Some question whether a popular affordable housing policy is making the nation’s home shortage worse

Where should the burden fall when it comes to ensuring affordable housing is available? Landlords? The government? Developers?

One popular policy puts the onus on developers. It’s still got its supporters, but new research suggests it could have quietly suppressed a significant number of new home builds. 

Across hundreds of U.S. cities and counties, there’s some form of what’s called “inclusionary zoning.”  It’s essentially a local government policy that either requires or incentivizes developers to make some portion of their units affordable to lower-income households.

While the programs are celebrated for the help they give lower-class Americans, some of the nation’s most progressive cities are dialing back their requirements over some big questions.

The pros

The obvious pro with inclusionary zoning is, in theory, more affordable housing.

“It’s going to increase the supply of affordable housing, and I think that’s the one that is most often leaned on, and the one where there’s the most evidence,” Michael Manville, professor of urban planning at the UCLA Luskin School of Public Affairs, told Straight Arrow.

When new developers are forced, or properly incentivized, to provide more affordable housing, it helps put more on the market.

A large study of nearly two dozen states found that certain forms of inclusionary zoning did increase the affordable housing supply. A similar study in Southern California found similar results.

“The other benefits of this kind of tool is that it’s something that the local government can usually do on its own, right?” Rachel Meltzer, senior research fellow at the Joint Center for Housing Studies at Harvard University, told Straight Arrow. “Local municipalities have authority over their zoning.”

Zoning laws are almost always handled at the local level and rarely by the state or federal government.

Inclusionary zoning ordinances also help fight gentrification. 

“It is a tool to promote integrated affordable housing, like mixed income housing,” Meltzer said. “You can use that to have, even within a building, a wide range of incomes and tenants.”

Some research suggests that integrating income levels acts as a societal benefit to lower-income residents. 

Renowned sociologist and former president of the American Sociological Association William Julius Wilson published his “social isolation” argument in the late 1980s. It essentially said concentrated poverty can socially isolate low-income people from the job networks, information and behaviors that help people climb the social ladder.

Both experts Straight Arrow spoke with agreed that more research is needed on this potential benefit, which Manville called “speculative.”

“There’s also evidence in schools that if we can have integrated classrooms where kids are interacting with people from different backgrounds, socially, economically, there’s benefits there,” Meltzer said.

The cons

Some cities and builders have learned the hard way about the downsides of inclusionary zoning.

San Francisco, one of the most expensive cities in the country when it comes to housing, has a new plan to reduce the requirements for inclusionary zoning. That includes exempting projects with 25 or fewer units from including any affordable housing.

It’s a similar story in the Boston area, where at least two municipalities have also lowered their targets for inclusionary zoning.

Four states (Arizona, Montana, Oregon, and Texas) ban it altogether. Others have a de facto ban by lumping it in with rent control.

In San Luis Obispo, California, a trio of investors said they were extorted by the city and forced to pay a six-figure fee because of inclusionary zoning.

Forcing developers into a situation where their new project is less profitable for any reason means they might just decide not to build at all.

“There’s no way around this. This is a tax on new development,” Manville said.

A recent study from the University of California, Irvine, found inclusionary zoning in California cut housing construction by nearly a third.

That’s not great news for the Golden State, which has the worst housing shortage of any state in the contiguous U.S.

“What could happen there is you just say, ‘Look, I’m not going to build here at all, right? I’m going to go to another city,’” Meltzer said.

If developers do decide to move forward, there’s a chance they alter what’s available to skirt inclusionary zoning rules.

“I’m simplifying a little bit, but if you say, ‘any building of 10 units or more has to provide affordable housing,’ you’re going to see a lot of nine-unit buildings,” Manville said.

Other research also shows some of the additional cost could be paid by those paying the market rates in those same buildings through higher rent.

That study also showed a reduction in building due to inclusionary zoning. It estimates that for every 1% reduction in a project’s total potential rental revenue, apartment projects built in that neighborhood fall by about 9%.

The methods

A lot of these pros and cons really just depend on how a jurisdiction implements inclusionary zoning.

The different types mostly revolve around the stick versus the carrot. The stick, meaning forcing developers to provide this kind of housing, versus the carrot, meaning incentivizing developers to do it.

It’s not clear at this point which is more effective.

“Some of the research we did a while back showed that the voluntary programs, the ones that are based on incentives, really just don’t work as well, which makes sense,” Meltzer said. “But it depends how you design those incentives. If the incentives are attractive enough, it could work.”

That’s the new plan in Pittsburgh. Along with giving certain incentives like being able to build taller buildings, it would also give developers the option to pay into a proposed affordable-housing fund to help other projects.

“It offers a few more options for developers to navigate what they’re going to do,” Manville said. “It doesn’t just say, ‘Hey, this is the rule, and if you can’t make that rule work, you’re not building.’ That doesn’t mean you don’t still have a deterrent effect.”

Both experts Straight Arrow spoke with did agree that inclusionary zoning is not going to fix the housing crisis in the U.S. It should only be just one tool used.

Meltzer said one important factor to consider is a popular saying in real estate: Location, location, location.

Inclusionary zoning laws that work for one area may be a non-starter in another.

“If it’s like, we’re just going to copy and paste, or we’re gonna disregard the realities of how the market works, and we’re gonna set a threshold that’s so high that it will just deter development, then it’s not an effective tool,” she said.

Meanwhile, Manville believes this is “misassigning” the blame for the housing crisis altogether.

“If our housing crisis in California owes mostly to the fact that we don’t build enough housing, and that is largely correct, then it’s weird to have an affordable housing policy that taxes just the people who build multifamily housing, right?” he said. “It would be like saying that there are people in the U.S. who are hungry, and so we really have to force farmers, and only farmers, to fund the food stamp program. No, the farmers are the people who produce the food. Don’t pick on them, right?”

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