I'm excited to share this new UCLA Lewis Center for Regional Policy Studies report, published in partnership with the Terner Center, exploring some of the tradeoffs involved in the use of inclusionary zoning (IZ) policies to meet affordable housing goals.
There's a lot of pressure to meet affordable housing goals, but limited tools for doing so. IZ is often seen as a solution, but the challenges of studying IZ empirically leave policymakers with very little guidance on how to think about it. This is not an empirical study, but my hope is that the conceptual approach taken here helps identify and clarify the costs and benefits of IZ. It's a starting point for deeper conversations, not the final word.
Summarizing the analysis and some findings:
1. I used the Terner Housing Policy Simulator to model market-rate and below-market housing production through the City of LA's Transit Oriented Communities (TOC) program, with inclusionary zoning requirements ranging from 0% to 40%.
2. All else equal, IZ always reduces production, but higher reqs lead to diminishing gains of below market-rate (BMR) units and accelerating losses of market-rate units. There's a point where higher IZ produces fewer of *both*.
3. LA's TOC program is well-calibrated to increase production of both. For example, TOC w/ 11% IZ produces more total housing than 0% without TOC bonuses.
4. Holding TOC bonuses constant, higher inclusionary zoning requirements come at significant cost. At best, every below-market unit produced by IZ reduces market-rate production by more than 4 units. At higher IZ, this "exchange rate" climbs to almost 9-to-1.
5. Inclusionary zoning isn't just an additional cost. The below-market units produced by IZ have value to the public, and specifically to low-income households, as a private subsidy by developers. I estimate the annual value of those subsidies under different IZ scenarios, ranging from $550 million to $1.7 billion.
6. We don't know how much different IZ requirements will increase rents, but we *can* estimate how much rents would need to increase to negate the value of private subsidies invested in affordable IZ units. And I find the required rent increases are quite small. For example, a 16% IZ requirement reduces market-rate production by almost half. If that reduction causes rents to increase at least 4.8% instead of 4% per year, the costs may outweigh the benefits. To me, that's not implausible.
My takeaway: Different tools have different strengths, and land use policy may be best suited to improving affordability in the wider housing market, while public subsidies are best for producing below-market homes. IZ seeks to produce affordable homes by substituting land use policy in place of broadly shared taxes and public subsidies. This analysis suggests that the public may be paying either way, and that the costs of IZ are both higher and more regressive than the alternative
Using the Terner Housing Policy Simulator from Terner Labs, a new report from
Shane Phillips at the UCLA Lewis Center for Regional Policy Studies highlights the tradeoffs policymakers should consider in crafting inclusionary zoning policy requirements, with a focus on Los Angeles’ TOC program. Learn more: https://lnkd.in/gMuzmdwG
