Inclusionary zoning is a tax on the developers who create housing
Inclusionary zoning is a hot item among urban planners today, and is often seen as a solution to residential segregation and high housing costs. Exact implementations vary, but the general idea is that developers of multi-unit housing projects are encouraged to set aside a certain percentage of their units, generally ranging from 10-30%, but sometimes even more, as “affordable housing” units. In other words, some proportion of the units are under rent controls to the point where they must be rented (or sold) at a loss by the developer. Sometimes the schemes are voluntary and give developers density bonuses, sometimes developers can pay a fee instead of setting aside units. The exact proportion of units that must be set aside and loss developers take on each unit also varies. As you can imagine, I’m not in favor of this system, but it’s a complicated issue, so this is going to be a long article.
Inclusionary zoning is a relatively new concept, first implemented in the 1970s, to combat the growing problem of residential segregation of classes and races, whose origins are interesting and, I think, germane to the conversation. I generally see two explanations given by proponents of IZ for why segregation and unaffordability arose in the first place: market forces and zoning (or, as they call it, exclusionary zoning). Quoteth a law review article:
Affordable housing has always been a problem in the United States. Cities and towns originally engaged in forms of discrimination through exclusionary zoning to exclude low-income residents.
Of course, this is only true if your history begins in 1930. But from the mid-18th century to the turn of the century, America underwent a tremendous urban population boom fueled by railed transit and a massive immigration wave from Europe, and the housing stock adjusted just fine – there was no affordable housing problem. On the zoning front, as well, the author is wrong: aside from the regulation of mass transit, there were very few zoning limits before New York City’s 1916 code.
While proponents are right that traditional zoning is indeed “exclusionary,” the name “inclusionary” always struck me as a little funny – you’d think the opposite of zoning out poor people through density requirements would be not zoning out poor people through density requirements, but instead IZ is essentially a form of rent control. Rent control proper acquired a nasty reputation, and deservedly so – economists, regardless of their political persuasion, are united in their opposition in a way that you rarely see. But unlike traditional rent controls, inclusionary zoning is only applied to a portion of the units, and therefore isn’t as much of a burden on landlords. Furthermore, because the landlord still has some tenants paying market rents, they may have less of an incentive to let their buildings degrade to the point of literal collapse.
Proponents claim that inclusionary zoning an effective way to create affordable housing and income/racial diversity in otherwise segregated neighborhoods, but I see many negative unintended consequences. The fundamental problem that I see is that while it definitely benefits those who are lucky enough to get affordable units (i.e., those with the most experience with the welfare state, who know how to work the system), it has negative net consequences for every single other person in the housing market.
The negative effects on fellow building dwellers are obvious: they will have to be charged higher rents in order to compensate for the loss that developers will almost surely be taking a loss on the affordable units. While they theoretically could just forgo profits and break even, mandates are only implemented in high-cost markets in the first place, where 30% of the median income (or lower) is almost never enough to cover the expenses of even a unit with cheaper appliances and internal finishes. But new construction is almost always built for the rich, so people have a hard time sympathizing – although this is a mistake, considering the ripple effect on prices throughout the metro area.
I think this concept of new construction vs. existing stock is worth dwelling on for a moment. One of the tenets of inclusionary zoning is that affordable housing should be “built.” But this is actually a pretty big departure from how housing for the poor has traditionally been done in America; as commenter jrab once put it, “Apparently rich people’s old housing is no longer good enough for poor people.” Which brings me to perhaps the most important point when it comes to rich people’s housing: it has enormous knock-on effects for the poor. Someone who can’t afford real estate in Manhattan is going to go to Brooklyn in search of new neighborhoods to gentrify, which will ultimately raise prices for the middle and lower classes. Expanding housing options for the wealthy brings benefits to middle class and poor renters and buyers in the form of less competition for market rate housing, which is where the vast majority of them will be living.
