The D.C. Zoning Commission this week approved the city's second housing linkage plan, allowing a local developer to build an office building near the D.C. Convention Center that is larger than zoning laws permit in return for renovating 60 low-income housing units.

The vote came a few days after the project's developer, Hadid Development Cos., threatened to construct a smaller office building under existing zoning laws and withdraw its cash offer for low-income housing.

The development firm also warned that rejection of its plan would have "a chilling effect" on other housing linkage cases.

Many city officials are touting housing linkage as a viable way to increase the amount of affordable housing in the District.

The zoning commission's decision to approve the Hadid project may open the floodgates to similar cash-for-zoning deals, observers say.

The District has no formal policy on handling housing linkage proposals. The zoning commission here -- unlike in many other cities where housing linkage is popular -- so far has dealt with proposals individually, without any precise formula on how much money should be paid for permission to build differently than zoning laws allow. In the two District cases during the past year, developers have been able to bypass a neighborhood's existing zoning and construct larger office buildings in return for cash for low-income housing groups.

The housing idea is particularly popular in District neighborhoods where zoning calls for a mix of housing and office space. Most developers argue that including housing in downtown projects is unprofitable. When the zoning board agrees to ignore the housing mix requirement, as in the Hadid case, developers offer cash to finance housing elsewhere in the city.

Hadid originally offered to pay $1.4 million to a low-income housing group in exchange for the zoning allowance. The zoning panel, while voting 3 to 0 on a modified plan, ignored a recommendation made two weeks ago by the D.C. Department of Housing and Community Development, which said that the $1.4 million cash offer was too low.

The housing agency said Hadid's cash offer should be increased to $4.6 million. The housing department said that amount would have been a fair trade for the millions of dollars Hadid will get in increased rental profit from the larger office building during the next 20 years. Hadid disputes that argument.

At this week's hearing, the zoning commission did not address the issues raised by the housing agency. The panel also did not discuss several concerns of local citizen groups, which oppose the Hadid project because they say it ignores city-expressed goals of creating new housing in the downtown area. The groups also urged the panel not to permit new housing linkage proposals until the city agrees on a formal policy.

The three-member zoning panel, after an hour-long debate, approved the Hadid proposal to construct a 240,000-square-foot office building at 1001 New York Ave. NW. The site's zoning permits a building of about 170,000 square feet.

In exchange for the additional space and the increased profits it is expected to generate, the Hadid group must pay for 60 housing units to be renovated for low- and moderate-income families in the city, 44 of which will be located in two currently abandoned apartment buildings at 1223 and 1229 12th St. NW. The $1.4 million Hadid originally offered will go to the Shaw Coalition Redevelopment Coalition to buy and renovate the 12th Street apartments.

But when the board increased the number of units to be renovated from 44 units to 60, it did not specify additional money. That leaves open the question of how much Hadid will have to spend for the 16 additional apartments. The panel also did not say whether the money should go to a nonprofit group to perform the work or whether Hadid can choose how to spend the money.

The zoning panel said the additional 16 units could be completed "sometime in the next nine years." The 12th Street apartment renovation project, on the other hand, must be finished before Hadid's New York Avenue office building.

"We are pleased," said Mohamed Hadid, president of the Rosslyn development firm. "Housing linkage is here to stay."

The zoning panel did not specify the location of the 16 units, which upset opponents of the project who argued that money traded for the more attractive zoning should be used for housing near the site where the Hadid office building will be located.

"The overall picture is one of damaging future downtown housing opportunities," said Laurence Berg, a member of the Blagden Alley Neighborhood Association and the Logan Circle Community Association.

Both groups opposed the Hadid plan in part because it ignores the community's zoning rules calling for a mix of housing and office projects.

"I just think that wheeling and dealing downtown housing for this purpose, no matter how well-intentioned, is cause for concern," Berg said. "This city really had an opportunity to do something creative with the downtown. Instead, it is developing as a pure office district."

But Ibrahim Mumin, president of the Shaw group that will receive most of the Hadid linkage money, said downtown housing will not help low-income families, but instead upper-income people.

"I resent the fairly well-off people deciding that we've got enough poor here," he said. "I see 44 families {obtaining housing} but for this project would never have been available to them."

Such neighborhood clashes in the District have become more pronounced in the past year as housing linkage increasingly creates an unusual marriage of low-income housing groups and profit-minded development firms.

Neighborhood groups, particularly those in downtown enclaves threatened by ever-encroaching office development, criticize housing linkage as a financially painless -- and most likely profitable -- route that developers can take to avoid adhering to an area's zoning.

Low-income housing groups see linkage as a substantial source of untapped funds for creating low- and moderate-income housing in a city where the lack of affordable housing has reached crisis proportions.

"We have been forced to work with the private sector," Mumin said.

Fred Greene, the District's planning director, called housing linkage "a very innovative and timely program because the federal government is not concerned about housing for low- and moderate-income families."

He said the Hadid case "sends a message that housing linkage is something we encourage and will work for developers. The District is committed to housing linkage.