. Waiving these fees can strain municipal budgets, especially if the waived fees are not offset by increased property tax revenue from new developments. For example, a city that waives impact fees for a new housing development might struggle to fund the expansion of a nearby school to accommodate the additional students.
Another issue is ensuring that fee waivers are targeted effectively. Without clear criteria, fee waivers may benefit projects that do not align with community goals, such as luxury developments that do not include affordable housing. To address this, many cities establish specific eligibility requirements for fee waivers, such as setting aside a certain percentage of units for low-income households or meeting green building standards.
Examples
Many cities offer fee waivers for affordable housing projects. For instance, Austin, Texas, waives development fees for projects that include a significant percentage of affordable units. Similarly, Portland, Oregon, offers fee reductions for green building projects that meet certain sustainability standards. In some cases, fee waivers are combined with other incentives, such as density bonuses or expedited approvals, to create a more comprehensive package of benefits for developers.
Expedited Approvals
Expedited approvals streamline the permitting and review process for development projects, reducing the time and uncertainty associated with obtaining necessary approvals. This can include fast-tracking applications, reducing the number of review steps, or providing dedicated staff to assist with the process.
Purpose and Benefits
The primary benefit of expedited approvals is faster project delivery. Lengthy approval processes can delay construction, increase costs, and deter developers from pursuing certain projects. By speeding up approvals, municipalities can encourage more development, particularly in areas with urgent housing needs. For example, a developer who knows that a project will be approved within six months rather than two years is more likely to move forward with the project.
Expedited approvals can also reduce administrative burdens for both developers and local governments. Simplifying the process can free up resources for other priorities and make it easier for smaller developers or nonprofits to navigate the system. This can promote a more diverse range of housing options and encourage innovation in design and construction.
Challenges
One challenge with expedited approvals is ensuring that streamlined processes do not compromise the quality or safety of developments. Cutting corners in the review process could lead to substandard construction or projects that do not meet community standards. To address this, many cities establish clear guidelines and performance standards for projects that qualify for expedited approvals.
Another issue is equity. If expedited approvals are only available to certain types of projects or developers, they may inadvertently favor large, well-resourced developers over smaller ones. This could limit the diversity of housing options and exacerbate inequalities in the development process. To promote equity, some cities offer expedited approvals specifically for affordable housing projects or for developers who meet certain criteria, such as being locally based or minority owned.
Examples
San Francisco’s Affordable Housing Bonus Program includes expedited review for projects that include affordable housing. Similarly, Boston’s “Inclusionary Development Policy” offers fast-track permitting for projects that meet affordability requirements. In both cases, the goal is to encourage the development of housing that meets community needs while reducing the time and cost associated with the approval process.
Combining Incentives for Greater Impact
Many municipalities combine density bonuses, fee waivers, and expedited approvals to create a more comprehensive incentive package. For example, a developer might receive a density bonus to build additional units, a fee waiver to reduce costs, and expedited approvals to speed up the project timeline. This multi-pronged approach can make it more attractive for developers to align their projects with community goals.
Case Study: Los Angeles
Los Angeles has implemented a combination of incentives to address its housing crisis. The city’s Transit-Oriented Communities (TOC) program offers density bonuses, fee waivers, and expedited approvals for projects located near public transit. The program aims to increase housing supply, promote affordable housing, and reduce reliance on cars by encouraging development in transit-rich areas. Since its inception, the TOC program has spurred the construction of thousands of new housing units, including a significant number of affordable units.
Conclusion
Density bonuses, fee waivers, and expedited approvals are powerful tools for encouraging development that aligns with community priorities. By offering financial and procedural incentives, municipalities can address pressing issues like housing affordability, sustainability, and urban revitalization. However, these tools must be carefully designed to balance the needs of developers, residents, and local governments. When implemented effectively, they can create a win-win situation, fostering vibrant, inclusive communities while supporting the growth and profitability of the development industry. As cities continue to grapple with housing shortages and other challenges, density bonuses and other incentives will likely play an increasingly important role in shaping the future of urban development.
Also read: Inclusionary Zoning and Housing Market Outcomes