There is one possible exception to all this, and that’s when inclusionary zoning is voluntary and accompanied by density bonuses. In this case, the alternative is that the extra density simply doesn’t happen. But even here, there are caveats. For one, the long-term alternative is rarely no development at all. The affordability issue eventually became so much of a problem in Pennsylvania that the courts eventually forced municipalities to upzone for density – something I will contrast to New Jersey later on, when I discuss empirical evidence. Furthermore, while IZ may originally be intended as only a “bonus,” it quickly becomes the norm, and no upzoning is allowed without it. The DC area Coalition for Smarter Growth, for example, has called for IZ in a GGW article in an area where the alternative was upzoning without the IZ requirements – clearly there are many who are interested in IZ as an end in and of itself and not just a politically palatable way to increase density. And in fact inclusionary zoning is itself sometimes a barrier to community support for dense development, as wealthy white neighborhoods rebel against the idea of poor people in their midst – a problem that AvalonBay, which specializes in dense development in hard-to-enter housing markets, faced on Long Island. If IZ were only used to push through density that wouldn’t otherwise happen, I might not be so hostile to it, but that rarely seems to be the case.
In the end, though, a priori and theoretical arguments can only get you so far, and you have to look at the empirical data. Unfortunately, statistical analysis is very difficult given the confounding factors. For one, places that implement IZ policies are disproportionately wealthy and desirable and already have very stringent land use restrictions – affordable housing mandates don’t happen in isolation. Furthermore, they vary widely in scope. Plagued with statistical insignificance, these econometric analyses are not definitive either way, but here’s a sample of a few published recently:
- Bento, et al.’s 2009 analysis found that California cities with IZ shifted the proportion of units in favor of multifamily units, but it appears that California jurisdictions place a bigger IZ burden on developers of single family units, which is the opposite of what I usually see throughout the US. They found little evidence that housing starts were affected, but they did find that developers were passing costs onto consumers in the form of higher housing costs. The authors note, though, that the study was conducted during the housing boom, which could explain why housing starts were not affected.
- Schuetz, et al.’s 2010 analysis found that suburban Boston experienced higher housing prices and fewer starts as a result of IZ during times of appreciation, whereas the San Francisco metro area experienced higher prices but not fewer starts during appreciation and lower prices during “cooler regional markets.” Magnifying booms and busts doesn’t sound good to me. The authors also note the prevalence of “de facto” programs – which I assume are similar to how NYC and Vancouver squeeze developers in an ad hoc way for concessions and amenities – which can complicate analyses.
- Another paper by Shuetz, et al., published 2009, discusses the variation in IZ policies, and points out that Washington, DC exempts small projects and those in low-density areas. This means that buildings of expensive homes in ritzy, suburban-like neighborhoods in NW are not subject to the same kinds of costs that dense multifamily structures are.
- Mukhija, et al. (2010) find that IZ works to a modest extent in providing affordable housing, without negative effects on the supply of market-rate housing. They come out strongly in favor of mandatory programs with density bonuses, but recognize that the bonuses are often unpopular with current residents. Like all other authors, they lament the poor quality of data available for analysis.
Ultimately, though, all of these studies suffer from the issue of finding good controls. I have, however, found one “natural experiment” that I believe overcomes this issue quite well: the case of the Pennsylvania and New Jersey suburbs of Philadelphia. The Philly metro area spans both states, and indeed in 1970 both had housing stocks that were very similar in terms of the mix of single-family and multifamily units. But the two states’ Supreme Courts took very different approaches to the issue of the dearth of affordable housing. New Jersey adopted a mandatory inclusionary zoning program through the Mount Laurel doctrine, whereas Pennsylvania gave developers what’s known as the “builder’s remedy” – essentially allowing them to override anti-density zoning regulations, but without the affordable housing mandates and subsidies of IZ (which reminds me – inclusionary zoning, on top of all its market impacts, often costs the government money). The two systems were compared in a 2004 paper by James Mitchell which is summarized in Jonathan Levine’s excellent Zoned Out, but here’s the abstract of the original article:
The municipal zoning process in the United States has come under increasing attack as a tool to create and maintain suburban socioeconomic homogeneity by mandating sprawl-producing single-family detached houses at the expense of less costly townhouses, apartments, and mobile homes. Beginning in the 1970s, the Supreme Courts of the neighboring states of Pennsylvania and New Jersey addressed municipal exclusionary zoning in different ways: Pennsylvania empowered residential developers to compel municipalities practicing exclusionary zoning to authorize market-rate development of all types of housing, while developer empowerment in New Jersey was conditioned upon inclusion of low- and moderate-income units. Using aerial survey and housing census data over a 20-year period, this article finds that outcomes by housing type over a 20-year period in Pennsylvania municipalities around Philadelphia were more diverse than those in adjacent New Jersey municipalities.
