Why New Orleans-area home prices continued climbing in 2015 _lowres

Advocate staff photo by JOHN McCUSKER -- The New Orleans skyline and the French Quarter. File photos of aerials of New Orleans area and landmarks shot July 23, 2013.

Forcing developers to add lower-cost apartments to their residential projects would be difficult to implement outside of New Orleans' most sought-after neighborhoods, and it likely would create only a few dozen lower-priced units per year, according to a study presented Tuesday to the City Council.

The local housing market is strong enough to support an affordable-housing mandate, known as "inclusionary zoning," only in areas such as the Central Business District and the French Quarter, said the study, a summary of which was released Tuesday.

Even there, only one out of every 10 units in multi-family apartment buildings could be reserved for low-income residents without reducing the number of projects that get built.

Areas like Bywater and Marigny could support reserving only one out of 20 units for low-income residents, and inclusionary zoning mandates wouldn't be feasible at all elsewhere, the study said.

The report, which was conducted by two firms hired by Mayor LaToya Cantrell's administration to study the issue, deals a setback to affordable-housing advocates who have been arguing for a broad roll-out of inclusionary zoning policies to combat New Orleans' lack of affordable housing.

But it also offers a rebuttal to developers who claim that the city's housing market can't support any type of affordable-housing requirement.

Phillip Kash, a partner at the national consulting firm HR&A and Advisors, one of the two firms that conducted the study, said creating mandates that require too many affordable apartments, or at too steep a discount, can result in less housing overall as developers balk at building anything.

"If you were going to a very strong, very deep affordability (requirement), and the market can't support it, you won't get any units actually built," Kash said. "There's a number of cities where we have seen this happen."

The study was commissioned to provide an outside opinion on whether requirements that developers provide cheaper units in popular neighborhoods — which have been debated by the City Council and City Planning Commission for years — would be feasible in the New Orleans housing market.

In 2016, city planners argued that New Orleans should require home builders to reserve at least 12 percent of new units for lower-income residents in areas like the CBD, Algiers Point, Marigny and Uptown, allowing such residents to live closer to where many of them work.

But developers said the policy could actually reduce the supply of affordable housing over time, as landlords would be forced to raise rents on their market-rate units to make up for the money they would lose on the less profitable ones.

Gov. John Bel Edwards intervened with a veto after developers last year got state lawmakers to change the law to prohibit inclusionary zoning policies, but the governor has said he will not do so again this year if cities like New Orleans and Baton Rouge have made no progress on implementing such policies.

With that deadline in mind, the council plans to vote in March on a final set of rules.

The consultants said an ideal policy would require developers to reserve 10 percent of units in new projects in the CBD and French Quarter for residents earning up to $30,000 a year, or 60 percent below the area's median income.

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In Bywater, the Lower Garden District, Marigny, Mid-City, Uptown and Treme, developers would be required to set aside 5 percent of units for those tenants.

Developers who want to opt out could pay an "in lieu" fee of $291,000 for each affordable rental unit they choose not to build, and $366,000 for every for-sale unit — a pricey barrier that should incentivize firms to participate, the consultants said.

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No other city neighborhood can support the mandate, and developers seeking to build in those areas should be exempted from it, Kash and his colleagues said.

But they said incentives should be made available to developers who volunteer to build affordable units elsewhere, as well as to those required to build units in the designated areas. They suggested offering a density bonus that could raise the maximum number of units allowed at one site, tax breaks or reductions in the number of required parking spaces.

And the city should check every two years to see if the mandate has become compatible with other neighborhoods, they said.

Affordable-housing advocate Andreanecia Morris of Housing NOLA said the study "did not go far enough" in its recommendations, particularly in areas where there has been widespread displacement of longtime residents, such as Leonidas and the Irish Channel.

However, the inclusion of any kind of mandate "proves that this can work," she said.

Evan Loukadakis of the Home Builders Association of Greater New Orleans, however, said that while his group does not support any mandate, the report otherwise confirmed many of his organization's assertions.

"Our market can't support" widespread mandates, which "don't yield the units that some people think they will," he said. 

Had a mandate been in place in the CBD and French Quarter five years ago, only 126 new units would have been built by today, the consultants estimated. That's nowhere near the thousands of affordable units that advocates say are needed.

City Councilwoman Kristin Gisleson Palmer questioned, as she has before, why the city is not tying the mandate for affordable units to the issuance of popular short-term rental licenses.

"The market really needs to determine how we do this, but because we are dealing with this soft market ... (the proposed policy) is not going to produce what we need," she said.

But John Pourciau, Mayor LaToya Cantrell's chief of staff, said the mandate is just one of the tools Cantrell wants to use to create affordable housing. "This is not a magic bullet; this is a piece of an overall conversation," he said.

Editor's note, 2/27/2019: This story has been corrected to note that the mayor's administration, not the City Council, commissioned the study. 

Follow Jessica Williams on Twitter, @jwilliamsNOLA​.