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Spurring housing development with form-based codes in Chapel Hill, NC

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Spurring housing development with form-based codes in Chapel Hill, NC

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Overview

In 2014, Chapel Hill, NC implemented a form-based code to regulate land development in one area of the town known as the Blue Hill District. The form-based code – a type of zoning that emphasizes the overall form and feel of the built environment over the separation of land uses – was chosen to replace the conventional zoning that had been in place to spur development along key transit routes, foster connectivity, expand the commercial tax base, and improve traffic congestion, among other goals. The form-based code has been successful in spurring the development of market-rate housing. While affordable housing was not initially prioritized as the Blue Hill form-based code was being developed, the Town more recently has explored options to encourage developers to provide affordable units, and the Town itself has invested public funds to develop affordable units in the District. This case study describes the process the town took to develop and refine the form-based code, key decisions made regarding affordability in Blue Hill, and what has been achieved through the adoption of the code.

Key takeaways

Localities interested in implementing a form-based code policy can learn several things from Chapel Hill’s experience:

  • Chapel Hill has experienced a significant increase in market-rate residential units in Blue Hill since the form-based code was adopted. Localities with conventional zoning and a lengthy and unpredictable development approval process may be able to spur development and increase their housing stock by adopting a form-based code with a more efficient administrative approval process in which staff rather than elected officials approved proposed projects.
  • By adopting a form-based code that did not provide for Town Council to approve development in Blue Hill, the Town lost its ability to negotiate with developers for affordable units, as it typically does for large-scale developments elsewhere in Chapel Hill. Because North Carolina state law prohibits the application of mandatory inclusionary zoning to rental developments, the ability of the Council to negotiate with developers is critical to securing affordable units. The affordable housing developed in the Blue Hill District since the adoption of form-based codes – 149 units toward a goal of 300 for the District – has involved public funding and a transfer of Town land to an affordable housing developer.
  • Localities that achieve rapidly increased development through the adoption of a form-based code policy may face significant pushback from residents who are worried about the effect of development on a town’s character, or that a streamlined development approval process reduces or removes public input into new development.

Description

In 2014, Chapel Hill was facing growth pressures and rising housing costs due to population growth in the Triangle region of NC (Raleigh-Durham-Chapel Hill). There was limited development of new housing units and commercial property in Chapel Hill, however, due in part to the Town’s slow and unpredictable development review and approval process. The adjacent city of Durham grew at a faster rate than Chapel Hill and increasingly began attracting retailers that historically-located in wealthier Chapel Hill, contributing to concern among elected officials about the loss of tax revenue to Durham. Community surveys found that residents were dissatisfied with high housing costs and the limited commercial base in Chapel Hill. Over 70 percent of residents reported leaving the town at least once a week to shop, and residents were interested in greater community connectivity within the town through more open space, more pedestrian and bike areas, and more shopping options. As a result, the Town Council chose to revitalize Blue Hill – an area dominated by aging strip malls and surface parking lots and with few residential units – through the use of a form-based code.

About form-based codes 

Form-based codes are a land-use regulation used by localities to encourage a specific look for an area by regulating the form and scale of any new developments in an area. Relative to conventional zoning, which emphasizes the separation and segregation of different land-use categories, form-based codes emphasize the character of overall development in an area, including buildings as well as public spaces like streets, sidewalks, or greenways. Form-based codes often aim to achieve development patterns that replicate the scale, feel, and walkability of urban areas developed before the widespread use of automobiles. As an illustrative example, conventional zoning often creates districts in which only residential or only commercial uses are allowed, with little to no regulation of public spaces between such uses, like streets, and with strict requirements for allowable square footage or the number of parking spaces A form-based code, by contrast, might allow residential uses to be above or directly adjacent to commercial uses and have relatively few restrictions on the size of buildings, but with increased regulation of building exteriors and the public realm, such as by requiring storefronts to be close to a street and for parking spaces to be hidden behind buildings.

Form-based codes typically enable by-right development, with permitting approved by an administrative review rather than by discretionary approval, which can reduce uncertainty in, and time and costs required for, the development review process. However, the introduction of form-based codes generally reduces the negotiating power of localities to require that affordable housing be included in new development. It does so in two ways. First, the elimination of a discretionary approvals process removes the ability of localities to condition approval of a particular development on the inclusion of affordable housing.  Second, the elimination of density and other development limitations reduces the leverage that localities have to negotiate with stakeholders around the adoption of a mandatory inclusionary zoning policy that often includes density bonuses and other “offsets” to compensate owners for the required affordability.

