Is Inclusionary Zoning the Answer to the Housing Crisis?

Source: “Inclusionary Zoning and Housing Market Outcomes.” 

by James A. Bacon

I have often advanced a common-sense proposition: If you want to create more affordable housing, increase the supply of housing. If the housing stock increases faster than demand, the price declines. A new study on “inclusive housing” policies in the Washington-Baltimore metropolitan area, which includes Northern Virginia, gives some support to that proposition, although it suggests that in highly regulated housing markets, the relationship between supply, demand and price is not straightforward.

Emily Hamilton, a research fellow at George Mason University’s Mercatus Center, has undertaken an in-depth study of inclusionary zoning in the Washington-Baltimore metro. Inclusionary zoning (IZ) is a policy in which local governments require or incentivize real estate developers to provide below-market-rate houses in new housing developments.

Economic theory (which has informed my thinking on this blog) predicts that IZ could be counter-productive. By increasing the cost of building new units, the policy diminishes the supply of new housing, which has the effect of pushing housing prices higher overall. But IZ programs vary widely in design and impacts vary, says Hamilton in her paper, “Inclusionary Zoning and Housing Market Outcomes.”

Hamilton contrasts inclusionary zoning with exclusionary zoning such as minimum lot-size requirements, bans on multifamily housing, and other rules that limit housing supply. She also draws a distinction between mandatory policies, in which developers are required to provide a portion of below market-rate units in new housing developments and optional policies that give developers incentives to provide subsidized units in exchange for density bonuses. The broad conclusions from a Mercatus Center summary:

  • Mandatory inclusionary zoning is associated with an increase in house prices. Hamilton concludes that mandatory inclusionary zoning in the Baltimore-Washington region has increased prices by about 1 per­cent for each year that the program has been in place in the jurisdictions that have adopted it.
  • Mandatory inclusionary zoning is not associated with a decrease in new housing construction in the Baltimore-Washington region. While other studies have identified a decrease in new housing supply with the implementation of inclusionary zoning, this study finds no evidence that inclusionary zoning has reduced the number of new building permits.
  • Optional inclusionary zoning programs may not offset developers’ costs of providing subsidized housing. Most optional programs in the Baltimore-Washington region have been unsuccessful in producing affordable units. This indicates that the value of the programs’ density bonuses do not outweigh the cost to developers of providing subsidized units. The exceptions are Alexandria, VA, and Falls Church, VA, where underlying exclusionary zoning makes density bonuses very valuable.

The first two findings seem to contradict one another. How is it possible that inclusionary policies have not diminished the supply of new-dwelling construction yet simultaneously have driven up housing prices?

Whatever the case, the analysis gets exceedingly complicated. Every jurisdiction has a different spin on IZ — Alexandria, for instance, not only provides density bonuses for developers but reduces mandated parking minimums, which other jurisdictions do not do — so it is difficult to isolate the effect of any one variable. Moreover, Hamilton found it difficult collecting data on the number of IZ units produced for more than 50 jurisdictions in the Washington metro, so data quality may be an issue as well.

Critically, Hamilton gives insufficient attention to a critical consideration — the interaction between inclusionary and exclusionary zoning policies. Almost every Washington-area locality adopted exclusionary policies restricting supply for decades before it adopted inclusionary policies. Indeed, it was the effect of exclusionary policies on restricting supply and driving up housing prices that created an affordability crisis in the first place. But rather than repeal or modify their exclusionary policies, local governments added inclusionary policies s another layer of regulations.

Be that as it may, the study provides some useful information. The following graph shows, for instance, the spread of inclusionary zoning policies among jurisdictions in the Washington-Baltimore region.

The spread of inclusionary policies has coincided with a steep rise in metro Washington real estate prices. Clearly, the policies have been inadequate to the task of making housing more affordable for lower-income residents.

Perhaps an even more useful graph would chart the spread of exclusionary policies beginning in the 1950s and 1960s that created the affordability crisis in the first place. Even better would be a graph showing the two sets of regulations working in tandem, correlating the proliferation of zoning rules generally with housing price increases.