The fact that the result confirms my viewpoint may have biased me into thinking that the experiment is better than it is, so I encourage any pro-IZ people who think they’ve found better evidence to prove me wrong.
Finally, I’d like to point out that discussion of “inclusionary zoning” and “affordable housing” suffers from serious framing problems. Like “compassionate conservatism” and “enhanced interrogation techniques,” it’s hard to argue against something with such a nice-sounding name. Sometimes the language and idea of affordability and inclusion is even co-opted by developers using politics to argue for their harebrained eminent domain and massive public subsidy schemes – Atlantic Yards developer Bruce Ratner won ACORN’s support for the project by giving them millions and the right to manage the affordable housing units that were to be constructed.
Anyway, I apologize for the length of this post and the lack of editing and clear organization – inclusionary zoning is a beast of an issue, and I figured it was more important to put my thoughts in writing rather than to wait until I found a manageable way to deal with the topic without just writing whatever came to mind. But, there you have it – this is why I don’t like inclusionary zoning.
I’m glad you touched on the “feel-good” nature of the term “inclusionary zoning” – it was nagging me throughout the article. I’d never heard the term before, but it struck me immediately as a close cousin to the equally misleading “affordable housing”. I have a sense that the latter has lost some of its luster over the years, through overusage and the public catching on that it was all just a ruse. Thus, a new term was needed.
Anyway, I liked the article, but if anything, I think you’re being too charitable toward the major players in this game (i.e. developers and politicians). From my point of view, as an “outsider” if you will, who isn’t likely to join the ranks of those few who have something to gain from this game any time soon, this concept is little more than a token gesture which developers toss at noisy politicians who claim to represent “the poor”, in order shut them up long enough to get their new buildings approved. Both sides want to “get stuff done” – each has much to gain from the process, whether profit or tax dollars – and this is the easy way to make it happen. The fact that such “affordable housing” does nothing to address the underlying problems faced by the vast majority of the poor who didn’t win the lottery for it, and that its mass application has significant undesirable consequences (such as driving out the middle class) troubles the major players not a bit.
I’m sympathetic to the argument that IZ in its various forms is inefficient, but I do believe in one of the primary goals behind it, namely the desegregation of the classes. I would be interested to know in more detail what happened in the Pennsylvania suburbs of Philadelphia on that score: is the diversity per community or just over all? It might be possible to convince me why mixing on a hyperlocal basis is undesirable, but I would need to hear something other than “well off people don’t like being near the much less well off.” Perhaps hyperlocal mixing is undesirable, but local mixing, that is small neighborhoods of widely varying income levels near eachother is both atainable and can achieve most of the benefits (appreciation for the problems of those better and worse off, socialization between wealthy and poor, et cetera).
The PA/NJ study only focused on the type of structures built (more apartments/condos/townhouses built in PA than NJ), and didn’t discuss economic diversity. But even if NJ was found to be more economically diverse on a hyperlocal basis, the study shows that it comes at a price: fewer multifamily residences overall. The question then becomes – how much more difficult are you willing to make dense living in order to get a hyperlocal mix of incomes?
I appreciate your perspective, although I ultimately believe that affordability controls have a place. First to the agreements: “Inclusionary Zoning” is a dumb name. It’s not logically related to exclusionary zoning, and it really isn’t zoning at all. I guess people like the clever turn of phrase. I prefer affordability controls or supported housing. Second, I do agree that some of the costs typically associated with providing the affordable units are passed on to those who purchase the market-rate rate units, so these types of controls are not a substitute for increasing overall supply as a response to an affordability problem in a community. The purpose is really neighborhood-scale integration, not affordability per se. It’s also possible that mandatory controls can have a chilling effect on development or inspire NIMBYism, both of which are problems you’ve correctly identified. I think this is why they are usually attached to goodies, as a way to balance this out. Finally, I agree with you that it’s land use codes themselves that have contributed to many housing affordability problems (although I’d add that simple natural barriers are probably a more important cause for supply shortages). But until exclusionary zoning can be done away with, I think we’ll need the band-aid of affordability controls to mitigate some of the damage.
You present the tool as more rigid than it’s often used. Many policies set various levels of income restrictions into tiers – so some units for 30% AMI, some for 60%, and often it can go up to 120% AMI. So there’s nothing inherent to the tool itself that squeezes out the middle class, just how it’s applied. It can also be for rentals or for owned properties (often through a deed restriction), multi-family units or single-family units. Given the expense of new construction in general, I think this tool is better suited for moderate income households, but I guess that depends on the region to some degree.
