Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Conflicting Affordable Housing Policies

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Inclusionary zoning allows a few people to live in desirable, new construction buildings for much less than market rates. But it also carries with it a slew of perverse consequences. Because it’s a tax on construction, it reduces supply. Inclusionary zoning also leads developers to build higher-end buildings than they would otherwise, further squeezing out lower- and middle-income tenants.

While inclusionary zoning makes life easier for a few middle- and high-income residents lucky enough to secure below market-rate units in expensive cities, it also contributes to the regulatory mess that constrains housing supply in general. This in turn drives up the cost of housing. The effects of these supply constraints fall hardest on low-income residents who can least afford artificially high housing costs. By placing further constraints on housing markets, inclusionary zoning makes it so that resources dedicated to providing housing for the truly needy don’t go as far as they could in a less regulated market. Subsidies to middle-income residents come with the unfortunate side effect of making it more difficult for non-profits and government programs to make housing accessible to the truly needy.

Recently I presented on a panel at Chapman University on the future of housing in Orange County. Our panel highlighted the tensions between housing programs designed to help low-income and homeless households and those designed to help middle-income households. While my talk focused on regulatory barriers that make housing unaffordable for people across the income spectrum, Maria Cabildo — a former non-profit developer for low-income housing — talked about her experiences building housing for the homeless and very-low-income families.

Maria pointed out that market-rate housing is too expensive for minimum wage earners in every single county in the country. In expensive markets, policies designed to subsidize housing for middle-income people drives prices even farther out of reach for low-income families. Inclusionary zoning makes it so that the limited local, state, and federal funds available for low-income housing can provide fewer units of housing.

In an effort to prevent some of his state’s housing markets from becoming walled-off to anyone but the very wealthy, Governor Jerry Brown is unfortunately following other policymakers by supporting inclusionary zoning. His most recent housing plan advocates for reducing regulatory hurdles to housing construction, but also advocates for inclusionary zoning to help residents making up to 80-percent of their area median incomes. In many prosperous California markets, households making 80-percent of area income are middle- or high-income households by any standards. Median income is over $62,000 in Los Angeles, $85,000 in Orange County, and $107,000 in San Francisco. Subsidizing people making 80-percent of these incomes will be a popular policy among those lucky few who receive the subsidies, but it would only exacerbate the broader housing affordability challenges in the state by adding further constraints to housing supply.

Americans making salaries that put them squarely in the middle class should not need subsidies to afford housing. When they do, it’s a signal that housing policy has gone badly wrong. Liberalizing land-use regulations is the only solution to addressing the problem of housing that’s unaffordable to people making middle income salaries. Addressing the problem with inclusionary zoning is a kludge that fails to address the underlying causes of insufficient housing construction, and only worsens conditions for a city’s most vulnerable residents.

Many people find it hard to believe that expensive new apartments and condos will bring down prices in already expensive markets. But supply increases are in fact resulting in lower prices in the country’s most supply-constrained markets. Recent data from Portland, Seattle, and New York show that allowing more housing construction actually does lower rents. When San Francisco permitted a mini-building boom in 2016, Bay Area rents fell over the course of the year.

Attempting to make housing affordable to middle-income people with targeted policies is a losing game. Land-use liberalization is the only way to achieve broad-based affordability in markets where middle-income people struggle to afford housing. Inclusionary zoning not only fails to provide enough units to make a substantial difference in housing conditions, but it also hampers government and non-profit efforts to supply housing to the truly needy.

  • PL73

    City planners and other government officials who advocate susidizing folks who make slightly less than or even above the area median income don’t want very low income households in their precious cities. They mostly want younger professional urban hipsters, not families with teens. Schools cost money. Developers also want to benefit people they perceive as being more like themselves. Plus, a lot of people who work with so called affordable housing want to be praised for helping people but don’t actually want to deal with the poor huddled masses.

  • Emily Washington

    You may be right. If this is the case though, it’s important that these officials are pressured to acknowledge that their policies are helping some people while making life worse for their least well-off residents

  • MrAmbrose

    Is inclusionary zoning a problem per se, or are they just poorly
    written? If it included allocations for more low-income residents or section-8 vouchers, can
    it work? Rents in Portland, Seattle, and NYC rents may have leveled off, but all three cities also have inclusionary zoning. How do you reconcile flattening rents to one and not the other? And if the rental market is slowing down, does that necessarily make it affordable right now? You write, “Land-use liberalization is the only way to achieve broad-based
    affordability in markets where middle-income people struggle to afford
    housing.” Is it really “broad-based” if it doesn’t address low-income housing? Houston has no zoning. Maybe a compare and contrast can demonstrate your point more effectively. Finally, I understand you are arguing that the market can fix the affordable housing problem on its own. However, the idea that building more housing will open up older units for lower income people and in itself solve the affordable housing problem ignores that cities are growing in population, and the older units may be gobbled up by wealthier newcomers. It also ignores accessibility to jobs, better schools, etc, for those not earning top dollar.

  • Timothy DuBois

    Portland only recently enacted inclusionary zoning and since then not a single permit has been filed that would meet the IZ requirements. Given the gap between permitting and buildings going online it may take a couple years before we see the IZ rules leading to rent inflation. Unfortunately Portland is also working on putting in rent control, no-cause eviction rules, and displacement fees. This would mean we don’t even know what terrible policy to put the most blame on rent inflation. As for Seattle and New York it is my understanding that IZ only applies to zoning variances that allow for increased density beyond what the zoning allows. This means that IZ serves only as a carrot and not a stick. In portland it is mostly a stick with only minor off-sets such as reductions in parking.

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