It’s Time to Embrace Inclusionary Zoning
By Keenan AshbrookPublished May 6, 2018It is widely acknowledged that American cities are facing a housing crisis. Forty million Americans now spend what the Department of Housing and Urban Development considers to be an unaffordable amount (30 percent of income or more) on housing. The average rent for a studio apartment now exceeds $1,700 in Chicago, $2,000 in Boston and Washington D.C. and $3,000 in New York and San Francisco. Middle class and low income people cannot even come close to paying these rents, increasingly shutting them out of cities that are the engines of America’s modern economic growth.
The problem is that housing advocates can't agree on what to do about it. One faction, dubbed the “YIMBY” movement (a play on “Not In My Back Yard,” with “not” replaced with “yes”) views rising rents as a consequence of over-restrictive zoning laws that limit density, restricting the supply of housing. They advocate loosening zoning laws to allow the market to meet demand.
This approach is vocally opposed by a different faction of activists with a more left-wing orientation, who claim that loose zoning laws will simply lead to the construction of more luxury housing that will drive up rents even more. These PHIMBY (“Public Housing In My Back Yard”) activists seek more rent control and public housing as a solution to high rents.
The divisions between YIMBYs and PHIMBYs recently spilled into the open in a nasty conflict over zoning laws in California. Seeking to address the state’s severe housing shortage, YIMBY-aligned State Senator Scott Wiener (D-San Francisco) introduced a bill to free up zoning restrictions around public transit stops. The bill was predictably met with a torrent of criticism from suburban residents upset about the proverbial “changes to neighborhood character,” but severe opposition also arose among left-wing housing advocates who claimed it would aggravate gentrification in low-income neighborhoods. Facing unified opposition from the right and left, the bill died in committee.
If America is to solve its housing crisis, politicians can’t keep stalling. But they are faced with a paradoxical situation: half of housing advocates are telling them that loosening zoning rules will drive rents down, while the other half is saying that will push rents up. Finding the right approach will require addressing legitimate concerns that both sides raise.
The YIMBYs are generally right about zoning laws artificially restricting housing supply and driving up rents. This is basic economics--no effort to make urban living affordable will succeed without paring back red tape that prevents supply from meeting demand. But this free market approach does overlook an important dynamic--at the neighborhood scale, more development can actually drive up prices. This is due to a peculiarity of the housing market: more supply in a neighborhood (e.g. new housing development) can actually create additional demand for housing by signalling to the market that the neighborhood is “up and coming” or “desirable.” While new development will cause rents to decrease in the regional aggregate, neighborhoods seeing lots of new development can see steep rent increases. Though empirical evidence of low-income residents being physically displaced by rising rents is weak, gentrification associated with new development certainly increases cost burdens on lower-income people who remain in the neighborhood.
Fortunately, there is a policy that can harness real estate market forces to create more affordable housing: inclusionary zoning. Inclusionary zoning policies mandate that a proportion of all housing units in new developments are set aside as below market-rate, thereby ensuring that affordable housing is created alongside the luxury units that tend to characterize new development. It is a happy medium between rent control, which removes developers’ profit motive and depresses construction, and unlimited market-rate development, which fails to provide affordable housing units. Inclusionary zoning has successfully created lots of affordable housing in California and Massachusetts, and should be adopted by more cities. It also integrates a mix of income levels into new housing developments, combatting socioeconomic and racial segregation. Crucially, when affordable housing units are integrated into transit-oriented development, inclusionary zoning allows low-income renters to live in neighborhoods served by better public transit.
The PHIMBYs will probably remain unsatisfied with inclusionary zoning since it retains market mechanisms. Yet their proposed solution--massive scale construction of public housing--is infeasible. One recent paper estimated that constructing enough public housing to eliminate cost burdens for low-income renters would cost between $1.5 and $2.2 trillion. There is simply no way the public sector will be able to make that kind of investment in affordable housing construction.
Only private capital will be able to mobilize on the scale needed to solve America’s affordable housing crisis. The key is to harness that capital to expand the affordable housing stock, which it has failed to do up until now. To make this possible, it’s time for America’s cities to move decisively towards implementing inclusionary zoning.