Back in 2017, Portland, Oregon enacted new inclusionary zoning policies mandating that all new residential projects with 20 or more units must deliver a specified amount of affordable housing. Early accounts, by people like Joe Cortright of City Observatory, suggested that the market was reacting to this new requirement as you might expect. Developers rushed to get new applications onto the books and then there was a drop off in new housing supply.
Now that it’s been a couple more years, it is perhaps worth checking in on Portland. Cortright did that in the fall of last year and the housing numbers are continuing to fall. From 2019 to 2020, new multi-unit housing permits in Portland fell by more than 60%. I really don’t know the Portland market and so it’s hard for me to comment on whether it is solely the fault of IZ, but there was a peak in 2017 and now housing permits are down significantly. However, they were also down significantly during the financial crisis. It’ll of course be interesting to see how this plays out over a longer time horizon.
That said, a similar market response was recently reported in another Portland — Portland, Maine. In 2020, the city implemented a “Green New Deal” that stipulated, among other things, that all new residential developments with 10+ units would be subject to their new IZ policies. It has only been just over a year, but according to the city’s planning department, there were 756 new housing units on the books in 2020 prior to the new IZ policies. And since then, that figure has dropped to 139 new housing units. This is admittedly a small market and a relatively short time horizon, but it is still a data point.
As many of you know, I struggle with inclusionary zoning. Maybe it’s confirmation bias, but I just haven’t been able to find much data suggesting that it can meaningfully increase overall housing supply and the supply of new affordable units. So if any of you are aware of some good case studies outlining successful examples, please share them in the comment section below.
Another response to Portland’s inclusionary zoning law: developers are building 19 unit buildings to avoid having to include subsidized units. Even on single properties, people are building multiple separate 19 unit buildings. Example:
Good lesson to politicians that often their laws can have unintended consequences that don’t achieve the stated goals.
NYC is practically Ground Zero for IZ, called Mandatory Inclusionary Housing (MIH) here, to emphasize the inescapability of the policy. Everyone agrees it does not work:
– Doesn’t produce enough affordable housing
– so-called affordable housing isn’t really affordable, e.g. 100-130 Area Median Income (AMI)
– Produces “affordable” housing in already density-zoned areas with high incomes, not in poor neighborhoods where it is needed.
– slows development down in general due to too little incentives.
There’s lots of research, and lots of loud community board meetings, to show MIH isn’t working, but here is a brief summary: https://www.naahq.org/news-publications/new-study-shows-nyc-mandatory-inclusionary-housing-policy-misaligned
The problem is, no one can agree on what to replace it with. Just build more housing more cheaply is not an answer!
A Land Value Tax would help, but land in NYC is only one part of the high cost of development here, so even if that cost is lowered, it might not be enough, though if taxes on buildings were reduced or eliminated too, AND zoning was upzoned to highest and best use, that would be enough to get more housing built, but NIMBYs hate that and fight like crazy to prevent almost any building (I’m being generous here, many NIMBYs fight ANY development). So we are stuck.
It’s notable that in contrast the City of Vancouver set a record for housing starts in 2020 and the majority of them were for non-market and market rental projects. The City has put in place policies and zoning that encourage rental. https://vancouver.ca/news-calendar/city-approves-record-number-of-housing-units-in-2020.aspx
What I’ve heard is that Portland is struggling these days. So best to look at a variety of cities encouraging market and non-market rental and ‘affordable’ home ownership before reaching a conclusion on inclusive housing requirements.