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Commission proposes code change to get housing in opportunity zones

Thursday, August 1, 2019 by Ryan Thornton

Federal opportunity zones were designed to spur growth in economically disadvantaged areas, but the Planning Commission says the incentives are driving commercial development to the detriment of the city’s housing supply.

Economic Development Department staff will give an overview and update on opportunity zones at the commission’s next meeting on Aug. 13. The commission will then consider an initiative that would amend city code – with a couple of exceptions – so that any opportunity zone property with General Commercial Services (CS) zoning could add a vertical mixed-use designation if desired.

The city’s vertical mixed-use overlay is used to encourage housing density and commercial activity along transit corridors by reducing site requirements and allowing for a mix of uses in exchange for a percentage of affordable housing units.

Introducing the initiative at the commission’s July 23 meeting, Commissioner Greg Anderson said the idea is to allow more of the money being invested in opportunity zones to help grow the city’s stock of market-rate and income-restricted multifamily housing.

The city contains 21 census tracts designated as opportunity zones, mostly east of Interstate 35. In accordance with Congress’ 2017 Tax Cuts and Jobs Act, the designation allows investors to defer tax payments on money gained through real estate sales or other taxable means by investing that money in opportunity zone funds. If kept in those funds long enough, investors can also get substantial tax discounts when it is finally paid.

The effort, Anderson explained, has already had a big impact: Properties within the zones are “encouraged with wildfire to redevelop.” But because a great number of those sites in Austin are now zoned as General Commercial Services, he continued, the city is missing out on added housing capacity.

“As these redevelop, if you only have (General Commercial Services zoning), you can only redevelop to office, storage,” he said. “These things are not going to net us our goals for housing.”

While no developer would be required to take advantage of the vertical mixed-use designation under the initiative, the added entitlements – from elimination of floor area ratio limits to reduced parking requirements – may prove enticing enough to encourage housing.

Commissioner Carmen Llanes-Pulido agreed that the opportunity zones are not currently helping the city secure affordable housing in gentrifying areas, but questioned whether liberal use of vertical mixed-use zoning would ultimately make the problem worse.

“I would really like to see more compelling evidence that (vertical mixed-use) will actually curb displacement or prevent displacement in these areas,” she said. “Because I can personally attest to blanket (vertical mixed-use) decisions causing and accelerating extreme displacement of both residents and small businesses.”

Keeping to the original intent of the vertical mixed-use overlay, city staffers do not currently recommend the designation for properties outside of the city’s core and future core transit corridors, as identified in 2005. By that standard, most of the General Commercial Services sites Anderson referenced would be excluded from consideration.

Staff members, however, are now updating the city code with a high probability that such restrictions will be adjusted. Given that fact, Planning and Zoning Director Jerry Rusthoven suggested the commission consider waiting for the draft Land Development Code to appear on Oct. 4 and initiating amendments at that time if they are not already included in the draft.

If attempted under the current code, he said, both the Austin Fire Department and staff would need to look at each opportunity zone “parcel by parcel” before deciding whether each site was suitable for vertical mixed-use.

The commission decided to take up the initiative in August after hearing from staff on opportunity zones. At that time, Anderson said he will be open to amendments excluding from the proposal both the Austin-Bergstrom International Airport overlay district, where residential use is not permitted, and any properties adjacent to industrial sites.

Commissioner James Shieh said he will be ready to explore additional tools to address affordable housing in opportunity zones to avoid proposing an amendment that is too limiting.

Photo by Trey Perry made available through a Creative Commons license.

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