As the supply of California housing dwindles more and more local officials – desperate to do something in response – are wrongly placing affordability mandates on new development and, thereby, killing production.
These mandates – the most popular being inclusionary zoning – demand that locals won’t approve a housing project until the developer agrees to provide a certain percentage of its units at below-market prices or rents. (The below-market homes are usually built on site – to socially engineer the residency.)
Although there is lukewarm opposition at the Capitol to imposing this policy statewide, it has become the law in about 140 local communities around the state – usually enjoying the force of a locally authorizing ordinance. Ironically, as the housing problem worsens, the mandate is increasing in popularity.
As it exists here in California, inclusionary zoning works like this: Let’s say you wanted to build 100 homes on 30 acres you own. (When you bought the land it was already zoned for single-family housing so at least that part of the seemingly endless approval process is behind you.) You look to sell the homes anywhere from $400,000 to $500,000. That’s the market.
But, local inclusionary zoning programs require that you discount the price of 20 homes (20 percent is the most common set-aside of proposed homes) – for sale at no greater than $250,000. You must meet this requirement or the project doesn’t get approved.
Your project can’t absorb a hit to the bottom line like that so, naturally, you raise prices on the other 80 homes – chasing customers from the marketplace and adding to the state’s soaring housing affordability deficit. In many cases the proposed development – accompanied by the inclusionary zoning obligation – doesn’t pencil out at all and, consequently, doesn’t get built.
What’s worse is with an inclusionary home, as part of government’s continuing involvement, the eventual owner – the poor person – must sell the home at a below-market price to another poor person. The owner can’t even recapture the home’s appreciation or the value of the improvements he or she has made over time. Arguably, an inclusionary zoning “beneficiary” would be better off renting.
It’s a horrible public policy and does nothing to close the state’s affordability gap. Indeed – as the illustration above suggests – inclusionary zoning makes housing more expensive and may ultimately provide little or no relief to poor people.
Governmental mandates – whether it’s health care, welfare or affordable housing – all suffer from the same philosophical defect: these and other similar program prescriptions reflect a belief that government can tinker with the market to always produce better, socially desirable outcomes.
It can’t. It never does. Costs always rise and service suffers.
This always happens when government gets deeply involved in what previously was the domain of the private sector. And, there is nothing more private than an individual improving their property.
Inclusionary zoning is no more an effort at bandaiding a serious wound. Even a study by its proponents reveals that the program is a woefully unsound solution to solving the state’s affordable housing shortage. The study does nothing to show inclusionary zoning as a possible constraint to housing production.
Advocates and locals should know better – the more you tax something the less of it you get. Inclusionary zoning is a debilitating tax on market-rate housing.
Both local officials and other policy proponents need to stop asking housing to solve problems they have failed to solve.