Dive Brief:
- A new analysis is recommending that New Orleans end a mandatory inclusionary zoning requirement that new residential developments with 10 or more units in certain city districts make 10% of units affordable — meaning affordable to residents at or below 60% of the area median income.
- In the current market, the mandate is too costly for developers, according to the analysis by HR&A Advisors. Since 2021, the MIZ policy has yet to lead to any new affordable units in mix-income projects, and only two such units are currently in the pipeline.
- Instead, the report recommends the city ask developers to voluntarily set aside 5% of units for residents who earn up to 80% of the AMI and offer additional incentives to cover the gap between market pricing and below-market pricing.
Dive Insight:
A declining population and premium rents recently earned New Orleans the title of “toughest city in America for real estate” in a University of Mississippi study.
Since the city implemented its MIZ to boost affordable housing options, “there’s been a sea change, and the market has shifted,” Phillip Kash, a partner at HR&A, told the city’s planning commission at a presentation Nov. 11.
Construction costs have soared 47% nationwide since 2018, according to the HR&A analysis, and sharp rises in interest rates since 2021 have increased borrowing costs.
Locally, the city is shrinking, recording 15,000 fewer residents in 2023 compared with 2020. Residential vacancies climbed from 7.5% in 2018 to 11.5% in 2024.
“In a weak market, multifamily development will need more/deeper incentives to close the feasibility gap created by adding affordability requirements,” the analysis states.
While the MIZ policy has yet to see success in mixed-income multifamily projects, it has supported development of 100% affordable housing projects in the city, the report notes, with 260 affordable units built since 2021 and 563 in the pipeline.
