Wrinkles in inclusionary offsets

[posted to pro-urb, about inclusionary density bonuses]

“isn’t it the case that pro formas often start to look a whole lot sweeter when one can find ways to add units to the project?”

Not necessarily. As I understand it (having talked pretty extensively with developers as part of a process examining inclusionary requirements here), the increased economies of scale gained from higher density fall apart once you approach/cross certain thresholds — the incremental increase in housing units may not result in a sufficient increment in profit.

One developer claimed that on one project, a doubling of FAR was still insufficient to offset a 20% inclusionary requirement. The neighborhood had a strict height limit, and packing additional bulk below that line was neither possible nor desirable. Other de facto limits occur elsewhere: single family houses are indeed more profitable than townhouses; high-rises run into various engineering problems as they cross certain heights.

Additionally, construction costs per unit are much higher at higher densities, so the “free land” granted by the density bonus is worth less as a percentage of the total unit cost; and the usual trick of building smaller, uglier “affordable” houses doesn’t work when the “market” houses are 400 sq. ft. studio apartments.

That same developer, though, thought that relief from parking requirements *would* be an effective way of mitigating the cost of high-density inclusionary units. Meanwhile, a payment in lieu fee has proven quite popular with high-rise developers, which might indicate that it’s underpriced.