I think you also under-count the potential for developers to make up for this differential in prices with design. You mention the interior finishes, but why can’t the project include a range of unit sizes? Perhaps some can be attached, some detached. For high-rises, the units on lower floors are typically less expensive. In the best case scenario, the controls can force a developer into diversifying the housing types and sizes and not having to pass any costs on at all (or take a hit in profits). CoolTown Studios has recently featured “micro-units” to allow small spaces for living in amenity-rich neighborhoods. Throw a few of those into your project and you might be good to go. There’s certainly a convenience to homogeneous development and mass production, but if affordability controls shake things up a little in the site design I consider that a win. The big difference between this and rent control (which usually exempts new construction), is that the developers know about the affordability controls before they build and can design accordingly.
Of course, all of this assumes that some degree of neighborhood-scale economic diversity is a good thing. I accept that it is. Since the market tends to agglomerate people by income, this would seem to be a warrant uses of government power to nudge the market to provide the social good of diverse neighborhoods. Where there are already exclusionary zoning measures in place that exacerbate the problem, affordability controls are an especially important countermeasure.
In the 19th century, people couldn’t afford urban housing, either. They lived in cities by building squatter settlements on swamps or public parkland or unused privately-owned lots, and fighting eviction notices for as long as possible. There’s a good chapter about the history of squatting in New York as well as other American cities (especially San Francisco and Sacramento) in the same book I mentioned in the other thread, Shadow Cities.
I don’t know much about real estate financials, but my understanding was that developers almost always had to rent/sell affordable units below cost. New construction is generally the most expensive kind, and is concentrated in neighborhoods with high land values – not to mention that IZ is most often invoked in expensive areas (I remember reading that over 50% affordable units may be mandated on a development in 6 or 7 acres of parking lots on the Lower East Side). From what I understand about these difficult-to-enter markets, the vast majority of housing costs are simply the land and expense of abiding by regulations, leaving a very small amount to save money on. NYC’s median household income is about $50k, and in the areas where I presume IZ is used most often (Manhattan, LIC, Brooklyn), obviously no developer could make a profit on 2BRs at 30%, and even 60% looks like a stretch to me. In Manhattan, I doubt that you could even break even on 120%.
But again, I’m very much an amateur at NYC price guessing – maybe someone out there has a better idea of the costs to developers of affordable units?
I guess another problem with IZ that I have is that once an area starts using IZ, no upzoning occurs without it. I guess if you believe that not-dense-enough zoning isn’t the primary cause of expensive housing prices this isn’t that significant, but for people like who believe that faulty zoning is pretty much the entire problem, the though that upzoning won’t ever occur without affordable housing mandates is pretty scary.
The question is whether the developer has to sell the affordable units below the average cost of the project, or below the marginal cost. The bulk of the cost of housing in New York is not the cost of construction, but the cost of the land underneath it. A non-luxury apartment costs about $250,000 to build, the same as a unit in the exurbs. If inclusionary housing replaces market-rate housing then it cuts into profits, but in New York it (in principle) does not: the zoning code merely gives a floor area ratio bonus to developers who sell or rent the extra units cheaply. (Actual practice can be very different, because of the onerous approval process; a developer who chooses not to replace market-rate housing with affordable housing may be met with community opposition and refused a permit.)
Alon,
This does not reflect an accurate analysis of the costs and returns for New
York development. The land is expensive, but construction is also very
expensive in New York. MIT Research has shown that the value of any density
bonus does not make up for the opportunity costs of market rate units. If
you only account for the construction cost ($250k is low for construction
costs in NY ($400/sqft is on the low side), and gets you a studio or tiny
1-bedroom, not a 3-bedroom like in the exurbs ($100/sqft)) you now have to
spread the land over a lesser number of market-rate units.
Furthermore, also to Dans point, in cities I’m familiar, you can’t just put
all the affordable units on the bottom. They need to be spread throughout
the building, and offer similar sizes and grade of finishes. So, the
opportunity cost lost is even greater.
Adam
NJ vs. PA bad comparison, as under Mt Laurel NJ developers have many options regarding meeting affordability requirements (off site development, development in other towns, payments to a housing fund in lieu). So not really a control after all given the “option outs” in NJ.
