Each year, first-year graduate students at the Yale School of Architecture are tasked with designing and then physically building a new single-family house in an economically depressed neighborhood. Sometimes, like this year, the house may have multiple dwelling units.

I have always thought that this is a great exercise both from a pedagogical standpoint and from a positive impact standpoint. Young architecture students get to experience designing and building something from scratch, and lower-income families get a new house. I toured one of the completed houses in New Haven back in, I think, 2005. 

This building project, which was started in 1967, is fairly unique among architecture schools, though others have replicated the model. When I was living in the US, I spent a few weekends working on homes for Rebuilding Together Philadelphia. But the scope was fairly limited. It was nothing like this.

I think more schools should do this. And I also wonder if there aren’t permutations of this model that could live outside of the university context.

Image: Yale

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.

Yale economist Robert Shiller - who is famous for his work on speculative bubbles and housing markets - was just awarded a Nobel Prize in Economics.

By way of his Case-Shiller Home Price Indices, he has argued that from 1890 to 2012 home price appreciation in the US (in real terms) has been basically zero. It has been flat:

As a result, he’s been very critical of the notion that homes should even be thought of as an investment. In this interview, he says the following:

“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, "Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.“

He also gives the example of Japan, which saw a massive run up in real estate prices and homeownership rates in the late 80s, only to then see them fall and stagnate for the next 20 years.

In the US, homeownership rates have gone from about 69% at the peak (2006) to roughly 65% as of 2013. The long term average is probably somewhere in between these two numbers.

But homeownership is a fundamental and heavily subsidized part of the American dream. Could America ever be a nation of renters?

Each year, first-year graduate students at the Yale School of Architecture are tasked with designing and then physically building a new single-family house in an economically depressed neighborhood. Sometimes, like this year, the house may have multiple dwelling units.

I have always thought that this is a great exercise both from a pedagogical standpoint and from a positive impact standpoint. Young architecture students get to experience designing and building something from scratch, and lower-income families get a new house. I toured one of the completed houses in New Haven back in, I think, 2005. 

This building project, which was started in 1967, is fairly unique among architecture schools, though others have replicated the model. When I was living in the US, I spent a few weekends working on homes for Rebuilding Together Philadelphia. But the scope was fairly limited. It was nothing like this.

I think more schools should do this. And I also wonder if there aren’t permutations of this model that could live outside of the university context.

Image: Yale

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.

Yale economist Robert Shiller - who is famous for his work on speculative bubbles and housing markets - was just awarded a Nobel Prize in Economics.

By way of his Case-Shiller Home Price Indices, he has argued that from 1890 to 2012 home price appreciation in the US (in real terms) has been basically zero. It has been flat:

As a result, he’s been very critical of the notion that homes should even be thought of as an investment. In this interview, he says the following:

“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, "Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.“

He also gives the example of Japan, which saw a massive run up in real estate prices and homeownership rates in the late 80s, only to then see them fall and stagnate for the next 20 years.

In the US, homeownership rates have gone from about 69% at the peak (2006) to roughly 65% as of 2013. The long term average is probably somewhere in between these two numbers.

But homeownership is a fundamental and heavily subsidized part of the American dream. Could America ever be a nation of renters?