I commend Hamilton for acknowledging the limits of her data and her reluctance to draw sweeping conclusions. She is doing important work and, as far as I know, she’s the only person doing it. I hope she sticks to it. If we don’t understand the causes of the affordable housing crisis, we will never solve it.

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14 responses to “Is Inclusionary Zoning the Answer to the Housing Crisis?

  1. In economy theory – supply/demand “works” ONLY if all other factors are held fixed and do not vary but in the real world – there are a lot of moving parts than vary dynamically and even unpredictably depending on things that can affect those factors.

    That’s why what should seem “intuitive” is not and that, in turn, is why there is, as far as I know, not a single urban area that as developed a bulletproof approach to affordable housing.

    But more and more urban areas are now pointing to single-family detached home zoning as a problem:

    Cities Start to Question an American Ideal: A House With a Yard on Every Lot

    https://www.nytimes.com/interactive/2019/06/18/upshot/cities-across-america-question-single-family-zoning.html

    so an obvious question is – what if a city rezoned it’s land so that single-family detached was not “by-right” and multi-family WAS “by-right”.

    Then “incentives” would not be needed – and developers would have to offer “incentives” to get single-family detached zoning…….

    Theres also a big issue for infrastructure. When you build water/sewer/roads/schools – it’s tied to density. If you increase density, you increase the infrastructure requirements for more/bigger water/sewer/roads/schools.

    According to the maps in the NYT article NoVa is substantially zoned for single-family detached – and traffic congestion is already awful. What happens when you make things more dense? How do you move all those additional people, by Uber? 😉

  2. I think Ms. Hamilton is in error. Fairfax County has required multifamily housing projects that require re-zoning to provide 12% affordable/workforce housing (terms of art in the zoning ordinance) for years. And, in Tysons, this is 20%.

    MWCOG data suggests that new housing construction the National Capital Region dropped significantly during the Great Recession and has not kept up. It estimates an additional 75,000 units is needed in the next 10 years to catch-up. 75% of the new housing should be in activity centers. 75% of the new housing should be for people with low and moderate incomes – household incomes up to $180,000. How that will play in the marketplace will be interesting.

    Once again, it raises a serious problem with the total lack of priorities at the local government level. Everything is important. But money is not unlimited, so what are the priorities?

  3. re: ” Fairfax County has required multifamily housing projects that require re-zoning to provide 12% affordable/workforce housing (terms of art in the zoning ordinance) for years. And, in Tysons, this is 20%.”

    so is Fairfax County – right now today 12% affordable housing?

    how much of Fairfax County is single family detached versus multi-family? Anyone know?

    Bonus Question: what is the “correct” percentage of single-family detached versus multi-family for a given urban area? What urban areas in the country meet that standard?

  4. It astounds me that the ceiling on the low-moderate income level is considered to be $180,000.

    The reasons behind the affordable housing crisis are simple. First, there are too many people trying to live in a relatively small space. There are also economic factors at work: the profit margins on large expensive homes are greater than they are for smaller ones. Near my daughter’s home just outside Vienna, there were two vacant tracts. Developers could have built “cheaper” houses costing $200-300,000 there. Instead, they put larger homes selling for $700-800,000, which sold out quickly.

    The demand for larger MacMansions in that area is another factor driving up prices. That area was developed in 60’s and 70’s. The housing stock is solidly middle-class: trilevels, ranchers, and some two-story Colonial. And they have been well maintained. When one goes on the market, inevitably the buyer knocks down the perfectly good house and puts up a much larger one on a relatively small lot. So the market price for these houses reflects this demand for a big home in a nice, quiet single family neighborhood near the Metro and Tysons. A young family looking for the next house to move up to does not stand much of a chance (nor does a retired couple who would like to live near their grandchildren).

