Apr 242017
Owen Courrèges

Owen Courrèges

One of the first things young writers are often taught is to begin an opinion piece with a strong thesis statement. It’s all about laying your cards on the table and presenting an assertion that grabs the reader, delivering an opinion without equivocation.

Thus, without further ado, here is the thesis statement of this column: Inclusionary zoning doesn’t work.

Not strong enough? Ok, how about this instead: Inclusionary zoning is a counterproductive policy tool thought up by corrupt morons and adhered to by people who understand neither logic nor statistics; alas, its juvenile inanity is only matched in degree by its unwarranted popularity.

That’ll do.

Anyway, for those less wonkish readers for whom this is a foreign concept, inclusionary zoning is simply a type of affordable housing mandate. It usually means that new multi-unit residential housing developments must offer a certain percentage of units at below-market rent to low-income persons and families.

New Orleans has been debating inclusionary zoning for some time now. An inclusionary zoning provision that provided a “density bonus” for developers who provided below-market units was placed in the Comprehensive Zoning Ordinance (CZO) in 2015. The bill’s author, Councilwoman LaToya Cantrell, proclaimed it “the first step in a long journey to fixing the affordability crisis we have in the city.”

The following year, Mayor Landrieu began a drumbeat of support for additional affordable housing measures, and in October, the City Council directed the City Planning Commission to consider both required and incentivized inclusionary zoning and offer recommendations.

In February, the Commission voted unanimously to approve a study recommending an inclusionary zoning mandate of 12% for any new housing development of more than 10 units. Thresholds for renting or purchasing below-market units would be 60% and 80%, respectively.

It’s doubtful that the council will reject the Commission’s recommendations. I expect we’ll be seeing an amendment to the CZO soon.

New Orleans is simply following the same well-worn trail as other cities with affordable housing problems. These issues are most common in cities that have historically restricted the supply of multi-unit residential housing through various laws, including height limitations, historic preservation laws, and zoning restrictions.

These types of laws are typically pushed by so-called “NIMBY’s” (which stands for “not-in-my-backyard”), who want to protect their neighborhood integrity, as well as the attendant property values, from a changing market. NIMBYs tend to have little regard for affordability; in fact, they’d prefer to restrict the supply of housing further because it increases the value of their own homes.

When NIMBYs hold sway, the end result is that even as population increases, density does not. With the market unable to respond to demand, rents spike.

For politicians, inclusionary zoning is seen as a way to have their cake and eat it too – they don’t have to stand up to the well-heeled NIMBYs, and they get to claim that they’re addressing the housing affordability crisis.. Developers are generally opposed to inclusionary zoning, but they have less clout and can, in any event, be partially mollified with favorable zoning treatment (like small waivers from height restrictions).

Alas, the problem is what I said at the beginning of this piece – inclusionary zoning doesn’t work. Indeed, it actually makes the problem of housing affordability worse.

It’s simple cause-and-effect; proponents of inclusionary zoning imagine that somehow these below-market units have little-to-no impact on the price of remaining housing stock, that developers simply eat the cost and nobody else is impacted. Obviously this is not the case. The money has to come from somewhere.

Like its big brother, rent control, inclusionary zoning is essentially a lottery. If you’re a beneficiary, you make out like a bandit, and everyone else gets the shaft. Market costs rise for developers, forcing higher rents on non-regulated units. Developers also tend to build more luxury units with higher profit margins to make up the difference, or they don’t build at all. Even below-market rent for a luxury unit may not be realistic for most low-income workers.

Because of this, inclusionary zoning is often referred to as a “hidden tax.” You don’t know that you’re paying it because the impact is spread throughout the residential real estate market, but the impact is real.

What’s worse, inclusionary zoning doesn’t actually generate a decent number of below-market units. Let’s take the example of New York, as described by Shaila Dewan of the New York Times: “New York needs more than 300,000 units by 2030. By contrast, inclusionary zoning, a celebrated policy solution that requires developers to set aside units for working and low-income families, has created a measly 2,800 affordable apartments in New York since 2005.

Other cities boast similar numbers. The only reasonably conclusion to reach is that inclusionary zoning has no positive impact on housing affordability. It’s a smokescreen for politicians trying to appear concerned without roiling interest groups with a major stake in the status quo.

New Orleans desperately needs a comprehensive plan for improving housing affordability. Unfortunately, we’re unlikely to see that from City Hall anytime soon.

Owen Courrèges, a New Orleans attorney and resident of the Garden District, offers his opinions for UptownMessenger.com on Mondays. He has previously written for the Reason Public Policy Foundation.

  22 Responses to “Owen Courreges: Mandatory affordable housing forces everyone else’s rent up”

  1. This is a poorly informed explanation of what inclusionary zoning is designed to do. It is NOT a tool of NIMBY’s. It has nothing to do with their concerns. It is for new development and requires a set aside of a certain number of a affordable units. You are correct that the cost of including inclusionary zoning has to show up somewhere but it doesn’t show up “throughout the residential market.” In most markets, inclusionary zoning impacts the value of the underlying land. As a density bonus it translates into a larger building built and the developer only does it if it makes financial sense. It is one tool in a much larger mix of tools to help provide affordability in cities where the cost of living is increasing faster than incomes.

