Inclusionary Zoning and Housing Market Outcomes

Inclusionary Zoning and Housing Market Outcomes

As regions across the United States are experiencing high and rising house prices, inclusionary zoning is increasing in popularity as a tool to increase the availability of affordable housing for households making less than their region’s median income. However, when inclusionary zoning requires private developers to subsidize below-market-rate units, it may act as a tax on housing, leading to reduced supply and higher prices than cities would experience without the policy. Few empirical studies have attempted to measure how inclusionary zoning affects housing supply and prices. In this paper, I use a new dataset on inclusionary zoning in the Baltimore-Washington region to estimate its effects on market-rate house prices and building permits in a difference-in- difference study. I find some evidence that inclusionary zoning increases market-rate house prices, but none that it reduces new housing supply. Additionally, I find that most optional programs that offer developers increased development rights if they choose to provide below- market-rate housing units have been unsuccessful in producing affordable units. Alexandria, Virginia, and Falls Church, Virginia, are exceptions, where density bonuses are very valuable owing to traditional zoning’s restrictions on new housing construction.

Emily Hamilton

Mercatus Center

September 2019

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By |2019-09-27T06:34:14-07:00September 27th, 2019|Affordability, Efficiency/Growth, Land Use Regulation, Reference, Reforms|