In December, I was asked to testify at a House Subcommittee on Housing and Insurance hearing on government barriers to housing construction and affordability. I provided examples of reforms to land regulations that have facilitated increased housing supply, particularly relatively low-cost types of housing, including multifamily, small-lot single-family, and accessory dwelling units.
Following the hearing, I received a good question from Congresswoman Sylvia Garcia. She points out that, as in the country as a whole, the share of cost burdened renters has increased in recent years in Houston, in spite of land use liberalization. She asked what local policymakers could do to improve affordability for low-income residents.
When market-oriented housing researchers point to Houston’s relatively light-touch land use regulations as a model for other U.S. localities to learn from, its declining affordability may cause skepticism. Houston, however, has fared better than many other cities in housing affordability for both renters and homebuyers.
While Houston is the only major U.S. city without use zoning, it does have land use regulations that appear in zoning ordinances elsewhere, including minimum lot size, setback, and parking requirements. These rules drive up the minimum cost of building housing in Houston. However, Houston has been a nationwide leader in reforming these exclusionary rules over the past 25 years. Houston policymakers have enacted rule changes to enable small-lot development and, in parts of the city, they have eliminated parking requirements. In part as a result, Houston’s affordability is impressive compared to peer regions.
As the chart below shows, Houston has the lowest share of cost-burdened renter households among comparable Sun Belt markets for households earning 81% to 100% of the area median income. Only San Antonio and Austin have lower rates of rent burden among households earning 51% to 80% of the area median income.
At the least-well-off end of the income spectrum, Houston has the lowest rate of homelessness among major U.S. cities, due in part to its relative abundance of housing and in part to well-administered public and nonprofit services for formerly homeless residents.
The next chart shows that at the other end of the spectrum, homeownership is also more attainable to residents earning the region’s median income compared to the same group of Sun Belt metros shown in the chart above.
While Houston is a model of relative affordability, its housing market cannot serve its least-well-off residents without aid. As I interpret the evidence, the best way to improve housing affordability and housing quality for households that cannot afford adequate market-rate housing is with housing vouchers or other forms of income assistance targeted to the renter households most in need. The Housing Choice Voucher program improves important outcomes for the households that receive them. Compared to eligible households that do not receive vouchers, those that do suffer less food insecurity, less domestic violence, fewer child separations, and much less housing instability.
Dedicating resources toward vouchers allows dollars to go further relative to dollars dedicated toward new, subsidized housing construction because new-construction housing is generally the most expensive type. Relative to new construction that is fully or partially dedicated to residents of a specific income, vouchers open up opportunities for recipients to live in many different types of housing.
Policymakers in cities like Houston could provide a similar, locally-administered aid for extremely-low-income residents who are not receiving federal Housing Choice Vouchers. However, fiscal constraints and tax competition across local and state borders present challenges for providing this type of aid at the subnational level.
Due in part to the fiscal difficulties in providing costly aid at the local level, local policymakers tend to turn instead to policies to mandate income-restricted housing through programs that appear costless. Increasingly, local policymakers are implementing “inclusionary zoning” programs that require housing developers to set aside a portion of new-construction units as income-restricted. I’ve studied inclusionary zoning in the Baltimore-Washington region, which has the country’s longest history with these mandates. I find that in this case, localities that have adopted mandatory inclusionary zoning programs have seen greater increases in their median house prices relative to what they could have expected without these programs.
Inclusionary zoning can provide large benefits for the few residents who win lotteries for the units that they produce. However, inclusionary zoning provides a very small number of units relative to the number of households that qualify for them based on their income. Further, as I find, these programs can actually make housing affordability worse for the households that don’t specifically benefit from them.
The name “inclusionary zoning” implies that these programs are a reversal of the exclusionary zoning rules that exclude people from neighborhoods and localities on the basis of their income. In fact, inclusionary zoning depends on continued exclusionary zoning in order to function. These programs are typically paired with density bonuses that are intended to fully or partially offset the cost of providing income-restricted units. Without exclusionary zoning, these density bonuses would have no value, and inclusionary zoning would be a clear tax on housing construction.
Even in a city at the far end of land use liberalization, like Houston, the housing market may not adequately serve low-income residents. There is a role for policymakers to provide aid to extremely-low-income households. Expanding the Housing Choice Voucher program is one way to make progress toward improved housing affordability that carries fewer risks than programs that require market-rate housing construction to subsidize income-restricted housing.