Inclusionary housing does not make sense in every community. Even in some communities where it could work economically, it may be too controversial or too challenging to administer relative to the number of housing units it is likely to produce.

Some key challenges:

Controversy/Opposition

Even where it is well established, inclusionary housing has opponents who strongly believe that it is simply wrong for the public sector to regulate private development in this way. In some cases, opponents of inclusionary housing are otherwise supportive of local investment in affordable housing. In some communities, ongoing conflict over proposed inclusionary housing policies has been unnecessarily divisive and may have distracted from finding common ground on other affordable housing strategies.

Administrative Complexity

Inclusionary programs involve an ongoing partnership with private property owners. Programs must carefully balance the public interest in creating affordable housing with the private owner’s need to profitably develop and operate their projects.

These programs require dedicated staff both to interact with developers before and during construction and to monitor homes and enforce program requirements over the very long term. In communities that are growing slowly, the number of new affordable homes that an inclusionary program will create may be too low to justify the administrative complexity involved.

Burden on Development

Inclusionary housing programs rely on new market-rate real estate development to fund the creation of affordable housing. In strong real estate markets, the cost of providing affordable units can be comfortably accommodated by otherwise profitable development projects.

The research suggests that the majority of the cost is ultimately born by land owners who receive lower prices for developable land then they would in the absence of inclusionary housing requirements. However, inclusionary housing is not free and there is a real risk that developers or land owners may find the costs too great and choose not to build. Because they are aware of this risk, most communities set their inclusionary requirements very carefully and monitor the results to ensure that the policy does not stand in the way of development.

Income Targeting

Affordable housing advocates sometimes object to inclusionary housing programs that target units to moderate income households that, often, have other options in the housing market, rather than the low or very low income households that experience the most critical housing needs.

It is possible for inclusionary housing programs to serve very low-income residents but most don’t target this group. More deeply affordable units create a greater financial burden on developers, but some communities provide incentives to encourage developers to serve lower-income households.

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Is Inclusionary Housing Legal?

Inclusionary housing programs generally rely on a local government’s power to regulate land use. While the right of government to use its zoning power in this way has been established and upheld for generations, this is still a rapidly evolving area of law and recent federal court decisions have limited this power in ways that don’t prohibit most inclusionary housing programs but can influence how they are designed. Continue reading

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Will Inclusionary Requirements Have a Negative Impact on Development?

Growing cities value growth and want more of it. Policymakers understandably fear that affordable housing requirements that are too stringent will become a barrier to development, essentially killing the goose that lays the golden eggs. Continue reading

Common Questions

How does a feasibility study help establish an appropriate inclusionary policy?

An economic feasibility study conducted by a qualified real estate economist can provide local policymakers with a clearer sense of how inclusionary housing requirements will impact the profitability of local development projects and the price that developers can pay for developable land. The economist will research local prices and rents as well as the key factors driving the cost of building. The economist will use this information to assess whether or not proposed affordable housing requirements would make typical projects infeasible. Any kind of feasibility study is necessarily somewhat imperfect, but the goal is to give policymakers a general sense of the likely impact of proposed housing requirements and incentives on land prices and development profits. Ultimately, a detailed feasibility study is the only way to address legitimate concerns about whether affordable housing requirements could do more harm than good.

Read more about conducting an economic feasibility analysis here.

Will property owners pass the cost on to tenants/homebuyers?

No: Rents and home prices are set by a market. When a city imposes inclusionary housing requirements, it may increase a developer’s costs. But developers can’t really pass those costs onto home buyers or tenants because new units must still be competitively priced in the overall market. Instead, over time, land prices will fall to absorb the cost of the inclusionary housing requirements. Any incentives offered by a community would reduce the degree of land price reductions. Both theoretical and empirical economic research supports the conclusion that in the short term the costs associated with affordable housing requirements are born by developers and in the longer run they are passed on to land owners.

 

Can inclusionary housing work in every type of housing market?

Probably not: Inclusionary housing relies on market growth to produce new affordable housing resources;  it is not likely to be successful in communities that are not experiencing or anticipating growth.  But inclusionary may not make sense for every growing community.

Smaller communities, in particular, sometimes lack the capacity to effectively administer inclusionary programs. Outsourcing and multi-jurisdiction collaborations could make smaller programs easier to administer by bringing together units from many local programs.  But communities that produce very few units may find that the burden of administration outweighs the benefits of an inclusionary housing program.

Inclusionary housing may not be suitable in every type of housing market, but it can work in more places than many people realize. Inclusionary programs are tools for sharing the benefits of rising real estate values and, as a result, they are generally found in communities where prices are actually rising. In many parts of the United States, land prices are already very low, and rents and sales prices often would be too low to support affordable housing requirements even if the land were free. In these environments, policies that impose net costs on developers are unlikely to succeed (though some communities nonetheless require affordable housing in exchange for public subsidies).

 

Can inclusionary housing produce enough units to solve the problem?

Probably Not: Inclusionary is only ever one among several tools that cities deploy to address the dire need for more affordable housing and the full set of policies is not enough to meet the full need in most cities. But that is no reason not to do all that we can. Denver City Council member Robin Kniech says “no one ever says we shouldn’t pave the roads just because we can’t fill every pothole.”

No national research on the affordable housing production in inclusionary housing programs has been conducted, but production numbers exists for some local programs at different points in time.  In a review of inclusionary housing programs in California, NPH* found that about 30,000 inclusionary housing units were produced by approximately one-third of California’s inclusionary housing programs between 1999 and 2006, but production varied substantially across localities.

Resources

Reason Foundation

One of the primary sources of formal opposition to the idea of inclusionary housing has been the Reason Foundation, a libertarian think tank based in southern California. Their research and opinion pieces consistently argue that high housing prices are the result of too much government regulation, and they see inclusionary policies as yet another requirement that adds to the cost of building. View website