Economics of and Alternatives to

1
Economics of and Alternatives to Inclusionary
Zoning
Presented by Elliot F. Eisenberg, Ph.D. National
Association of Home Builders October 18,
2006 Miami, FL
2
Overview

• Microeconomics of IZ
• Alternative strategies
• Very brief review

3

Part One Microeconomics of IZ
4
This is Inclusionary Zoning!

• What is the minimum project size before the
  regulation kicks in?
• What is the income limit for affordable units (
  of AMI)?
• Is off-site development and/or cash-in-lieu
  permitted?
• What percent of units are to be affordable?
• Are density bonuses allowed? If yes, are they
  portable?
• Are there minimum affordable unit/lot size
  requirements?
• What is the level of retained equity in an IZ
  program?
• What is the slope of demand curve?
• What is the slope of supply curve?
• What kind of behavioral changes will there be in
  neighboring cities?
• Are impact fees waived?
• Are property taxes abated for a period of years?
  
• Are design and code standards relaxed for
  affordable units?
• Is there a lot of bureaucracy involved?
• Are single-family units to be treated differently
  than multi-family units?
• What happens when construction slows down?

5
Microeconomics of IZ

• A Caveat
• NOTE There is wide agreement among economists
  regarding the impact of IZ.
• A Fact
• IZ typically raises the cost of home production.
  

6
Microeconomics of IZ

• Basic Assumptions
• Local housing market is in equilibrium
• IZ is imposed on a small geographic area
• IZ ordinance is ordinary
• Unrestricted firm entry and exit
• Home construction is possible elsewhere

7
Microeconomics of IZ
Supply w/IZ
P r i c e o f H o u s i n g

Supply
Pt
Reg.
P0
Demand
Q0
Qt
Quantity of Housing
8
Microeconomics of IZ

• Inclusionary zoning is likely to
• A) Increase new house prices
• B) Decrease new housing supply
• C) Increase existing house prices
• D) Decrease land prices
• E) Push building outside IZ zone

9
Who Bears the Burden of IZ?

• The only seven candidates are
• Suppliers, Workers, Builders, Developers,
  Landowners, Buyers and Renters
• Politicians/activists like to think builders pay.
  
• But, do they?
• In reality who pays depends on who is more
  mobile.
• Think about the elasticity of supply and demand.

10
Who Bears the Burden of IZ?

• If buyers have better alternatives
• landowners bear more burden
• If landowners have better alternatives
• buyers bear more
• In each case there is less market rate
  construction in the jurisdiction with IZ

11
Who Bears the Burden of IZ?
12
Part Two Alternative Strategies
13
Alternative Strategies(Supply Side)

• Expedite development reviews
• Negotiated vs. mandatory ordinances
• Increase density bonuses (for use elsewhere)
• Reform building codes (knocker vs. door bell)
• Relax design standards (no garage, small yard)
• Eliminate exclusionary zoning (smaller lot)
• Entitle a sufficient number of lots
• But best of all, USE MARKET FORCES!

14
Alternative Strategies(Demand Side)

• Create a down payment assistance program
• Create a rental assistance program
• Create a low rate mortgage program
• Propose passage of a living wage
• Create a savings assistance plan
• Provide coaching and ongoing support

15
Alternative Strategies(General)

• Set realistic target incomes
• (100 of Area Median Income)
• Create funding mechanisms with a broad base.
• Create funding streams that are steady.
• Insure that in lieu fees are spent on housing
• Treat it like economic development!
• Point out that inclusionary zoning is a bad idea
• with sale controls no equity is built up (bad)
• absent sale controls affordability is instantly
  lost (bad)

16

Part Three Very Brief Review
17
Review

• There is no free lunch!
• IZ pushes costs up and to the left
• IZ raises price of all new most existing homes
• IZ exacerbates affordability problems
• Builders are not the ones that pay
• Those that dont get a unit are made worse off
• Units are distributed unfairly
• JUST move supply curve DOWN TO THE RIGHT!

18

• CONTACT ME!
• Elliot F. Eisenberg, Ph.D.
• National Association of Home Builders
• 1201 15th Street NW
• Washington, DC 20005
• eeisenberg_at_nahb.com
• Phone [phone]
• Fax [phone]
• THANK YOU VERY MUCH!