Alan Ehrenhalt recently published a balanced piece in Governing that largely reflects my own views on inclusionary zoning. It’s called: Why Affordable Housing Is So Hard To Build.

His argument is that there are lots of cities trying to build more affordable housing, but that most strategies have not yet proven to be all that successful.

I’ve written a few posts on inclusionary zoning. The most recent is this one. And though I believe that a mix of incomes is a critical component of good city building, I am having a hard time believing that inclusionary zoning is the silver bullet that will get us there. Admittedly, it sounds like a great idea. But how does that translate into reality?

Here’s a snippet from Alan’s article (shout out to Daniel Hertz of City Observatory who seems to get cited in almost every article I read these days):

Just about every city that has tried an inclusionary zoning law in recent years has had a similar experience. In some cases, the results have been much worse. According to BAE, Chicago’s inclusion law produced $19 million in 11 years, but only 760 affordable units. Thirteen years of inclusionary zoning in Seattle brought the city $31.6 million in fees and a grand total of 56 units. As the urbanist Daniel Hertz wrote recently, inclusionary zoning has been “more powerful as a symbol than as a way of helping people.”

Of course, the devil is in the details. Many inclusionary zoning policies allow cash in lieu of actual housing:

San Francisco actually has had an inclusionary zoning law since 2002, and it has been a flop. It mandates a 12 percent affordable set-aside, but allows developers to escape the mandate by paying a fee to the city. As in Arlington, this is what they have done. A study by the research firm BAE Urban Economics found in 2014 that after 12 years the San Francisco law had brought in $58.8 million in developers’ fees and had generated 1,560 units. That’s better than nothing, but it’s a drop in the bucket for a city facing an affordability problem in virtually every neighborhood.

All this said, I’m still not so sure that it’s as simple as eradicating the cash in lieu option and forcing mandatary inclusionary zoning. As Alan rightly points out in his article, if we set the bar too high, then all of a sudden it starts making some market rate housing infeasible to build. 

And if this ends up lowering the overall supply of new housing, then we could be hurting affordability while at the same time trying to mandate more of it. Does that make sense? Clearly this is not as simple as it may seem.

I get the appeal for cash poor cities. It sounds like free affordable housing. But I’m always suspect of “free” lunches. In any event, I think we can all agree that this is an important discussion to be having.

Ontario is looking to pass legislation that would allow municipalities in the province to implement something known as inclusionary zoning. If passed and should municipalities decide to use this tool (Toronto almost certainly would), developers would then be required and/or incentivized to include some percentage of affordable housing in their new market rate developments. 

Politically, inclusionary zoning tends to be popular. It’s believed to be a way for governments to create new affordable housing using relatively small public subsidies. Not surprisingly though, the development industry generally hates IZ. It’s another cost that needs to be added to the development pro forma – though some municipalities rightly offset these additional costs with additional density, breaks on levies, and so on.

What I always think about when this topic comes up is the broader economic impact of the land use policy. Because I’m suspect that it’s as simple as: mandate affordable housing; get more affordable housing for free. Generally there are always trade-offs.

So here’s some reading material for you all this morning.

In a classic paper (1981) by Yale Professor Robert C. Ellickson – called The Irony of Inclusionary Zoning – he argues that these practices can actually increase general house prices:

As a counterargument Owen Pickford over at The Urbanist argues that IZ simply reduces land prices as a result of the new tax. Land, after all, is the residual claimant. Therefore, he believes it’s an effective affordable housing policy. (I’m not so sure I believe that land prices would decrease in practice.)

There’s also debate about the effectiveness of inclusionary zoning to actually deliver affordable housing at a meaningful scale. City Observatory wrote a post that looked at the total number of units produced (through IZ) across a number of American cities and the results were spotty. It should, however, be noted that not all inclusionary zoning policies are mandatory.

Finally, the Furman Center for Real Estate & Urban Policy at New York University published a housing policy brief back in 2008 that looked at this exact topic. While they admit that the data is scarce, they come to the conclusion that IZ had no meaningful impact on the prices and production of single-family housing in San Francisco, but that IZ seems to have slightly decreased production and slightly increased pricing in the suburbs of Boston.

What this last point suggests is that inclusionary zoning policies are not all created equal. So like all difficult questions, the answer to this one is likely: it depends. If anyone can point me to better data on inclusionary zoning, I would love to see it.

Today is Christmas Eve. It’s the season of giving. So I thought it would be appropriate to talk about affordable housing.

Yesterday, Mitchell Cohen – who is a real estate developer and the president of The Daniels Corporation – wrote an opinion piece in the Toronto Star talking about just that. It was called: A perfect storm for action on affordable housing.

Here’s a snippet that summarizes the things he believes we should be doing:

Municipalities across Ontario also have significant tools at their disposal to make a difference. To date, these tools have not been co-ordinated to achieve maximum bang for the buck. Property taxes can and should be waived not only for affordable rental homes but for affordable ownership homes as well. Additionally, cities can and should waive all development levies and other municipal fees for affordable rental and ownership housing.

Combined, these two measures provide municipalities with powerful leverage to implement inclusionary zoning — the most important tool in the affordable housing tool box. Inclusionary zoning on a city-wide basis creates a level playing field, an opportunity for a constructive partnership between municipalities and private sector developers to create both affordable ownership and rental homes within every new building approved for construction.

For those of you who might be unfamiliar with inclusionary zoning, it’s essentially a zoning requirement to build a certain number of affordable units in any new construction project. It originated – as far as I know – in the US, but has been fairly controversial since the outset.

So today I thought we could have a discussion on the merits of inclusionary zoning. Do you think it’s a good or bad thing for cities? Is it really the most effective way to deliver affordable housing at scale? Leave your thoughts in the comment section below :)

I don’t have a strong view on inclusionary zoning, but I do believe that affordable housing and a mix of incomes is critical to cities and neighborhoods.

I do, however, wonder if it’s one of those things that seems to make a lot of sense, but actually has a bunch of negative externalities associated with it. Maybe the answer is to just prototype the idea and then iterate on it.

What do you think?