As a 15 year veteran of the real estate investment banking industry who has worked on literally $50B+ of projects across all property types and MSAs around the country, as well as internationally (and, I might add, greenfield and brownfield housing in NJ and PA), I find many discussions/blogs like these (which I read for enjoyment in my spare time) with an ostensibly “capitalist” focus, often seem to be implicitly about efficiency, as in neo-classically efficient market structures = good, all else = bad.
The truth is that, in a purely neoclassical-economics efficient world, the built environment would likely consist of wealthy ghettos with excellent school districts, infrastructure, and resources, surrounded by islands of poverty lacking such amenities. If one wants to see what that looks like, one merely needs to travel to some cities in the “global south”, to see how undesirable such an outcome is. Just as there is a broad revision of neoclassical thinking in economics, whereby the primacy of rational choice theory is being supplanted by the realities being documented by behavioral economics, and by the acknowledgment that normative thinking (vis a vis positivism) is more consistent with achieving optimal social and personal well-being (in which many factors of a non-rational nature, in the economics sense of the word, are implicated), so too is such a realization apparently underway in planning.
Noble goals of social policy, especially those which have a spatial component and must be achieved through regulation of the built environment, often may not dovetail perfectly with solutions which are efficient from an economics perspective. And that’s OK.
Incidentally, I would also add that I have never seen a case where a project did not get built because affordable unit requirements reduced profit margins/changed the HABU for a site as to reduce the development’s feasibility. In general, as another commenter posts, affordable mandates are most frequently utilized in areas with high land costs and where there is (*regardless* of regulations about land use) a shortage of developable land, housing approaches becoming a price-inelastic good, a situation which is often associated with inherently inefficient outcomes…requiring regulation. (as applies to housing, see Glaeser, Gyorko, etc). Developers’ pricing power under such conditions means that affordable units simply mean that they charge more for the market-rate units. And as for whether this is a bad thing or not vis a vis “poor people using rich people’s old housing”, the existing vacant housing units in such supply-constrained markets which are repurposed for the poor frequently are compromised by many other problems – poor access to transit (so that the poor can work), retail (so they can shop) and decent public school (so their children have a fair chance). That is generally why they are vacant to begin with.
Nonetheless, I am encouraged to see so much healthy dialogue about such issues occurring. I hope that researchers, however, will continue to attempt to reach out to practitioners, who often have access to real-time data and market structure knowledge which has implications for their theories.
That’s an extremely bold assertion of “truth”. What is “a purely
neoclassical-economics efficient world”? I certainly don’t advocate a
“purely neoclassical-economic” world – that sounds totalitarian. I advocate
a free-market, which I assure you is not found in the “global south.”
I don’t have a problem with the goals – they may indeed be noble. I have a
problem when the results are shown to be the opposite of the goals and/or
the means are immoral, as are the case with most regulation of the built
environment.
As you are an investment banker, I assume you don’t see a project until a
developer has already done that due diligence. As a developer who analyzes
HABU for potential projects from the point of view of an entrepreneur, I see
decisions to not develop many more opportunities than are developed. And if
a developer decides to develop, it is often that he has a competitive
advantage in loosening regulation through political graft.
I see how much value is destroyed by affordability requirements, and how
much potential housing is not created because of various regulations. It is
simple to see how the regulations prevent adequate housing to come to
market, and how housing affordability is destroyed by the very mechanisms
that politicians claim will help.
I too hope that researchers continue to work with us practitioners.
I’ve been enjoying reading all sides on housing issues and I see the points that you’re raising. Still, I’m not sold by your arguemnents. I’m a DC resident and have been frustrated as developers buy up land seemingly in bulk and turn single family lots or small multifamily buildings into condos that don’t seem to offer any more amenities than what the original properties had, and at best, the per-unit prices are even with what the building was (but usually higher). I see devs buying townhouses for 200-300k per unit, giving them a cosmetic upgrade, chopping them up, and selling them back out at 350k+ per unit. People get less AND pay more. Worse still, the construction is usually painfully shoddy, so often they’re “updating” old well-built units with shoddy new crap that barely functions. It’s frustrating to check the sales records and see that the basement condos I’m looking at cost more than the developer paid for the whole building. It’s this problem that pushes people like me toward rent control type solutions. From my pedestrian level perspective, your argument feels flawed because it doesn’t address the problems that the policies you’re belittling are trying to fix. From a cost analysis, I’m looking at doing the same sorts of repairs on my own and seeing that there’s not much cost associated with the work being done. It would seem that at least here, the devs go for good deals on land 1st, and then flip them for huge profits, but when those aren’t available, they willingly pay too much for land, make up the costs by adding multiple units, and then pass their bad investment on to the buyers. It just seems like a lose-no-matter-what scenario, at least without intervention. How do these situations remedy themselves in a free market? Is there a place that’s a good example? I’d probably like to move there. Earning a good salary is moot when it all goes to the landlord or bank.
