Pittsburgh has a simple way to create affordable housing.
The Pittsburgh City Council approved Tuesday an ordinance that expands preexisting regulations that require developers to include units below market rate in projects. It was also adopted by the City Council. Developers who build 20 or more units within Pittsburgh’s Polish Hill, Bloomfield and Bloomfield communities must make sure that they offer at least 10 per cent of the units to renters and buyers with lower incomes.
Inclusionary zoning policies like these are widespread in New Jersey, California, Washington, D.C., and elsewhere. These policies are believed to ensure existing residents get some benefits from luxury developments being built in their areas.
John Rhoades, Polish Hill Community Association said that “there are impending developments that could transform our neighborhood. We want to be in a position to maintain a balanced approach towards development that ensures everyone can find a place to call home.” TribLIVE This was earlier in the month.
Criticisms of inclusionary zoneing claim that even well-designed policies can have poor results in creating housing and raising housing costs. To make up for the loss of revenue they have to construct affordable and discounted units, developers may raise the rents on market rate units.
Jim Eichenlaub (executive director, Builders Association of Pittsburgh) says, “It effectively transforms taxation upon housing.” Reason. You tax the other units in order to fund the subsidy. Eichenlaub also stated that the subsidy would not have been possible if there was no market to support higher rents.
The City Council presented the ordinance to Pittsburgh. It estimated that a affordable unit for rent of one bedroom would be $795 per monthly. The market rate for one-bedroom apartments is anywhere from $1,600 to $1,000 per month according to the Polish Hill or Bloomfield neighborhood. This is a substantial discount that developers have to offer.
Inclusionary zoning policies were examined in Baltimore and Washington Metro areas. One study found that these increased housing costs by 1% per annum. This study found no impact on housing supply by inclusionary zoning.
According to a Reason Foundation study, 2004 found that the inclusionary zone policy in San Francisco Bay Area decreased housing supply while raising prices.
However, the impact of inclusionary zonating on housing supply depends on details of the policy.
“Voluntary” inclusionary zoning policies—where a developer can agree to create affordable units in exchange for a tax credit, subsidy, or permission to build a larger building than typically allowed—are generally considered to be less impactful on housing costs and housing supply. “Mandatory” policies like Pittsburgh’s—where developers must include affordable units—are naturally going to be more burdensome.
Portland, Maine and Portland, Oregon offer two cautionary tales regarding the consequences of mandatory inclusionary zoneing policies.
Since 2017, Portland, Oregon, has required developers of buildings with 20 or more units to rent some out at below-market rates. A 2019 policy brief from the group Up For Growth shows that building permit applications for buildings of 20-plus units tanked once these requirements went into effect, while permit applications for smaller 12–19 unit buildings rose significantly in 2017 and 2018.
Joe Cortright did a more recent analysis in March 2021 and found that Portland’s inclusionary zoning ordinance actually triggered a short construction boom. Before the ordinance was implemented, developers rushed to submit their permits. These projects were built within the first year of the law’s existence.
Cortright notes that now the pipeline has almost dried up. In 2020 and 2021, multifamily construction is much less than it was in the past. There are new developments of 21-25 units that have almost disappeared.
Portland, Maine appears to be experiencing a similar situation.
The city’s voters approved a “Green New Deal”, which tightened the affordability criteria of its preexisting inclusive zoning laws. The Boulos Company performed an analysis and found that multifamily building fell by 81% in 2021.
Only one Portland project that meets city’s new, strict inclusionary zoning requirements has been approved as of November 20, 211. Others are decreasing the project size to meet affordability requirements.
Both cities have inclusionary zoning policies that provide benefits such as tax abatements or “density bonus” which allow developers to construct more units than what the zoning codes would allow.
Pittsburgh’s inclusionary zoneing policy does not offer any of these incentives. They are not contributing any funds to subsidize these units when they do this. Eichenlaub says that the developer will pay for the entire cost of these units. This suggests that the policy will have a greater impact on supply in areas it is intended to cover.
The inclusionary zoning solution is attractive because it addresses the rising rents after the pandemic and keeps home prices up. Developers can offer new housing at lower prices if they are unable to afford it.
However, the record for these policies does not look great. These policies appear to worsen housing affordability by increasing overall prices. Programs that are poorly designed can significantly reduce new housing supply.
Even worse, they could also negate positive zoning changes.
San Francisco is one example. Politicians are currently discussing how to make four-unit housing legal across the city. This is a fantastic idea and would allow for new housing to be built in the city’s poor neighborhoods. These reforms could be trimmed with the requirement that new units at least partially (or entirely) affordable would effectively stop for-profit developers from building them.
It is becoming more apparent that new housing construction can be a key element in making cities affordable. Instead, taxing new homes, which is what inclusionary zoneing actually does, in order to create affordability, will increase prices and decrease supply.
This is a net loss in affordability that Pittsburgh will soon realize.