Note: The following points are based on two studies, released in April and June of 2004, on the impact and effects of 30 years of inclusionary zoning in California. The studies are: “Housing Supply and Affordability: Do Affordable Housing Mandates Work” and “Do Affordable Housing Mandates Work? Evidence from Los Angeles County and Orange County,” by Benjamin Powell and Edward Stringham, both assistant professors of economics at San Jose State University, for the Reason Public Policy Institute based in Los Angeles. Both studies can be found at the Web site, www.rppi.org on the Home Page.
1) Despite the popular conception, homebuilders and developers don’t pay for, nor absorb, the costs for a percentage of lower-priced housing in their developments; rather, the majority of the development’s homebuyers pay for it in a higher price for their homes-a “subsidy fee” to cover the costs of the lower-priced homes. In California, homebuyers paid between $22,000 and $100,000 more for their homes to cover the cost of lower-priced homes in their neighborhoods, making inclusionary zoning an unfair arrangement.
2) Because builders and developers must raise the prices of the majority of the homes in a neighborhood to cover the costs of the lower-priced homes, inclusionary zoning actually prices out a segment of potential homebuyers – the segment who could have afforded the homes at fair market prices but can not afford a home at the prices subsidizing the lower-priced homes. Therefore, there is no net gain in homeowners – some people are priced out of the market to make homes available to other people who needed a subsidized home.
3) Economically, inclusionary zoning is a price control; it is well documented that price controls always lead to a decline in supply and a rise in prices (just the opposite of the government’s goal of inclusionary zoning). The San Jose State University studies document that San Francisco lost an estimated 10,000 potential new homes, and the Los Angeles/Orange County area lost an estimated 17,000 potential new homes because of inclusionary zoning.
4) Because of the governmental constraints typically placed on the lower-priced homes in an inclusionary-zoning neighborhood, the families who purchased those homes are denied the traditional benefit of homeownership. The strict limits on resale pricing and the time constraints to sell the home resulted in homebuyers not making any improvements to their property.
5) Municipal governments must set up a new bureaucracy to administer inclusionary zoning in the community at an average cost per year of $60,000.
6) There is a net loss of property tax to the government because of the lower-valued homes in inclusionary zoned neighborhoods. California cities with inclusionary zoning have lost an average of $550 million (property taxes) per year.
There's more about the true, and negative, impact of inclusionary zoning on the affordable housing market on the Web site of the National Association of Home Builders; click here.
Editor's Note: Nation's Building News has reported that San Diego's controversial inclusionary zoning ordinance was declared unconstitutional and invalid by the San Diego Superior Court, which has shut down the program and put in question the approximately $7 million collected from more than 20,000 home owners under the ordinance. 