Process and timeline

The Blue Hill District, originally known as the Ephesus-Fordham District, was designated as a focus area in Chapel Hill’s Comprehensive Plan 2020, which the Town adopted in June 2012. The District was then chosen for application of the form-based code due to its large number of vacant or underdeveloped parcels, in addition to its proximity to transit. The area had long been of interest for revitalization, and years of planning with residents, developers, and business owners resulted in the Ephesus-Fordham Small Area Plan, which was adopted in January 2014. The plan described the vision of redevelopment and revitalization for the area as a more pedestrian and bike-friendly area with commercial and residential spaces, creating a “live-work-play” environment. The Town began exploring form-based codes in 2012 as a possible policy to facilitate this vision.

Basics of the original form-based code

The original goals in adopting a form-based code included supporting transportation and transit connectivity in the area, reducing traffic congestion, creating a pedestrian- and bike-friendly area, and creating a housing stock that included affordable housing units. Specifically, the Town aimed for twenty percent or at least 300 units of residential housing in the district to be affordable. To make the area more walkable, the Town wanted to connect new and old developments in Blue Hill with bike lanes, greenways, new streets, and new sidewalks.

Despite general agreement regarding the vision for Blue Hill when the code was proposed, some citizens expressed concern about the adoption of the form-based code cutting the community out of the development approval process. Residents also worried that the policy wasn’t comprehensive enough and didn’t sufficiently address concerns about flooding, since portions of the District lie within a flood plain.

The form-based code designed for the Blue Hill District was adopted in May 2014 and went into effect in July 2014. The code establishes two subdistricts in the Blue Hill District. The first is a Walkable Resident Subdistrict, which encourages the development of residential neighborhoods with multiple housing types, civic buildings, and open communal spaces. The second is a Walkable Mixed-Use Subdistrict, which allows for a mix of residential, civic, retail, office, service, and entertainment buildings, and is specifically designed to facilitate a live-work-play environment. Additionally, the code allows buildings as high as seven stories in the center of the Blue Hill District. Buildings developed on the edge of the District, adjacent to existing neighborhoods, must step down to a maximum of five or three stories. In addition to standards for the mass and scale of new buildings, developers are incentivized through a waiver of inspection fees to meet Town energy efficiency and stormwater standards.

The Town invested its own money into the Blue Hill District with municipal bonds to be repaid over 20 years with the new tax revenue from the District. At the time of the policy’s adoption, the Town estimated that the new tax revenue in the Blue Hill District would be $26.5 million-$47 million. These bonds were used to pay for parking spaces, pedestrian and street improvements, bike lanes, and stormwater management improvements.

Affordable housing in the Blue Hill District

Before the form-based code was adopted, maximum allowable building heights in the District were low; Town Council had the authority to allow increased building heights in Blue Hill as part of the development approval process, which provided an opportunity for Council to negotiate for affordable units from developers in return for allowing increased heights. In practice, though, little development occurred in Blue Hill, residential or otherwise, and the area remained low density, with primarily one- and two-story buildings.

As the Council explored options to include in the form-based code, it considered whether and how to encourage developers to provide affordable units in Blue Hill, such as through a density bonus. Ultimately, Town Council decided to not require developers to construct affordable units in development projects in the District, nor to require that they contribute to the Town’s affordable housing fund. According to Town staff, several factors led to Council’s decision:

  1. Marketing studies conducted at the time indicated that due to the cost of land in Blue Hill, residential projects would need to be at least five stories high to be financially feasible, exclusive of affordable units.
  2. Due to community opposition, building heights of more than seven stories, which may have allowed for density bonuses for affordable units, were not considered for the new code.
  3. Because the form-based code was intended to improve connectivity and stormwater management in the District, development projects would be required to install costly infrastructure improvements. Councilmembers expressed concern that adding an affordable housing requirement would potentially be overly burdensome for developers and make development financially infeasible.
  4. The state of North Carolina prevents municipalities from adopting inclusionary zoning policies that regulate rental units, though inclusionary zoning is permitted for ownership units. Chapel Hill has an inclusionary zoning policy for ownership units developed outside of Blue Hill but exempted the District from the policy because it involves a discretionary approval process, which was incompatible with the goal of a streamlined, administrative review for development under the form-based code. Furthermore, due to high land and construction costs and the seven-story height restriction, Town staff believe it would be difficult to craft a new inclusionary zoning policy for Blue Hill that would make developments that included affordable units financially feasible.
  5. At the time the form-based code was being developed, the Town owned land adjacent to Blue Hill and was pursuing an affordable housing project on the parcel, which created an opportunity to add affordable units in Blue Hill; that land was incorporated into the District to facilitate a faster development review process for the project and for the project’s affordable units to be counted toward the goal of 300 affordable units in the District.

