Ann Arbor scrapping downtown affordable housing incentives, says they’re not working

ANN ARBOR, MI — Development incentives Ann Arbor put in place years ago to encourage more affordable housing haven’t worked out well and now the city is scrapping them.

City Council voted unanimously Monday night, Nov. 6, to give the initial OK to downtown zoning changes that will eliminate bonus floor-area premiums developers can get to build bigger projects by including certain features like affordable housing.

With the changes now awaiting final approval Dec. 4, the city expects there will be fewer private developments downtown that include any affordable housing, but officials say the city wasn’t getting much anyway.

An analysis of how the incentives have been used or not used over the years has led city officials to conclude they’re not consistent with city goals and plans, which include generally getting more residential housing built downtown whether or not it’s affordable.

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Even with bonus floor-area premiums being eliminated, City Planner Alexis DiLeo suggested things won’t change much in terms of building sizes.

“Research of recent downtown projects — using both the pre-2019 premium options and the 2019-present premium options — suggest that the downtown skyline will not be noticeably different moving forward because of the policy change,” she wrote in a memo. “This is because almost all past projects were limited by the established height limits.”

The pending changes will let developers automatically build up to height limits that generally range from 60 to 180 feet downtown. Those limits have been in place since 2009.

Council Member Lisa Disch, D-1st Ward, said moving away from floor-area regulations and bonuses for features like affordable housing will make the development process less cumbersome.

“This is in no way a retreat from our commitment to affordable housing,” she said. “In fact, no affordable units have resulted from the 2019 premiums revision.”

There were some downtown high-rises approved with affordable housing under the city’s zoning premiums in place before City Council changed them in 2019. That includes high-rises now under construction behind the Michigan Theater and on South University Avenue with dozens of affordable units between the two of them.

Brett Lenart, the city’s planning manager, fielded council questions about why premiums haven’t worked well to get more developers to build affordable housing.

“From 2009 to 2019, housing development was realized downtown solely by the use of the residential premium,” Lenart said, referring to how developers could get bonus floor area for buildings with any kind of housing back then. Most projects then had enough financial viability without needing to go for the extra floor area offered for affordable housing, Lenart said.

In 2019, city officials changed the premium offerings to try to steer developers more toward affordable housing and decided the city no longer needed to offer incentives for just any kind of residential project. By that point, downtown had seen a wave of luxury-branded apartment high-rises catering mostly to University of Michigan students. In some cases, high-rise studio apartments are now renting for more than $2,800 per month.

“From 2019 on, factors such as COVID, increased construction costs and the requirements to incorporate a portion of the affordable units into each development likely have all contributed to the current premium regulations not resulting in affordable homes,” Lenart told council.

City staff considered the option of allowing developers to just make payments to the city’s affordable housing fund to get the bonus floor area, Lenart said, but they also considered how that could make developments more costly or difficult. He noted the city now has an affordable housing millage and has made commitments to eventually provide affordable housing on various city-owned sites.

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While bonus floor-area premiums for downtown are going away, developers still can get a 30% height increase for sustainable buildings or affordable housing and go above heights limits anywhere in the city, though those incentives have barely been used, officials acknowledge.

As for whether they eventually could get more developers to build affordable housing, Lenart said it’s difficult to predict.

To get the 30% height increase, at least 15% of all residential units in a development must be designated as affordable housing or the developer must pay a certain amount to the city’s affordable housing fund. Alternatively, the height bonus can be unlocked if a building meets sustainability requirements that include solar panels covering at least 60% of the building footprint and the building is or can be fully electric.

Council also voted 11-0 Monday night to give the initial OK to rezone 8.3 acres of the Briarwood Mall property for a mixed-use development including hundreds of apartments and new commercial spaces, including a grocery store.

Disch called it “a happy zoning vote.” It comes back to council for final approval Dec. 4.

“Most of the land around the mall is zoned P for parking. We definitely want to put housing on parking lots,” she said. “That’s my reverse Joni Mitchell, even if it isn’t quite that.”

“I haven’t heard from a single person who doesn’t think it’s not a good idea to build housing on an empty parking lot and abandoned Sears building, so I’m excited to see this move forward with the grocery store and to welcome new residents,” added Council Member Dharma Akmon, D-4th Ward.

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Since there have been questions about whether the apartment portion of the development will be fully electric, Disch said she has asked staff to confirm that with the developer by the time the project comes back for final approval in December.

“I understand the concerns that have been raised about DTE’s either inability or unwillingness to provide capacity and we can try to investigate those issues as best we can,” she said.

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