I’ve been enjoying reading all sides on housing issues and I see the points that you’re raising. Still, I’m not sold by your arguemnents. I’m a DC resident and have been frustrated as developers buy up land seemingly in bulk and turn single family lots or small multifamily buildings into condos that don’t seem to offer any more amenities than what the original properties had, and at best, the per-unit prices are even with what the building was (but usually higher). I see devs buying townhouses for 200-300k per unit, giving them a cosmetic upgrade, chopping them up, and selling them back out at 350k+ per unit. People get less AND pay more. Worse still, the construction is usually painfully shoddy, so often they’re “updating” old well-built units with shoddy new crap that barely functions. It’s frustrating to check the sales records and see that the basement condos I’m looking at cost more than the developer paid for the whole building. It’s this problem that pushes people like me toward rent control type solutions. From my pedestrian level perspective, your argument feels flawed because it doesn’t address the problems that the policies you’re belittling are trying to fix. From a cost analysis, I’m looking at doing the same sorts of repairs on my own and seeing that there’s not much cost associated with the work being done. It would seem that at least here, the devs go for good deals on land 1st, and then flip them for huge profits, but when those aren’t available, they willingly pay too much for land, make up the costs by adding multiple units, and then pass their bad investment on to the buyers. It just seems like a lose-no-matter-what scenario, at least without intervention. How do these situations remedy themselves in a free market? Is there a place that’s a good example? I’d probably like to move there. Earning a good salary is moot when it all goes to the landlord or bank.
If you think the developers are making so much easy money, why not go into
the business yourself?
But PLEASE, before advocating policies like rent control, please research
them first. I think you’ll find that most land use regulations achieve
results opposite the goals. Rent control is probably the most insidious
type of regulation, and harms the poor greatly in the long run. Please see
my 4 part series on rent control in this blog:
http://www.marketurbanism.com/2008/05/21/rent-control-part-1-microeconomics-and-hoarding/
If those units in DC are selling, even at the smaller sizes but fixed up (even if shoddily done) it suggests that there’s a serious shortage of housing in that area. Ultimately, the goal would be to have lots more units to satisfy that demand so prices eventually go down. Unfortunately, this is where the NIMBYs come in, because they don’t WANT those values to go down. They got in and have their investment in their property, so they want there to be a shortage to drive up the price. The flip side of that is when zoning (or the lack thereof) permits higher density than what’s there, then the land has more value anyway.
Ultimately, the land owner gets his profits when he sells, but in the old pre-zoning situation the result is increased density and more housing choices. The current situation of artificial scarcity created through zoning restrictions causes sprawl and stagnation, while also limiting the availability of more affordable housing. To use inclusionary zoning to try to fix that is the same problem we hear over and over where issues caused by regulations are supposed to be fixed by making more regulations, rather than fixing or eliminating them in the first place.
Life safety codes are one thing that makes construction more expensive, but it’s probably worth the price not to have a tinderbox tenement with one exit and no windows. Other things like parking requirements jack up the price of housing tremendously in urban neighborhoods. Other types of density limitations through zoning can make affordable housing scarce, like not allowing basement or garage apartments, or mandating minimum unit sizes, or limiting the number of outbuildings.
The goal of inclusionary zoning is fine, just like the goals for LEED certified buildings, but the implementation is completely backwards. Rather than piling on more red tape onto an already bloated system, things need to be streamlined and vastly simplified so “the right thing” can be done much more easily and as a matter of course, rather than as some special condition.
I would suggest that your statement that inclusionary zoning has a negative net economic consequence for every single other person in the housing market is something of an overstatement. It may in fact be true that it has a negative net economic consequence for every single other person in the housing market (aside from the beneficiaries of inclusionary zoning, many of whom are not, as you imply, serial welfare recipients). However, the net negative economic consequence for most market actors is very very small.