Since the form-based code was adopted in 2014, two affordable rental complexes have been developed so far in the Blue Hill District; no affordable units have been provided by private market developers.  The first affordable project, Greenfield Place, has 80 apartments for working families, and the second is Greenfield Commons, which has 69 rental units reserved for senior citizens. Chapel Hill developed these on Town-owned land in partnership with DHIC, a nonprofit housing developer, with funding from municipal bonds and Low-Income Housing Tax Credits.

Some naturally occurring affordable housing has been torn down in Blue Hill to make way for new development. The Park Apartments, with average rents of several hundred dollars less than median Chapel Hill rents, were torn down to be replaced by new apartments and streets; construction started on the new apartment project in early 2021. None of the new apartments are dedicated affordable units, but the Town did secure an agreement from the developer to donate $1.5 million to the Town’s affordable housing fund, in part to assist residents with moving out of the old apartments.

Policy evolution

Since the Blue Hill form-based code was adopted in 2014, it has been modified several times. In 2018, three Councilmembers expressed concern about the fast pace and large size of market-rate residential projects developed in Blue Hill, a lack of new commercial development, and that the Town was only halfway to its goal for affordable units. As a result, changes were made to the code, including 2018 updates to mandate that new residential projects include 10 percent commercial space.

In 2019, the Town Council updated the purpose statement of the policy to include the promotion of diverse affordable housing options. Additionally, Town staff presented five possible affordable housing strategies to Town Council, which have not yet been adopted as of early 2021: (1) revise the code to require developers to meet with Town affordable housing staff before submitting an application for development to explore potential partnerships; (2) offer developers an exemption to the 10 percent commercial space requirement in exchange for affordable units; (3) have the Town partner with developers to provide affordable housing through avenues such as subsidizing new units, designating units for target populations, or master leasing with the Town or an affordable housing provider; (4) offer an expedited review process to developers of affordable housing; (5) allocate a portion of Blue Hill’s increased tax revenue to affordable housing.

In 2020, the Blue Hill code was updated with new standards that reduced space devoted to parking, supported standalone parking decks, increased open space and connectivity between buildings, and specified maximum building dimensions. Additionally, Town staff reported that they continued to examine strategies to promote affordable housing, including partnering with developers, revising the development review process, and allocating a share of increased tax revenue in the District for affordable housing.

Outcomes

The form-based code has been successful in spurring commercial and residential development in the Blue Hill District, especially for market-rate residential units. As of November 2020, there were 1,465 residential units developed or in the pipeline, including 783 completed units and 880 under construction (net new: 682). An additional 977 units are anticipated to be built before 2029, including rental units, townhomes, and condos. Over 120,000 sq. ft. of commercial space has been completed or is in the pipeline, and the property tax valuation of all properties in the District rose from $154 million in 2014 to $302 million in 2020.

While no affordable units have been produced within the market-rate residential properties, the Town of Chapel Hill has supported the development of 149 affordable units towards its goal of 300 affordable units in Blue Hill.

Policy significance

As Chapel Hill’s experience illustrates, form-based codes can encourage preferred types of development and speed the development approval process. In localities with time-consuming development review processes, a transition to a form-based code may reduce development costs and, by extension, the cost of housing units. However, adopting a form-based code can reduce the ability of a locality to negotiate with developers for affordable units as part of a discretionary approval process. If a locality wishes to combine an inclusionary zoning policy with a form-based code, it may need to adopt inclusionary zoning at the same time as the form-based code to ensure the policies are aligned to incentivize development overall while also supporting the development of affordable units. In North Carolina, localities cannot enact mandatory inclusionary zoning for rental properties, a limitation that created challenges for Chapel Hill as it considered incorporating affordability into Blue Hill’s form-based code.

Additional resources

  • Town of Chapel Hill website for the Blue Hill District and form-based codes
  • This website is a hub of information about form-based codes and their development
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