comment 1

There is no such thing as a free lunch

Inclusionary zoning has been on my mind this week and so I thought I would revisit some of my old posts on the topic. I wrote about it here, here, here, here, here, and probably in a bunch of other places that I am forgetting right now. A number of these posts go as far back as 2015-2016.

As well-intended as inclusionary zoning may be, I have never been able to get my head around it. There are lots of cities with inclusionary zoning polices in place and what history generally tells us is that it tends to reduce overall housing supply and increase market rents/prices.

This makes intuitive sense when you consider that inclusionary zoning is in effect a tax on new development. And one of the only things I remember from my economics classes is that it’s generally good practice to tax the things we want less of. You know, things like cigarettes and carbon.

This is why I have also been a strong supporter of road pricing over the years on this blog. Traffic congestion is bad (demand also happens to be relatively inelastic). So tax it and redirect the funds toward transit.

Housing supply, on the other hand, isn’t bad. It’s pretty good and fairly useful. So in my simple mind, I don’t know why we would want to apply a tax to it instead of figuring out way to simultaneously encourage and incent the supply of new affordable housing. Here’s one idea.

1 Comment so far

  1. Brendan

    I’ve built LIHTC apartments before. It’s a much more effective program (measured by the number of units produced) compared to IZ. The program clunky and tends to encourage corruption in procurement/award/project administration, but nonetheless it seems like the best non-market supply-side tool that we’ve got in the US. Plus the banks that provide the tax credits tend to be much more reliable partners than the municipalities which would otherwise serve as LP/client in a social housing context.

    It would be interesting to see you write a piece about what laws/policies would need to be implemented in order to create a similar program in Canada. For example, LIHTC only works in the US because of the Community Reinvestment Act.

    Like

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