Housing Hunger Games Pt. 3
Part 3: What’s to Be Done?
In Parts 1 and 2 we covered what are and what aren’t the causes of the housing crisis. In this Part 3, we tackle the policy tools available to make housing more affordable.
If the path to affordable housing is more housing, why not build more?
One of the primary restrictions on building more is zoning laws. These are laws that restrict where and how new buildings can be built.
Zoning rules have existed in the US for over a century, initially to organize urbanizing cities and separate industrial from residential areas and to prop up property values (though sometimes just to enforce racial segregation). There are many understandable reasons cities impose building restrictions, including to preserve the look and/or character of a neighborhood, to prevent overuse of limited local public infrastructure, to keep out Slytherins or just to be delightfully spiteful. Regardless of their history, you can think of zoning rules as rules that let current residents tell new residents where they can live and work.
There are three main ways people think about expanding housing in the face of zoning restrictions. One is upzoning, which is just relaxing or eliminating zoning laws. The other two are inclusionary zoning and publicly-funded housing, discussed below.
Inclusionary Zoning
Inclusionary zoning (IZ) is essentially a subsidy arrangement in which a city prohibits building unless a building’s market rate renters agree to pay for the building to also have a number of affordable units. On its face, IZ checks a lot of boxes. It creates affordable housing out of thin air, it doesn’t require cities to raise tax rates and it feels fair that the subsidy for the affordable units should come from higher-income market renters.
But IZ programs have some surprisingly significant drawbacks that can be overlooked.
First, IZ programs suck at doing the one thing they’re supposed to do. IZ fundamentally works slowly. The subsidy that funds the affordable units comes from renters in new buildings. But NYC’s housing stock only grows about 1% per year, so it adds less than 1% new market rate subsidizers per year. So substantially growing NYC’s stock of affordable units relying entirely on the IZ subsidiary would be a decades-long endeavor.
The table below shows the limited volume of new housing that IZ programs in various locations have produced per year through 2006 and compares it to an alternative scheme–low income housing tax credits (discussed further below).
Also, it’s difficult to design a progressive IZ scheme. Under the typical IZ program, all market renters in the new building are charged the subsidy, regardless of their income. That means that the cost of providing the affordable housing subsidy falls equally on higher-income and middle-income renters. Tragically, IZ programs can make the housing hunger games worse for middle-income renters.
Public Housing
Public housing involves taxpayers providing the subsidy to fund affordable units, instead of market rate renters. The public subsidy can come in the form of public sector building and ownership of buildings, taxpayer-funded housing vouchers or taxpayer funded subsidies to builders (such as low income housing credits or opportunity zone schemes). Unlike the IZ subsidy, there’s no cap on how quickly affordable housing can grow under a public subsidy program.
The main limit on the growth of a public subsidy program is its cost. A wildly successful public subsidiary program means a lot of public subsidy money. Public budgets are limited, so the cash to fund public housing must come from either (i) slashing other public services like education, public safety, the social safety net etc. or (ii) raising taxes.
Below is a reference table highlighting the strengths and weaknesses of each of the three policy tools.
| Upzoning | IZ | Public Housing | |
|---|---|---|---|
| Lower the cost of living? | Yes | No | No |
| Creates mixed-income neighborhoods? | No | Yes | No |
| Lowers middle-class rent? | Yes | No | No |
| Can make a lot of affordable housing? | Yes | No | Yes |
| Changes neighborhood character? | Yes | Maybe | Maybe |
| Eliminates the hated landlord class? | No | No | No |
So what’s to be done?
If you want to lower the cost of living for lots of middle- and lower-income renters and are willing to let in taller buildings to get there, upzone.
If your goal is to create mixed-income neighborhoods with lots of rich renters and a small number of lower-income renters from the IZ lottery, go with inclusionary zoning.
If you’re after towns with lots of rich renters and a decent number of lower-income renters and are willing to increase your taxes to do it, choose public housing.
