Density Is Not a Bonus

It's a Necessity

When I worked on Wall Street earlier in my career, the annual bonus season was always a fraught time. Everyone from secretaries to junior analysts like me to Masters of the Universe wondered the same thing: how big would it be? Because, of course, the “bonus” wasn’t really a bonus; it was an expected part of everyone’s annual compensation—even if you triggered a global financial crisis.

In housing policy, density bonus programs—which let developers build more in exchange for income-restricted homes—perpetuate a similar fiction: treating density as optional, when it is essential for broad-based housing affordability.

Today, Austin City Council will consider a resolution to amend one of its newer density bonus programs, DB90 (short for “Density Bonus, 90 feet”). DB90, passed in 2024, allows residential buildings in certain commercial zones to build up to 90 feet—30 feet above base zoning—if they include income-restricted units or pay a “fee-in-lieu” into the city’s housing fund. Condo projects must set aside 12% for buyers earning 80% of the area’s Median Family Income (MFI), while rentals must reserve either 10% at 50% MFI or 12% at 60% MFI. Developers must apply for a rezoning in order to participate.

The resolution proposes tweaking DB90’s affordability requirements and creating new tiers with different height bonuses, like “DB75” or “DB120.” The goal is to better align DB90 with Austin’s other density bonus programs and address concerns about scale, affordability, and feasibility.

As a report commissioned by the city explains, Austin’s density bonus programs have generated “46,000 total housing units, including over 13,000 affordable units, built directly through the programs and an additional $41 million in fee-in-lieu payments” since 2005. The skylines of Downtown Austin and the University of Texas’s West Campus have been transformed by density bonus programs. Although DB90 was too new to include in the city report, news stories about DB90 projects regularly appear in the local press, suggesting that the program has generated meaningful developer interest.

On paper, it looks like a success. But media coverage has mostly focused on the backlash to certain projects rather than the housing generated by the program. As the mayor writes in his newsletter,

DB90 is the only tool the city has available to incentivize affordable housing in all parts of Austin. In some instances, it’s achieved its intended results to add more density, more affordable housing, and more variety to developments. But DB90 might not be a great fit everywhere, in every situation, on every parcel of land, and in every neighborhood.

The imperfections of the program notwithstanding, why do we need density bonus programs to incentivize affordable housing at all?

If Austin has a housing affordability problem, it’s rooted in a system of exclusionary zoning that has long suppressed organic density, concentrating growth in a few pockets and limiting housing options in high-opportunity neighborhoods. Density bonus programs tacitly acknowledge that the zoning code is broken—then exploit that brokenness by extracting concessions from developers who want to build within it. They treat density as a privilege—not a right—reinforcing the very exclusion they seek to fix.

Density bonus programs are the backdoor version of inclusionary zoning (IZ)—similarly well-intentioned, but built on the same broken foundation. IZ generally requires developers to include income-restricted units in order to redevelop upzoned property. In Texas, IZ is illegal, so density bonus programs get around this by allowing developers to opt-in. However, the voluntary nature of density bonus programs disguises their nature and their outcomes.

That city report notes that the most successful density bonus programs “are located in areas of strong market demand (indicating that density bonus programs do not spur developer demand but rather tap into momentum that already exists).” This means that the density would have been built anyway. If the only legal path to accessing what the market supports is contingent on affordability mandates, then density bonus programs are effectively a tax on density.

Christian Britschgi likens IZ to paying for SNAP (f/k/a “food stamps”) by “[forcing] grocery stores to sell 20 percent of their products at a loss” rather than funding it through general tax revenue. IZ takes a social problem caused by bad land use policy and thrusts the solution onto the private sector—a cost developers pass onto renters and homebuyers. Because these programs force market-rate tenants to subsidize affordability, they make housing cheaper for a few by raising costs for everyone else, especially in housing constrained markets.

That’s if market conditions allow developers to build at all.

