Housing Market Effects of Inclusionary Zoning

Many communities across the country face affordable housing challenges. An increasing number of communities are considering inclusionary zoning as a response. Inclusionary zoning programs, which require developers to sell a certain percentage of newly developed housing units at below market rates to lower income households, are politically attractive because they are viewed as a way to promote housing affordability without raising taxes or using public funds. Standard economic theory, however, suggests that such programs act like a tax on housing construction. And just like other taxes, the burdens of inclusionary zoning are passed on to housing consumers, housing producers, and landowners. As a result, inclusionary zoning policies could exacerbate the affordable housing problem that they are designed to address. Although debate over the merits of inclusionary zoning has continued for nearly three decades, there have been no rigorous studies on their effects on housing prices and starts. We offer such an analysis here, estimating the effects of inclusionary zoning policies on single family housing prices, single family and multifamily housing starts, and the size of single family housing units in California over the period from 1988 to 2005. In our analyses, we are able to isolate the impacts of inclusionary zoning programs by carefully controlling for spatial and temporal conditions, such as the neighborhood or school district within which the house is located, and changing market conditions over time