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7. It May Get Harder to Support Inclusion Through In-Lieu Fees Most communities with inclusionary housing policies allow developers the option of satisfying their inclusionary requirements by paying an "in-lieu fee," i rather than constructing new affordable homes. Often . fee revenue is deposited in a housing trust fund and is 1 ? used to facilitate construction of units elsewhere for low- and moderate-income households, or to achieve ' �� 1+ other affordable housing goals. j ` ,' �� J �: Often, the in-lieu fee is set low enough that developers prefertopaythefeeratherthanproducetheinclusionary . units themselves.Various problems can follow. i The primary issue with an overreliance on in-lieu fees ._ is that it can work against the goal of creating inclusive communities, particularly if fees are used to support affordable housing outside the area where new market- "� , rate development is occurring. ,, The challenge of using in-lieu fees to further the goals of inclusivity is compounded in infill settings, where � -- new development is increasingly focused. Infill areas ,i7.E often have a limited number of available sites at which a -' j separate,affordable housing developer could use lieu-fee SOMA Grand was built in 2007 with 246 luxury revenues to produce affordable homes.56 And when sites condominiums.Located in San Francisco,it includes 29 are available, they are less likely to be pric:ed affordably, below-market-rate units sold to households earning at or given heightened competition from other developers. below median income. A second challenge is that in-lieu fees are sometimes set This is not to say that fee options are inherently too low to produce an equal number of affordable units unhelpful.To the contrary, in-lieu fee revenues can help elsewhere in the community—regardless of the setting.57 jurisdictions address diverse housing needs that would otherwise go unmet througt inclusionary housing. A third issue is that some communities lack local,affordable By working in partnership inith affordable housing housing developers with the capacity to use fee revenues developers, in-lieu revenues :an be combined with to produce new affordable homes. As a result, it is not other public funds to support larger-unit developments uncommon for fee revenues to be used for downpayment for families, service-enriched housing for people with assistance or other forms of housing support that are special needs, or homes for extremely low-income less geographically targeted, less directed toward lower- households — all of which are rare and challenging in income households, and often accompanied by shorter mixed-income developments.59 And fee revenues can affordability terms than inclusionary housing programs. be used to create affordable re ital units in jurisdictions where these types of homes are not being produced When sites are hard to find, fees are set too low, local by inclusionary housing — for example in states like capacity is constrained, or political support is lagging, California and Colorado,where t is now illegal to require inclusionary fee revenues can linger unspent for years. developers to price-control rentals directly. Fees used to This has been a particular problem in New Jersey, for support off-site affordable rental housing furthermore example. Since 1990, the state's municipalities have leverage the expertise that affordable housing developers collected more than $442 million in fees-in-lieu, but have in managing affordable rentals.60 only 15 percent of these funds have been spent on new affordable housing development. More than a quarter The challenge in the years ahead will be to find ways to of municipalities collected fees but never expended a ensure that in-lieu revenues are used to meet a broad single dollar. A majority of the remaining jurisdictions range of housing needs while still supporting mixed- have spent their fee revenues, but not on affordable income communities, rather than creating a deeper housing construction.58 pattern of segregated affordable housing. 12