    Then there are the social pressures which mitigate against modifications of exclusionary zoning. People have certain expectations about the neighborhood when they buy a house. If the government comes along later and changes the nature of the neighborhood, people will be very upset. I will again use my daughter’s neighborhood in Northern Virginia as an example. The lots in that area are huge, at least one-half acre. If a developer bought one of those houses and proposed to subdivide it into two or three lots for single family houses, I am sure there would be an uproar. There would be even more of an uproar if he/she chose to put in a multi-family unit (although there are some houses that, in fact, do have multiple families). In addition to the political uproar, the county might find itself in court.

    The social expectations are not limited to urban areas. In Halifax County, my father-in-law sold a tract of land to a developer with the stipulation that any house built on it would have a minimum of 2,000 sq. ft. He also sold some lots himself with that same restriction in the deed. Several years ago (after his death), I needed to get some of that land rezoned to residential (that’s a long story) and the planning commission pressured me to commit to maintaining the 2,000 sq. ft. minimum. I refused to make that commitment. (They approved the rezoning when I subtly suggested that the existing zoning of industrial might not be acceptable to the neighbors.)

  5. Fairfax County housing data rounded

    Single Family 194 K
    Duplex 2K
    Townhouse 88 K
    Multiplex 10K
    Multifamily lowrise 91K
    ” midrise 12K
    ” high-rise 20K
    Mobile Home 2K

    Fairfax County does not have 12% “affordable/workforce” That requirement covers only multifamily re-zonings in the last XX years.

    What is the right mix? I’d say that the market determines that. At least from my perspective, it’s no business of anyone but the seller and the purchaser.

  6. Healthy, vibrant, productive communities do not grow that way by mandate, but naturally. Small scattershot injections of low income housing into high income neighborhoods most typically does far more harm to all involved than good to any.

  7. Every new resident, every new dwelling, be it a SFH or an apartment puts more demand on public facilities. Existing residents, when they see overcrowded schools, parks, libraries and ever-increasing real estate taxes, are going to oppose changes to zoning that will result in more people, cars, etc. Moreover, our government officials in Fairfax County have told us for years that few residential taxpayers pay the cost of the services they consume. So tell me why people will just accept greater density.

    Residents of a local condo building were polled as to how many took the bus (the nearest Metrorail stations are well beyond most people’s walking capacity and there aren’t any safe routes to walk). The answer was “none.” But some take Uber and Lyft. Adding density in places like McLean will add to traffic.

  8. Your comment as typical is right on target. It illustrates several good reasons why fixing these housing shortages cannot be accomplished by scattershot approaches handed down by government diktat. Real and lasting solutions are best found on a broad canvas, during opportune moments, where stars are aligned, such as the moment upon Northern Virginia right now. That said, those who know how to sell the idea of far more density and its great advantages, to suburban residents in neighborhoods that need to go urban for everyone’s benefit are few and far between. But it can be done. If done right by the right groups of people, the arguments for density across a broad canvas are compelling, where there plainly is a need for wholesale change, right now, as in Northern Virginia.

  9. In 2011, I did a study of affordable housing. I looked across the nation for examples of successful projects that might be replicated in Fairfax County. I did find one in Philadelphia. But I found many other aspects of the issue that surprised me. My report was praised by AHOME, a non-profit organization that fosters more affordable housing. I will post a link to the report as soon as it is posted.

    • Fred –

      Your study is a fine one that has much to offer us all. Concrete and comparative examples taken from real life projects is by far the best way to understand what works, and what does not work, in the real world of community building. Your study excels in illustrating success or failure in real detail. How refreshing.

  10. So I’d ask a question. What is the actual impact of not enough affordable housing? What are the symptoms?

    Do people live in the street? Do they double up in apartments? Do they commute?

    where are the people who cannot “afford” housing?

  11. 20% work force housing in Tysons is a significant achievement. That’s where Fairfax County should be if the Supervisors can avoid caving to developers on everything. The County will likely approve applications for The View, calling its 600 foot height compliant with the Comp Plan’s 400 foot limit and previous approval of a 470 foot tower for Cap One’s world headquarters. Pardon my cynicism but I’ve lived here for 32 years.

  12. We can and do calculate the difference between average/median income levels and average/median housing levels – and we see a gap – but what does that actually mean? What actual impacts do we see when there is not enough “affordable” housing?

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