developer by only making them provide the market value equivalent to the policy formula while also
creating a new revenue source for a housing trust. Updating the market value differential formula
on a regular basis (typically every 1-2 years) ensures fairness to both the developer and the city.
A bonus density program could be effective, but only if maximum density is not by-right. As noted above, the
City’s current practice of allowing maximum densities for 100% market rate projects regardless of the
zoning rules limits the potential for a bonus density program. However, the financial analysis
indicates that a bonus density program would be highly effective for Nashua (ranging from a 1:1
to 2.5:1 ratio for 80% of AMI income targets) at mitigating the financial impact of an inclusionary
zoning program.
INTRODUCTION
The City of Nashua has decided to investigate the feasibility of implementing an inclusionary zoning
policy for new housing development. This effort was borne through the City’s Housing Plan, which
identified the potential to craft an inclusionary zoning ordinance which creates a public benefit from
private development occurring in the city. The City of Nashua hired RKG to build a financial
feasibility model to evaluate approaches toward incorporating inclusionary zoning.
RKG Associates is a multi-disciplinary real estate, planning, and economic development consulting
firm with more than 35 years of experience advising public-sector and private-sector clients on real
estate development and financial feasibility. The RKG analysis relied on conducting market research,
interviewing stakeholders, and working with the City to test a series of development typologies to
understand the financial sensitivity of introducing inclusionary zoning.
Inclusionary zoning is a way in which communities can generate affordable housing through
traditional market developments. Inclusionary zoning policies are typically based on a specific
percentage applied to new housing development. For example, if the inclusionary zoning percentage
were set at 10%, on a new 200-unit development then 20 units would be required to be affordable.
Additionally, affordable units can be required to be delivered at specific Area Median Income (AMI)
thresholds such as 50% AMI and 80% AMI. Traditionally, local housing authorities are responsible for
providing housing to households at 30% of AMI. Generally, for inclusionary zoning, having a lower
AMI requirement results in a greater reduction in financial return to a developer because costs are
harder to recoup due to lower revenue streams.
The following analysis details the approach RKG used to test potentially adopting an inclusionary
zoning ordinance, results of the analysis, and recommendations to minimize financial impacts of such
changes. The appendix section includes a glossary of terms used throughout this analysis.
MODEL
To perform the analysis, RKG Associates created a financial feasibility model based on traditional
proforma analysis standards for real estate development. The model was created in Microsoft Excel
to allow for the greatest functional flexibility and analysis transparency.
