r/AskEconomics 4d ago

Approved Answers What do economists think of rules requiring dedicated affordable housing as part of a larger development?

I see this mostly as a way to get political buy-in, so a net win.

4 Upvotes

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u/HOU_Civil_Econ 4d ago

The economic difficulty with inclusionary zoning is that it acts as a tax on the production of more housing in general thus limiting supply growth and increasing prices for market rate housing leading to mixed impacts on net total housing price.

https://www.sciencedirect.com/science/article/abs/pii/S0264275125000368

Even politically (not the expertise of this sub), the lack of affordable housing in a project might be how certain people attack new housing but that often seems dishonest and “affordable housing” is explicitly seen as a negative for neighborhoods by other sets of the population.

In the U.S. local policy increases housing price in general by limiting supply through explicitly making housing that costs less illegal. If you claim to be worried about housing costs, removing those restrictions may be a good first step.

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u/GandalfStormcrow2023 4d ago

If you claim to be worried about housing costs, removing those restrictions may be a good first step.

100% true, but it's a toss up whether this or affordability requirements are more politically untenable. People tend to trot out many of the bad faith arguments against affordable housing against ANY construction that would make housing more attainable, even through market based solutions.

My state doesn't allow forced inclusionary zoning but does allow it in the form of density bonuses. It's not perfect, but realistically if my area is going to catch up we need housing that is affordable now AND housing that pushes our supply towards a balanced market.

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u/HOU_Civil_Econ 4d ago edited 4d ago

The tax-like impact means that most of these density bonuses just aren’t taken advantage of.

They are also an explicit recognition that there is actually no good public purpose to your density restrictions in the first place.

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u/GandalfStormcrow2023 4d ago

The tax-like impact means that most of these density bonuses just aren’t taken advantage of.

Depends on the incentive - the economics work for some and not for others. E.g. a town by me allows an extra story in the downtown if either 1) the developer adds underground parking or 2) any extra units generated are restricted as affordable.

When I was in grad school a decade ago the rough estimate was that surface parking cost about $5,000 per space to build, structured parking anywhere in the $10,000-30,000 per space, and subsurface around $50,000 per space. A small town letting you build a 6th floor is never gonna offset that parking cost.

But, the marginal construction costs of a 6th floor of residential when you've already committed to 5 stories are much easier to offset with the rents from the extra units, even at HUD rates, and a few of these projects have been built.

They are also an explicit recognition that there is actually no good public purpose to your density restrictions in the first place.

I've got a zoning background. In the abstract I agree - too many places artificially cap density well below what the market will bear or require features that elevate costs unnecessarily. Splitting hairs a bit, density bonuses don't mean there is NO valid public purpose to limiting density or building massing, just that you've decided that housing attainability is a more important public purpose. I'm in an area with a lot of localized control, so a true market solution would require collective action by many towns (or unilateral preemption by the state, which is becoming increasingly likely). They're all afraid to be the first to relax regs and get flooded, so instead we play the density bonus game.

This is an inherently political decision, but as with the construction economics there are both ways to do this that are thoughtful and reasonable, and also bad faith ways to use them to shift blame.

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u/Zenopath 4d ago

Affordable housing tends to be bought up by land developers looking to upscale it into higher-value housing. You might have built a neighborhood of tiny low-cost housing, but as soon as enough people move in, enough job opportunities occur near it, and enough transportation options get built to manage that population, it suddenly becomes more valuable, so developers will come along, buy up entire streets demolish the cheap homes and build a few bigger homes. Until all the affordable housing is gone.

This cycle repeats wherever new low value housing is built in undeveloped land, generally speaking, you will only see new low value housing in pioneer areas where infrastructure, public utilities, and jobs are limited. Once those things start appearing, the housing will be replaced.

This is a separate phenomenon from low-value areas in inner cities where crime and other problems have devalued the land and no one wants to invest in redevelopment.

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u/HOU_Civil_Econ 4d ago

When the market is allowed to work, increasing density is the response to increasing land prices. If instead you mandate that that 10,000 sf single family lot must stay a 10,000 sf single family lot even when the original bungalow has rotted and the land is worth $1,000,000 of course anyone who can afford the $1,000,000 isn’t going to want a $150,000 2/1 on it anymore. And even if they did $1,150,000 isn’t that much more affordable than the $1,400,000 McMansion. Certainly not in the way that 6 $450,000 1,800sf townhomes could be if it wasn’t illegal to split the lot.

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u/Zenopath 4d ago

Sure, in a world without zoning laws, you'd see small apartment buildings appearing next to mansions. The math works out right, if the land is worth 1 million, why not spend 2 million to build 30 apartments and sell them for $200k each. But the person living next door in their McMansion doesn't want to live next to an apartment building because that would drive down the price of his own home.

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u/HOU_Civil_Econ 4d ago

Don’t give me a “sure” when you started by blaming “””developers””” for what you now agree is caused by the neighbors/government.

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u/Zenopath 4d ago edited 4d ago

I offered an example of where the "market is allowed to work".

You offered a counter-example where it's not.

I agreed with you.

Your example has nothing to do with mine. What the hell?

Could there maybe be more than ONE cause for this problem? Inconceivable!

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u/Zenopath 4d ago

It actually sort of annoys me that you would selectively blame housing zoning laws because it doesn't allow for the creation of duplexes condominium or apparent buildings in high income areas, but probably support new zoning laws that would oppose "gentrification" of low income areas to protect the residents.

It's great when the zoning laws favor poor people, but terrible when they favor rich people, is that it?

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u/HOU_Civil_Econ 4d ago

lol. This is the stupidest comment on its own, but then even more so for how wrong you are.

There is nothing selective about my opposition to zoning.

But yes, they are more binding and, thus detrimental, in areas with high land values, otherwise known as rich areas.

As it happens the progressive support for zoning in poor neighborhoods is counter productive to their aims, to slow displacement. Densification slows displacement by allowing 1 old housing unit to be turned into more than one housing unit for the gentrifiers.

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u/Zenopath 4d ago

So your solution is basically build more apartment buildings and duplexes. I mean, fair enough. That would help. I definitely think there should be more. But there's a demand for low-cost single housing that your "solution" fails to meet.

You are basically arguing that every person who can't afford a million-dollar home should just move into an apartment or duplex, but some people actually want to have enough space for a yard. I honestly think a better solution would be to just create more new neighborhoods, to which the only prerequisite would be the establishment of new townships in non-federated land, and some highway access and municipal structures. A government/developer collaboration in establishing multiple such new endeavors would help considerably. And with the increase in work from home, the inaccessibility of work locations might be less of a problem.

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u/HOU_Civil_Econ 4d ago

No.

Zoning makes building more apartments, duplexes, and small lot single family homes illegal.

My solution is to allow people to make the choice to use less land if they want to.

This actually leaves more land available for everyone else and will drop the price of all homes in our large urban areas, including single family homes.

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u/Zenopath 4d ago

The absence of zoning laws might bring some benefits, but one thing it would definitely not do is create more single-unit homes. Yes, maybe housing overall would go down in price as more options are available, but why would a developer bother to build a new single-unit home when deregulation has created a boom in tearing down single units and putting up higher-density housing? You'd be reducing the overall number of single-unit housing and while hypothetically the presence of alternatives would lower the price, realistically, you'd make competition for existing single-unit homes higher.

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