NAHB Economist Calls Inclusionary Zoning a Bad Idea
As a solution to a shortage of affordably priced housing in many parts of the country, inclusionary zoning is “just a plain bad idea” and “it should be dumped in the trash bin,” NAHB economist Elliot Eisenberg told the news media during the Southeast Coast Builders Conference earlier this month in Orlando, Fla.
Sky-high housing prices in such markets as Los Angeles; Miami, Fla.; the Washington, D.C. area’s Montgomery County, Md.; and Seattle are to a great extent the result of overly restrictive zoning and regulation, he said, and government attempts to correct the situation by requiring builders to set aside a certain percentage of their homes for households with lower incomes only add another layer of regulation, further distorting housing and land prices.
“The government has gotten involved in the process and made it worse,” said Eisenberg. “Every time you regulate, you raise the cost of housing.”
“Builders don’t just want to build expensive houses,” he said. They realize that housing demand is heavily concentrated between $175,000 and $400,000, the range in which some 40 million households can afford to buy a home, “but there’s not a lot of homes being built at these prices,” particularly in areas where the government is artificially constraining the supply.
“People don’t think about the unintended economic consequences of regulation,” he said. “Do we make GM give cars to the poor? Do we force teachers to teach extra students? Do local governments require Wal-Mart to sell stuff to the needy at reduced prices? Do we require grocery stores to provide food to the needy at a discount? Why is workforce housing different? Inclusionary zoning typically raises the cost of housing production, and there is no debate on that among economists.”
Inclusionary zoning is likely to increase new house prices, decrease the housing supply, increase existing house prices, decrease land prices and push building outside the area zoned as inclusionary, he said.
For example, in 45 California jurisdictions, housing production averaged more than 210 units annually before inclusionary zoning was imposed and below 150 after, Eisenberg said. The yearly growth rate of the housing stock in Bolder, Colo. is 12.5% where there is inclusionary zoning, but 26.7% in the surrounding metro area. In Burlington, Vt., those percentages are 5.9% versus 31.5% and in Montgomery County, 13.2% compared to 24.8%.
Touted as a model for inclusionary zoning, Burlington’s program has managed to deliver only 180 affordable units over its 15-year history, he said.
What’s worse, in an attempt to hold the inclusionary zoning units in the area’s stock of affordable housing, the benefits of homeownership are delayed or denied entirely. In Montgomery County, deed restrictions prevent the subsidized unit from being sold for a lengthy period of time. The county has gradually raised the restrictive period from five, to 10, to 20 and now 30 years, but inevitably, when that period is up, the owners “ditch the home and it’s no longer in the affordable housing supply when it’s sold for full price,” Eisenberg said.
Furthermore, “units are distributed unfairly, often by lottery, and the poorest are rarely helped,” he said. The zoning encourages construction to move outside the regulated area, increasing sprawl, and racial integration is limited.
On the supply side, Eisenberg suggested several affordable housing solutions: governments should expedite development reviews; waive impact fees; pursue negotiated instead of mandatory ordinances; increase density bonuses; reform building codes, such as allowing a front-door knocker instead of requiring a door bell; relax design standards, such as allowing a smaller yard; eliminate exclusionary zoning, such as large-lot requirements; and entitle a sufficient number of lots. “But best of all, use market forces,” he said.
For more information, e-mail Elliot Eisenberg at NAHB, or call him at 800-368-5242 x8398.