Inclusionary zoning allows a few people to live in desirable, new construction buildings for much less than market rates. But it also carries with it a slew of perverse consequences. Because it’s a tax on construction, it reduces supply. Inclusionary zoning also leads developers to build higher-end buildings than they would otherwise, further squeezing out lower- and middle-income tenants.
While inclusionary zoning makes life easier for a few middle- and high-income residents lucky enough to secure below market-rate units in expensive cities, it also contributes to the regulatory mess that constrains housing supply in general. This in turn drives up the cost of housing. The effects of these supply constraints fall hardest on low-income residents who can least afford artificially high housing costs. By placing further constraints on housing markets, inclusionary zoning makes it so that resources dedicated to providing housing for the truly needy don’t go as far as they could in a less regulated market. Subsidies to middle-income residents come with the unfortunate side effect of making it more difficult for non-profits and government programs to make housing accessible to the truly needy.
Recently I presented on a panel at Chapman University on the future of housing in Orange County. Our panel highlighted the tensions between housing programs designed to help low-income and homeless households and those designed to help middle-income households. While my talk focused on regulatory barriers that make housing unaffordable for people across the income spectrum, Maria Cabildo — a former non-profit developer for low-income housing — talked about her experiences building housing for the homeless and very-low-income families.
Maria pointed out that market-rate housing is too expensive for minimum wage earners in every single county in the country. In expensive markets, policies designed to subsidize housing for middle-income people drives prices even farther out of reach for low-income families. Inclusionary zoning makes it so that the limited local, state, and federal funds available for low-income housing can provide fewer units of housing.
In an effort to prevent some of his state’s housing markets from becoming walled-off to anyone but the very wealthy, Governor Jerry Brown is unfortunately following other policymakers by supporting inclusionary zoning. His most recent housing plan advocates for reducing regulatory hurdles to housing construction, but also advocates for inclusionary zoning to help residents making up to 80-percent of their area median incomes. In many prosperous California markets, households making 80-percent of area income are middle- or high-income households by any standards. Median income is over $62,000 in Los Angeles, $85,000 in Orange County, and $107,000 in San Francisco. Subsidizing people making 80-percent of these incomes will be a popular policy among those lucky few who receive the subsidies, but it would only exacerbate the broader housing affordability challenges in the state by adding further constraints to housing supply.
Americans making salaries that put them squarely in the middle class should not need subsidies to afford housing. When they do, it’s a signal that housing policy has gone badly wrong. Liberalizing land-use regulations is the only solution to addressing the problem of housing that’s unaffordable to people making middle income salaries. Addressing the problem with inclusionary zoning is a kludge that fails to address the underlying causes of insufficient housing construction, and only worsens conditions for a city’s most vulnerable residents.
Many people find it hard to believe that expensive new apartments and condos will bring down prices in already expensive markets. But supply increases are in fact resulting in lower prices in the country’s most supply-constrained markets. Recent data from Portland, Seattle, and New York show that allowing more housing construction actually does lower rents. When San Francisco permitted a mini-building boom in 2016, Bay Area rents fell over the course of the year.
Attempting to make housing affordable to middle-income people with targeted policies is a losing game. Land-use liberalization is the only way to achieve broad-based affordability in markets where middle-income people struggle to afford housing. Inclusionary zoning not only fails to provide enough units to make a substantial difference in housing conditions, but it also hampers government and non-profit efforts to supply housing to the truly needy.