Inclusionary Zoning Is Rent Control and it can make the housing problem worse.

On Tuesday night June 2nd, the Metro Council passed memorializing RESOLUTION NO. RS2015-1516  which ask the Tennessee delegation to the General Assembly to pass legislation to allow the Metropolitan Government to enact inclusionary zoning legislation to ensure sufficient affordable rental housing. Welcome to the Peoples Democratic Socialist Republic of Nashville, San Francisco of the South.

"Inclusionary zoning" takes its name so as to indicate it is the opposite of "exclusionary zoning." Exclusionary zoning is a name applied to any zoning policy that attempts to exclude some people.  Up until it was ruled unconstitutional to exclude by race or ethnicity, some communities prohibited certain minorities from living in certain areas. After that form of overt discrimination went away, many cities imposed lot size restrictions which had the effect of making properties so expensive that only those who could afford to pay the price could live there. We still have minimum lot size zoning.

What is inclusionary zoning really? It is another term for rent control or housign price control. Several cities had rent control starting in World War II, but overtime most cities abandoned it.  It was found to lead to abandoned and run down buildings, and it prevented developers from building new developments. Over time most rent control was allowed to be lifted. With "rent control" getting a bad name, social engineers came up with a different model and called it "inclusionary zoning."  That sounds like a land use policy, but think of it like this: Assume we are concerned that some people do not have enough money to buy the same car a middle income or upper income person can buy, so we pass "inclusionary car shopping" that requires Car Max to sell 10% of their cars at a price that a low income person can afford and it has to be the same quality of car that a upper income person can afford. That is what "inclusionary zoning" does with housing.

Unbelievable, the ten or so Republicans on the Council voted for the resolution. The legislation passed unanimously on a voice vote.  Even the most conservative members, Robert Duval, Duane Dominy and Josh Stites voted for it. These are people who I normally have deep respect for and who I am sure think of themselves as conservative. That was not a conservative vote. To be generous, one could assume they did not know what they were voting on but that is not an excuse.

There are various models of "inclusionary zoning," some really bad and some so ineffective that they have little negative impact.  Inclusionary zoning may apply to rental property or homeownership property.  Either way, it shifts the burden to those who do buy or rent a unit not set aside as affordable to pay a higher price to subsidize those who pay below market rent or purchase price.  Some IZ models require the units to be kept affordable for as little as 15 years, some for up to 99 years. Some programs allow developers to pay into a fund rather than actually build the units.

Writing in Forbes magazine, author Scott Beyer points out that in In San Jose, California the city's IZ’s constitutionality is being questioned by the California Supreme Court.  There, developers building more than 20 units must make 15% of them affordable, or pay a fee of $122,000 per inclusionary unit.

He writes:

 IZ mandates both prevent new housing starts, and make market-rate housing more expensive. They prevent housing starts by acting as a tax on new development, thus making certain projects uneconomical; and because affordable units earn less, developers must cover losses by jacking up market-rate housing prices. In the study “Unintended or Intended Consequences?,” economists Tom Means and Edward Stringham define IZ as a price control, before noting that, like with other such controls, it discouraged production and raised prices in California.

He says a better alternative might be for cities to allow greater density without the price controls. The reason, he says, that housing is expensive in places like New York, San Francisco, DC, and other cities that have adopted IZ is that zoning regulations prevent supply from keeping pace with population growth. IZ can actually discourage construction and make the problem worse.

The National Center for Smart Growth examined the effect of IZ and concluded:

We find that inclusionary zoning policies had measurable effects on housing markets in jurisdictions that adopt them: the share of multifamily housing increases; the price of single family houses increases; and the size of single family houses decreases. These results are fully consistent with economic theory and demonstrate that inclusionary zoning policies do not come without cost.

We also found that housing prices in cities that adopted inclusionary zoning increased about 2-3 percent faster than cities that did not adopt such policies..... inclusionary zoning programs caused housing producers to increase the price of more expensive homes in markets where residents were less sensitive to price, and to decrease the size of less expensive homes in markets where residents were more sensitive to price. (link)

A study published in Reason magazine found that after passing IZ the average city produced only 15 units a year of affordable housing attributable to the policy and total housing production dropped from significantly and the average price of homes to increase significantly. The overall effect of the policy also was a significant decrease in property tax collections. (link)

It is my hope that the Nashville delegation to the General Assembly will simply ignore the Council resolution, but if they bring it to the State legislator, I hope the State Legislature will fail to pass it.

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