Meanwhile, Shane Phillips, of the UCLA Lewis Center for Regional Policy Studies, studied Los Angeles’s inclusionary zoning program and found that IZ actually suppressed the development of market-rate housing—increasing housing costs everywhere, including for renters in older units.

Likewise, if density bonus programs are not well-calibrated to market realities, they end up suppressing more housing than they create, further exacerbating housing shortages and reducing affordability. But calibrating these programs is more art than science. Taller buildings are exponentially more expensive, demand varies across neighborhoods, and market conditions fluctuate. Density bonus programs have worked best in places like Downtown Austin and West Campus—where the economics already support large projects. In other areas, bonus entitlements often go unused, because the market either doesn’t support greater density or the calibrations don’t work.

This is why so much of the development enabled by DB90 has clustered along commercial corridors adjacent to single-family neighborhoods in Central Austin, where the typical home is no more than 35 feet tall. Because exclusionary zoning has restricted density elsewhere, it gets forced onto these few legal corridors where a 90-foot building might reasonably be seen as jarring. Critics also argue that DB90 accelerates displacement by replacing older, often modest homes with larger buildings, even as they deliver far more homes than they remove. By making density discretionary in places where it would naturally occur—like near transit and jobs—our land development code limits the amount of housing that would otherwise be built. This makes housing more expensive overall, and makes less housing available where it should be.

If Austin had been allowed to densify gradually over time, we’d have a more organic, less jarring distribution of density citywide, with more density concentrated in the city center and transit nodes. As the report puts it: density isn’t what drives rents higher downtown—people wanting to live downtown is what makes dense buildings financially viable. In areas where the market can’t support higher rents, legal entitlements alone won’t deliver height or housing.

Demand determines what gets built—if the zoning allows it. And in most places the zoning does not.

The city report celebrates all of the housing that density bonus programs have created—but the report doesn’t account for all the housing that goes unbuilt because the underlying zoning makes it impossible, or conditional. Density bonus programs have generated some affordable housing, but they do so inefficiently, with high opportunity costs. They reinforce that density is desired—but by making it conditional, they ensure it remains largely denied. Perversely, this may actually slow the production of affordable housing.

And that’s really the root of it. Density bonus programs are not really tools for creating affordable housing—they’re tools for regulating density.

If we wish to achieve broad-based housing affordability, we need a better system. What’s the alternative?

It starts with embracing that density is not a bonus: it’s essential. We also have to recognize that decades of limiting density created the affordability problem in the first place. History and the experience of modern cities like Tokyo and Houston show that cities can provide broad-based affordability without such restrictive zoning—if density is allowed to evolve organically. By moving to a more sensible land development regime, Austin could stop the vicious circle whereby its own land use policies drive unaffordability. Ideally, we’d do away entirely with exclusionary zoning and move to a nuisance-based code, but there are other options, like Japanese-style inclusive zoning, adaptive code, or form-based codes. When it comes to housing policy, we must stop trying to regulate scarcity and start legalizing abundance.

That includes decoupling subsidized housing policy from private development.

Instead, the city should fund affordable housing directly, either through taxes or bonds. The Downtown Austin Neighborhood Association has proposed such a plan for their neighborhood, arguing that the city should remove density caps entirely and use “tax increment financing” or other budget tools to fund affordable housing and community benefits. Under such a regime, economics—not zoning—would set limits, while the incremental tax revenue created by the new development would provide a source of funding for publicly-subsidized programs. Such an approach could be extended citywide, while still maintaining design standards like height restrictions.

Achieving broad-based affordability requires more than a change of policy: what’s needed is a change of mind—one that sees density as a feature of cities, not a bug; as the solution, not the problem. Of course, policies and minds change gradually; in the interim, a reform of our current density bonus programs is what’s possible, and we should do our best to make them work well citywide. But long term, we must recognize that they rely on a system of exclusion to work at all—and that that system is not working.

Still, as we allow more density through the city, perhaps more people will see the benefits it brings and eventually understand density as the Latin root of “bonus” implies: that it’s literally a good thing.