Rich people’s old housing would be good enough for poor people if zoning restrictions prevented redevelopment of that housing at higher densities (with or without inclusionary units). One problem for the rich people is that they need poor people to do work. A lot of that work requires physical presence, i.e. they need to be able to get to their jobs.
One possible solution to try would be to create a situation in which rich people would pay higher taxes that would finance transit that would move the poor people (now living in the old rich housing) to their jobs (cleaning the new houses of the rich), and to sell their old houses without the benefit of any speculative redevelopment value (i.e. downzone the neighborhoods were the upwardly mobile live). Then we could see if the combined cost of additional taxes and lost sale value would outweigh the current burden on rich people that is the scourge of inclusionary zoning.
Finally, I would add that the following paragraph makes no economic sense:
“Someone who can’t afford real estate in Manhattan is going to go to Brooklyn in search of new neighborhoods to gentrify, which will ultimately raise prices for the middle and lower classes. Expanding housing options for the wealthy brings benefits to middle class and poor renters and buyers in the form of less competition for market rate housing, which is where the vast majority of them will be living.”
While you may be a capitalist, I can tell by your writing that you are not an economist.
While you may be a capitalist, I can tell by your writing that you are not an economist.
?? I was a little sloppy – by “middle class and poor renters” I meant specifically those who would normally look for housing in the outer boroughs, and by “market rate housing” I meant “market rate housing in the outer boroughs” – but other than that, I don’t understand what you object to.
Several comments…
1) Not everyone who gets priced out of Manhattan can be a gentrifier, i.e. they may not have enough cash on hand or credit history to enter the market….and also, I am not sure that being a gentrifier is exactly an economic benefit to society or even to a metro area. As the most recent real estate crash has proven, an economy needs to be built on more than just selling each other houses at increasing prices. Homes are just places that people with jobs put their things (and their money).
2) The implication seems to be that rising prices benefit everyone (high income, middle, low; owners, renters). This is not true. First, rising prices would benefit homeowners (to the extent that the increase in sales price is not outweighed by the increased current expenditure in the form of higher property taxes). Rising prices would not benefit homebuyers who are entering the market (renters, or people moving from smaller markets with different pricing dynamics). Rising rents would not benefit current or future renters. Interestingly, research shows that the group that tends to get hurt most by rising prices tend to be 25-34 year olds.
3) What does “expanding housing options for the wealthy” actually mean in the context of land use regulation? Upzoning the parts of town where rich people want to live? Good luck with that. They generally don’t want anything to change about their neighborhoods.
4) How does expanding housing options for the wealthy reduce competition for market rate housing? I think what you mean is that if you increase the supply of market rate housing, then the price of housing will go down. Of course, housing is not the only commodity in short supply. While the zoning envelope can be increased, the supply of land within any jurisdiction is fixed. They are not making any more dirt, as they say. A lot of severely underdeveloped land is severely underdeveloped because it has access problems (to transportation, jobs, etc.) or because it has environmental problems (the neighborhood smells, the ground is contaminated, etc.), so there is not a lot of underdeveloped land that you will be able to find within the 5 boroughs that is land where rich people will want to live. So, generally expanding housing options for the rich means redeveloping the best land that is currently occupied by middle and lower income households. Even if you redevelop that land at high densities (not always possible because, for example, a lot of people with high incomes have families and would therefore prefer to live in a low-rise or townhouse environment), the amount of land has remained the same. So, the same people who lived in low-rise apartments in the now-chic neighborhood move into what? The townhouses that the upwardly/inwardly mobile people moved out of? Do they double up (two or three families per unit)? Or does someone then also knock down those houses and put up apartments? When they do, how are these middle and even lower income buyers or renters going to afford to live in new market rate construction? I am sure that some will, but not most… Are really poor people competing for market rate housing at all, or are they just holding a place that will eventually be taken over by wealthy people who immigrate from other regions (Superstar City phenomenon)?
5) Renters–don’t dismiss their value. While they are not participating in the so-called ownership society, they do create economic benefit for society as a whole. Renters are more mobile than owners, which means that they can move (within a metro area or between metro areas) more easily than homeowners, which in turn allows them to better take advantage of career advancement opportunities. As I recall there is actually a modest body of research showing that incomes of educated renters rise more quickly than their educated homeowner counterparts.