    • urbanfocused,

      Strictly speaking, I’m not saying that inclusionary zoning is a tool of NIMBYs. Rather, I’m saying that it’s a tool of politicians who refuse to stand up to NIMBYs because to do so would require them to address the causes underlying the lack of affordable housing. They would have to address land use regulations that prevented the real estate market from adequately responding to demand.

      Your statement about inclusionary zoning only impacting “the value of the underlying land” doesn’t wash. First of all, the current scheme being debated by the council doesn’t depend on a density bonus; it will simply be a universal mandate, not an election by the developer. Secondly, in the absence of inclusionary zoning, the developer could simply charge market rent and would have less incentive to make attempts to make up the difference elsewhere — attempts that would be felt by all other renters, (for example, in terms of reduced incentive to build larger housing developments, or an increased incentive to build luxury housing). The bottom line is that a landowner will respond to something that increases their costs or decreases the value of their land, and those effects will be felt in the residential housing market.

      • Your premise is naive. Market rates have a cap. The New Orleans market isn’t so strong that market rents can go up and up. Developers may choose not to develop somewhere if the requirements of Inclusionary zoning (or any other zoning restriction are too onerous). New Orleans does very little to preserve affordability as the market rises. Inclusionary zoning (as I said before) is one tool. Its a multi-prong approach. City officials need to use all of them including addressing NIMBY’s AND supporting preservation of affordability in gentrifying areas AND improve economic conditions to support a living wage.

      • ..

    • I don’t know if Owen is right that it spreads through the entire residential market, but the inclusionary zoning requirements most certainly shows up in that particular project. Developers who can’t make the same level of profit off of 12% of their units make it up by creating more expensive larger units in the project. It is a simple numbers game I deal with every day in working with developers and in the small community I work in they are actually pretty upfront about it in saying if you want affordable units I want more height so I can build two levels of penthouses instead of one.

  2. In a city with this level of poverty, inclusionary zoning should be at 50%

    A pox on anyone who would deny affordable housing to those earning less than $30K per year.

    And, yes, I’ve been a HANO vendor (landlord to voucher holders) since 2006. No problem….the rents to landlords are reasonable and generous enough to be worthwhile.

    • Ah, what a surprise, the poster with the name “ultimateliberal” is an economic illiterate. If 50% of units had to be set aside for affordable rentals, there would be zero new development to speak of in the desirable/expensive areas like the warehouse district because they would not be remotely close to being feasible. Get a clue (or take an economics course).

    • ultimateliberal,

      Yes, and why don’t we just make taxis accept dollar bills for all rides — then we’ll solve all our transportation problems. Just as that hair-brained scheme would eliminate taxis, nobody is going to build new rental housing if they can’t charge market rent for half their units. They’ll make some other use of the real estate that will then provide a better return.

      Really, your comment shows the real problem here — politicians think that we can continually pass regulations that discourage the development of low-cost housing, and somehow we’ll get more low-cost housing. It doesn’t work. There isn’t a single inclusionary zoning scheme that has made a dent in any city’s affordability problems. It’s just window dressing for limousine liberals to feel good about themselves for supporting restrictive zoning laws that keep the poor from moving into their neighborhoods.

    • Zero corruption over there at HANO…. (rolling my eyes)

      Liberal bureaucrats don’t want to consider other solutions because the big government solutions are a veritable trough to feed at.

  3. Quote: “proponents of inclusionary zoning imagine that somehow these below-market units have little-to-no impact on the price of remaining housing stock, that developers simply eat the cost and nobody else is impacted.” Nothing could be further from the truth. The cost of subsidization represents a “hidden tax” only to the extent one is willing to blindly ignore the economic fundamentals of the enterprise. Inclusionary zoning attempts to democratize the housing stock by spreading the costs to those who can most afford it. In that sense, it operates much like any other form of progressive taxation. Whether it is sufficiently effective in achieving its aims is, of course, open to debate. But roundly criticizing the adoption of inclusionary zoning without offering any suggestions for a path to the “comprehensive plan for improving housing affordability” you espouse is hardly helpful, or fair.

    • D. Turgeon,

      Inclusionary zoning doesn’t spread the costs onto those who can most afford it. The costs end up being felt by people who don’t get a below-market unit (whether due to eligibility or availability) and are hit with higher rent. Many of these people are not wealthy by any stretch, and inclusionary zoning by its nature tends to impact the poor the most negatively because it incentivizes developers to invest more in luxury housing. It’s not like progressive taxation at all; it’s entirely regressive because it makes all other housing more expensive, particularly the type of housing needed by the poor.

      As for my plan for increasing housing affordability, I think it is obvious from my piece — we need to reduce land use regulations that have made it impossible for the real estate market to meet demand for new housing.

      I think this article (and the Gallup study it describes) addresses this issue nicely: https://www.forbes.com/sites/rogervaldez/2016/12/07/zoning-reducing-american-productivity-and-making-the-poor-poorer/#73c8d6cc49bd

      • It hits people like me: someone with a decent professional job, but two kids, and a husband who died.

