Current policies make an inclusionary zoning policy challenging. The most immediate challenge to
implementing an inclusionary zoning policy is the City’s current practices of maximizing density
and/or providing financial incentives for pure market-rate projects. The impact of this practice has
been two-fold. First, market return expectations (reported
to be above 20% IRR) are substantially higher than other,
similar-risk marketplaces in New England and throughout Given the analysis indicated
the United States. While RKG recognizes the delicate the average market value
the | differential between a
market-rate unit and a unit
priced for a household earning
80% of AMI is over $36,000.
balance of desiring investment activity and
requirements of those willing to make that investment,
these inflated return expectations will require even greater
financial investments from the City to make an IZ policy
work. Given the analysis indicated the average market
value differential between a market-rate unit and a unit
priced for a household earning 80% of AMI is over $36,000, the cost to subsidize a larger multifamily
development likely will exceed $500,000. Second, this practice maximizes the physical capacity of
these parcels (based on parking requirements, open space requirements, etc.). Allowing full
development potential from the outset eliminates the use of bonus density.
Location impacts financial feasibility. The financial modeling indicates that the need for podium
parking (most prevalent in downtown Nashua) adds substantial cost to a development. This
additional cost impacts profitability, and thus indicates any inclusionary zoning policy (and potential
subsequent bonus density policy) needs to consider location. From an execution perspective,
requiring a lower percentage of units in areas that require structured parking and/or having higher
bonus density ratios are recommended. In addition, location also affects revenue potential. RKG
Associates research indicated that values/rents are highest in Downtown and in the Amherst/Exit 1
areas of the city. Overt time, disparities between these two areas may develop as new investment/job
creation occurs. To this point, any inclusionary zoning policy should reflect market differences and
be reviewed regularly to ensure those polices do not become barriers to new investment.
Target income levels will heavily skew modeling results. For the purposes of this analysis, RKG
Associates was tasked with modeling an inclusionary zoning policy that targeted the 80% of AMI
income. The results detailed in this report reflect that assumption. Changing the target income
threshold will affect the scale of impact. For example, targeting 50% of AMI will create greater
negative financial impacts for adevelopment. It also would require a much higher bonus density ratio
due to larger loss of revenue between market rate and the income-controlled units. The City should
thoroughly assess any potential policies through the financial model before establishing income
thresholds, inclusionary requirements (% of units required), and bonus density ratios.
Creating a payment in lieu provides fair relief for ‘partial’ units. Some communities follow a ‘round up’
approach to inclusionary zoning policies. In these cases, the developer is required to deliver the next
whole unit when the formula creates a fractional unit (i.e., deliver 6 units when the formula results in
a 5.5 unit calculation). This approach creates greater negative financial impacts, particularly for
smaller (less than 25 units) projects. The payment in lieu of fractional units provide relief to the
