Speaking of housing (as the Antiplanner was doing yesterday), San Jose State University economist Edward Stringham gave a great lecture at the Preserving the American Dream conference in San Jose a couple of weeks ago. Dr. Stringham’s presentation (3.7MB PowerPoint file) focused on inclusionary zoning, which is the traditional urban planning solution to high housing prices.
Keep in mind that urban planning is usually the reason why prices are high in the first place (though there are a few exceptions, such as Las Vegas, where land shortages are the result of the government owning most of the land in Nevada). But the planners try to deflect the blame to greedy developers. Their solution is to require those developers to sell or rent a fixed share — usually 15 percent — of new homes at below-market prices to low- or moderate-income families.
Economic theory would suggest that developers will pass most of the cost of inclusionary zoning on to the buyers of the remaining 85 percent of homes. This will make new housing even more expensive than it was before, which in turn will lead owners of existing homes to ask more for their homes when they offer them for sale.
Planners, of course, have little interest in economic theory, so Stringham and some of his colleagues took some careful looks at inclusionary zoning mandates in the San Francisco Bay Area, the Los Angeles area, and Monterrey County. They found that, after a city passes an inclusionary zoning ordinance, the number of homes built declines and the price sharply rises.
Planners still ignored this work and when someone challenged an inclusionary zoning ordinance in Napa County, the state judge found that “the ordinance will necessarily increase the supply of affordable housing.” So Stringham and his colleagues rolled up their sleeves and did an even more detailed econometric analysis of housing and affordable housing mandates. They conclusively showed that inclusionary zoning ordinances in California increased housing prices by 20 percent.
Stringham also points out that most inclusionary zoning ordinances turn buyers of “affordable” homes into second-class citizens. Many California communities say that people who buy such homes cannot sell them at market rates for 50 or more years. That means that they cannot take advantage of the growth in equity that other people enjoy.
If you don’t want to step through Stringham’s PowerPoint show, you can listen to an interview with Stringham on NPR. The first 10 minutes of the show focuses on housing affordability, while the last 20 minutes gives Stringham a chance to explain why the solution is not price controls but to allow more construction.