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The empirical evidence on what IZ does to housing supply is more complicated. Many studies aren’t perfectly relevant to the challenges that central cities face now because they look at suburban areas where most new housing takes the form of single-family homes on previously undeveloped land. But many studies do find substantial negative effects of IZ on housing markets. One such study, for example, found that California municipalities that adopted IZ in the 1990s saw 20 percent higher house prices and 7 percent fewer total houses — including both new construction and houses built before the 1990s — than comparable municipalities that didn’t adopt IZ.
There are several case studies, moreover, of large cities with IZ policies that significantly harmed housing development. New York City’s Mandatory Inclusionary Housing policy, an unusually demanding IZ quota that applies to almost all large housing developments, essentially froze housing redevelopment in lower-income areas such as the Bronx where housing construction was already marginal, according to one local real estate analyst. Most below-market units produced under MIH have been the result of 100 percent below-market projects that required hefty subsidies and tax credits. In Portland, Ore., one local observer has noted that new apartment projects just larger than 20 units, the minimum for that city’s IZ ordinance to apply, have basically disappeared, with a corresponding increase in projects just smaller than this threshold.
“Voluntary” IZ programs, which don’t mandate below-market units outright but promise favorable zoning provisions in exchange for providing them, have a somewhat better track record: A few policies that offer generous density increases in exchange for economically feasible below-market quotas have succeeded at providing substantial affordable
housing in areas such as West Campus in Austin, Texas.
But they can also create perverse political incentives for affordable housing advocates to support policies that keep market-rate housing artificially scarce and expensive. In California, for instance, proposed state legislation would eliminate parking minimums for new housing near transit stops — a substantial obstacle for new housing development given the expense both of parking garages and of covering centrally located urban land with parking lots. This bill might seem like an obvious win for progressive environmental and housing goals, but a coalition of progressive groups opposes the legislation on the grounds that a broad elimination of parking minimums would remove municipalities’ ability to offer selective exemptions from parking minimums in exchange for below-market housing.
Inclusionary zoning may seem costless and politically convenient for local politicians, but its costs are quite real — and many of them, such as forgone property tax revenue and economic distortions resulting from high housing prices, ultimately harm the public treasury. And in any case, IZ produces too few units to be more than a minor part of an affordable housing strategy. There is no substitute for broad liberalization of zoning policy to lower market rents and housing prices, with all of the compromises and political fights that this inevitably entails.
Connor Harris is a fellow at the Manhattan Institute, where he focuses on infrastructure, transportation, and housing policy. This article is being reprinted with permission from The Manhattan Institute. The mission of the Manhattan Institute is to develop and disseminate new ideas that foster greater economic choice and individual responsibility. For more information, go to https://www.manhattan- institute.org. This article was previously published by Governing Magazine.
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