Home ownership impossible? One plan cracks door open

When Connie and Rick Nieto got married a few years ago, there appeared to be no way they could buy a home in Palo Alto, Calif., where they lived and worked. Their combined income of $18,000 (she worked part-time in an office and he was a school bus driver) seemed far too low for home ownership in this well-to-do city near San Francisco.

But now, thanks to an innovative housing program in Palo Alto, they have been able to buy a two-bedroom townhouse for $40,000 -- less than half the market price. "Inclusionary zoning," as the program is called, hasn't exactly swept the country like roller skating. But "it's an idea whose time is coming," as one state housing official puts it, and many communities are trying it.

In general, the program works this way: Builders are required or encouraged by local ordinance to set aside a certain number of housing units in a new development for low- and moderate-income families. In return, they typically are given a speedier course through the bureaucratic maze, easier density requirements, and relaxed building standards. In some cases, federal housing subsidies play a part.

Inclusionary zoning has spread most widely in California, where the average price of a single-family home is approaching $90,000 and housing for the less-affluent is particularly hard to come by. But variations on the same theme also can be found in New Jersey, Massachusetts, Illinois, Maryland, Virginia, Florida, and Oregon.

"Most home builders are very wary of the idea," says Gus Bauman, an attorney specializing in land-use law for the National Association of Home Builders.They find it ironic, he says, that inclusionary schemes often are found in liberal, well-to-do communities where other laws such as open-space zoning have tended to exclude lower-income residents.

Yet builders increasingly are finding that they can turn a profit while selling a certain number of the housing units they build at well below market rates.

"We certainly hope so," says Philip Bettencourt, an official with the Building Association of Southern California. Builders and community officials in Orange County, California, recently negotiated an inclusionary zoning program requiring that 20 percent of all new housing be affordable for those earning no more than the area's median income. About 1,000 such units have been approved so far.

Whether this results in "a cross-subsidy from one group of purchasers in the development to another," as one housing expert and critic of inclusionary zoning puts it, is a matter of considerable debate.

In the case of Rick and Connie Nieto, there seem to be no hard feelings from their neighbors, who had to pay more than twice as much for townhouses of the same kind.

There are "no animosities or second-class citizenship attitudes," says Mr. Nieto, who was elected treasurer of the development's board of directors. "It's just not there."

In order to prevent people like Mr. Nieto from unfairly cashing in on their investment upon resale, restrictions are placed on the resale price. Their equity is limited to the purchase price, owner improvements, and hikes in the local consumer price index.

In terms of the nation's total housing needs, inclusionary zoning programs have barely scratched the surface: 800 units in Montgomery County, Maryland; 500 units in Davis, California; 40 in Highland Park, Illinois; 400 in Los Angeles, and some few others scattered about the US.

But as more and more Americans are squeezed out of the housing market, it may well become more popular.

"There is no question that this is moving forward," says Paul Davidoff, director of the Suburban Action Institute, a civil rights group trying to open up the suburbs to more Americans. "Many communities are finding they must meet the needs of their own children who are growing up and being excluded."