Interesting article on affordable housing
Posted on Thu, Apr. 15, 2004
Professors: Rules restrict homes supply
Laws intended to create affordable housing for low- and moderate-income residents have actually suppressed the supply of new homes available and added inordinately to new-home prices, according to a survey being released today by two San Jose State University economics professors.
Fifty cities in the Bay Area have so-called ``inclusionary zoning'' ordinances, which mandate that housing developers rent or sell a certain number of units in each new project at below-market-rate prices, said the study's authors, economics Professors Benjamin Powell and Edward Stringham.
In 45 cities for which data was available, they said, production of new housing units fell an average 31 percent the year following the adoption of the inclusionary zoning policy.
And by restricting the supply of new homes, the report said, inclusionary zoning laws have resulted in new-home prices that are $22,000 to $44,000 higher than they would be without such laws.
Powell and Stringham said that when some units in a development are sold or rented for less than the market rate, developers compensate for their lost profits primarily by increasing the cost of the market-rate units, making home ownership or rentals more expensive to the consumer.
``Ultimately our findings are very consistent with what the laws of economics predict,'' Powell said. ``Inclusionary zoning acts essentially as a tax on developers. A tax increases price, and reduces quantity; that's Economics 101.''
The report, titled ``Housing Supply and Affordability: Do Affordable Housing Mandates Work?'' was published by the Reason Public Policy Institute, a Los Angeles think tank with libertarian leanings. The professors' research was supported by a grant from the Home Builders Association of Northern California.
Nationwide, inclusionary zoning is a controversial topic, and many affordable-housing advocates would disagree with the SJSU professors' report.
Doug Shoemaker of the Non-Profit Housing Association of Northern California, a group that supports inclusionary zoning laws, said another recent study of inclusionary zoning laws had findings contrary to those of the San Jose State authors. Shoemaker's organizations recently published a report predicting that 50 more California cities will adopt inclusionary zoning laws in the next five years.
``We understand that inclusionary housing isn't the solution to the affordable-housing crunch in the Bay Area, but it's part of it,'' he said. ``The market does not create affordable housing unless local governments demand that of developers.''
To make sure their data wasn't simply illustrating a ``one-time shock,'' in which home builders took a year to adjust to cities' new rules, Powell said he and Stringham also looked at data from 33 cities to show production for seven years before and seven years after the adoption of an ordinance. Based on their findings, Powell said, a loss of about 10,600 housing units in those cities could be attributed to the presence of the inclusionary zoning laws.
Looking at two different measures, he said, ``should eliminate any short-term blip effects in the economy, such as a business cycle or recession.''
Stringham pointed out that those who buy a below-market-rate home frequently face ``deed restrictions'' that prevent them from benefiting from rising home values, the way most homeowners do. The below-market homeowners typically can sell at a price that rises only as much as inflation, or at a price deemed affordable to another low- or moderate-income family. Such owners can't leave their homes to their children when they die unless the children meet income requirements, and they may not rent out their homes.
While San Jose isn't among the cities with this type of ordinance, proposed plans for the development of the Coyote Valley include a requirement that 20 percent of all housing units would be below-market-rate, ``deed restricted'' units, meaning they could only be sold to buyers meeting certain income limits.
IF YOU'RE INTERESTED
Read the report online at www.rppi.org/ps318.pdf.
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