6) Zoning restrictions generally and inclusionary zoning obviously do affect land values, which are a key part of the overall economy. However, there are many other factors at work. For example, I think some of your argument seems to be that restricting supply of buildable density is a big part of the problem, but frankly the economics of high-rise development and the reality that people need transportation access to the places where they make the money that they then spend on housing are two other factors that also really affect both the price at which sellers will sell and the price at which buyers will buy (or renters will rent). If you just keep pushing labor farther and farther from jobs, eventually capitalists will need to pay more and more for the labor they use, or more and more to transport the goods they consume from the places where people make goods. Costs generally don’t just disappear in an economy by magic, they just move around.
1. I’m not sure what you’re responding to here.
2. Who implied that? I don’t think rising housing prices are good. One of my hopes is that increasing the amount of buildable space by upzoning neighborhoods will increase the supply to the point where prices fall (or at least stop rising).
3. It means, upzoning rich neighborhoods. It might be difficult and might seem impossible today, but if I had told someone 100 years ago that even the densest cities would have parking minimums in the year 2011, they probably wouldn’t have believed me. Things change, and if all we talked about in this blog were what was completely politically palatable today, it would be a pretty boring blog.
4. Expanding housing options in Manhattan reduces the competition for housing…outside of Manhattan. There are only a limited amount of people who want to move into NYC, so if you put all of the rich people in Manhattan, that takes off the pressure they put on outer borough housing prices. And while you’re right that there’s a limited amount of land, even in dense places like New York City, there’s still pleeeeenty of space to move upwards with. Very little of the city is actually taken up by buildings that rise high enough to need elevators…there’s a lot more room for densification and growth. Of course if you’re bending over backwards to accommodate anti-density NIMBYs you could say that we’ve run out of room, but we try to encourage people not to do that at this blog.
5. We here at Market Urbanism love renters…who ever said otherwise?
6. From what I understand, the vast, vast, vast majority of housing costs in NYC are due to land use regulation, not the inherent costs of building densely.
I think you’re probably right that the PA Supreme Court’s response (mandating that all municipalities zone for a full range of housing options) is preferable to the NJ Supreme Court’s (mandating that all municipalities plan specifically for low- and moderate-income housing and then stipulating a builder’s remedy as the enforcement mechanism). I have long been of the opinion that what New Jersey really needs is a statewide housing policy (not just for “affordable” housing), designed to get more housing produced at all points along the housing continuum. I think a significant increase in the overall supply of housing would go a long way toward alleviating the specific lack of lower-income housing options. (It’s amazing to me how many otherwise-intelligent people appear not to be able to interpret NJ’s high housing prices as an indication that supply is falling far short of demand.) In fact, it may mitigate the need altogether for a policy aimed strictly at lower-income units, if the Pennsylvania case (which produced superior results without specifically targeting lower-income housing, judging by your call-out quote) is any indication. (Question: Did the linked report actually look at price points? Or did it simply find a greater diversity of housing types, and then assume that this implied more affordability? Senator Ray Lesniak found out the hard way that the two are not equivalent when he recently proposed a bill that would have addressed the affordable housing problem in NJ by giving municipalities credit for producing attached housing — housing advocates rightly debunked him by pointing to the million-dollar condos going up along the “Gold Coast” of Hoboken and Jersey City and rhetorically asking if these should count as “affordable”.)
However, NJ’s Supreme Court did NOT go the same way as PA’s. NJ’s municipalities are free to zone as much of their land as they want to for large lots (see http://www.njfuture.org/2011/07/21/rowan-exclusionary-zoning-sprawl/ for information about a more recent study by Rowan University that finds large-lot zoning to be widespread in NJ), effectively precluding the construction of new modestly-priced housing, at least on previously-undeveloped land. Large-lot zoning represents the triumph of existing residents (and their desire to preserve their home values — and sometimes, more nefariously, what they’ll euphemistically call the “character of their communities”) over potential future residents — as Jeffrey Jakucyk has already pointed out in an earlier comment — and is a very difficult force to overcome in a home-rule state like NJ. So we’re stuck with the Council on Affordable Housing (COAH) and its narrow focus on lower-income units as the only means of prying the door open into exclusionary suburban municipalities that don’t want to provide a range of housing options and don’t have to.
(I live in PA but work in NJ, in case I’ve used “we” ambiguously anywhere above…what I imply is my “home state” can sometimes vary depending on whom I’m talking to and in what context.)