  4. So you’re against inclusionary zoning and a living wage. You seem to have a lot of opinions about what not to do, so what’s your solution? Or do you just want the majority of new Orleanians to remain poor, with no chance of finding affordable housing or a good job? Are you assuming that landlords out of the goodness of their heart will somehow reduce their market rate rents?
    If it is not the job of government to create and build affordable housing, to encourage landlords to offer low income rental units, and to offer housing subsidies for low income homeowners, then whose job is it? New Orleans has spent the last 50 years promoting tourism as it’s #1 industry. We pay servers $2.13 an hour, which is criminal in my opinion, and then we expect them to pay $1500 a month in rent?

    • You might learn a little about Section 8 Housing. Go here: http://www.hano.org/communities.aspx

    • Kimberlee,

      I implicitly offered my solution in my column, which is to loosen land use controls to allow the real estate market to respond to demand. The housing affordability crisis is largely driven by the inability of the market to provide new units to respond to demand, which is mostly attributable to restrictive zoning. Getting low-cost apartments built in a residential area is like pulling teeth in this city.

      I really sympathize with the plight of people who can’t afford their rent, which is exactly why I want our government to do more to promote economic growth, and also eliminate regulations that have artificially inflated the cost of living. The biggest culprit is zoning.

  5. Doing something is better than doing nothing. The “free Market” is not likely to address the needs of low-income families.

    • disqus,

      No, sometimes doing “something” is actually worse than doing nothing. The free market will respond to demand and provide some relief, while inclusionary zoning will make the situation even worse.

  6. Any discussion of affordable housing should encompass the entire metro area. It is myopic to decry the loss of cheap apartments in the now gentrified central areas of the city while neglecting the fact that low cost rentals are plentiful in New Orleans East, Algiers, and Jefferson Parish. Improved transportation between job centers and suburbs would be a better use of government energies than inclusionary zoning schemes.
    Furthermore, the massive overbuilding underway in the CBD apartment market will inevitably lead to a moderation in rents across the metro area.
    Lastly, the city’s and S&WB taxapalooza of the last several years has generated increased landlord costs that have to be passed on to tenants.
    P.S.: How many former affordable housing units are now short-term rentals?

    • woopata,

      I disagree. I do believe that we should try to have pockets of affordable housing throughout the city and not simply expect the poor to move out to the veritable hinterlands and commute in for their jobs. I think the real estate market is capable of meeting demand for affordable housing in all parts of the city if the market is permitted to respond to demand.

      That said, I do agree that the problem of housing affordability can be helped by having better (i.e., more frequent and reliable) bus service between major employment centers and poorer neighborhoods in outlying areas. However, the city has shown zero commitment to making that happen. Instead, it has focused largely on building new streetcar lines that mainly benefit tourists, while bus service isn’t even close to the level it was before Katrina.

      I also do agree that building in the CBD will help, but it’s not enough. Most of the CBD is still subject to strict height restrictions that should be completely lifted. And with respect to your P.S., I would note that Airbnb is being driven largely by a lack of new hotel rooms, which is a problem largely created by restrictive zoning. It all comes back to these land use controls that distort the market.

      • Look at that! I agree with most of what you said above ^^^ But I doubt that re-zoning will solve it unless rent control in some form is part of it. Landlords don’t willingly rent out an apartment for below market rent unless they have a tax incentive to do so. I would also add that the city of New Orleans focused almost entirely on tourism to fuel it’s economy for 50+ years and then was suddenly surprised when the people wanted a piece of that economy (Airbnb), and on top of that we pay servers $2.13 hr, which is crimminal IMO. How does a person pay rent on that? We need affordable housing AND higher wages and job training for other industries. With all of the renovation and specific needs in maintaining older homes, why don’t we have vocational training for building trades like plaster work? why wasn’t that part of our Katrina plan? We have missed opportunities for decades.

  7. So, it sounds like we are talking about apartment complexes. Let’s say there are 10 units in the building, and 1 unit is a communist rent controlled unit. What incentive would the owner have to put money into repairing that money losing unit? Oh wait, they’re also trying to create a rental registry with mandatory inspections and mandated repairs, which would inflate costs even further. Those costs can’t be passed onto the renter in this case, if I understand it correctly, unless the commissar decided to raise the rent threshold. The next logical step would be to turn that unit into a broom closet. Or would that be against the law too? If New Orleans had 630,000 people in 1960, the solution would seem to be emulating what worked in the past, rather than trying to copy New York City without also creating Wall Street.

  8. I think a more fundamental question is why should the government be in the housing business in the first place? I’m not aware of any constitutional right to affordable housing in a person’s preferred neighborhood. Sure, I’d love to live next to Audubon Park but it’s not happening at my income. Therefore, I have to live elsewhere. That’s the way the world works. If a worker has to live somewhere else until their wages increase…that’s how the economy works. I do not understand why all of us need to subsidize a few winners who hit the housing lottery through this program, as you point out.

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