There are a number of authoritative reports coming out of the US that examine the impact of inclusionary housing programs on the price and production of market housing. They all come to the same conclusion: based on the empirical evidence available from the extensive US experience, these programs have had very little or no impact on either production or price.
The most important of these reports are the following:
- Vicki Been, et al.: The Effects of Inclusionary Zoning on Local Housing Markets: Lessons from the San Francisco, Washington DC and Suburban Boston Areas; Furman Center for Real Estate & Urban Policy, Working Paper 07-05, November 2007. Read the report. Read a precis.
- Gerrit-Jan Knaap, et al: Housing Impacts of Inclusionary Zoning; National Center for Smart Growth Research and Education; February 2008. Read the report. Read a precis.
- David Rosen: Inclusionary Housing and its Impact on Housing and Land Markets; NHC Affordable Housing Policy Review; February 2004. Read the paper.
- Nicholas Brunick: The Impact of Inclusionary Zoning on Development; Business and Professional People for the Public Interest; 2003. Read the paper.
Not only is there is empirical evidence that inclusionary zoning has very little or no impact on prices and production, there is an entirely reasonable and understandable explanation why this is so. This explanation is provided in the following excerpts taken from reports that can be found on this website.
Taken from David Rosen’s Inclusionary Housing and its Impact on Housing and Land Markets:
“Some policymakers and developers concerned with the adoption of inclusionary housing assert that it will drive up the price of apartments and homes. This assertion is belied by the fundamentals of real estate market supply and demand. The price of housing is not a function of its development cost. Rather, housing price, be it rents or sale prices, are solely a function of market demand. For example, a developer may experience an increase in construction interest from that contained in his or her development pro forma. That developer can no more pass along the “cost increase” of higher than projected interest rates to renters or homebuyers than could be done for a “cost increase” associated with inclusionary housing. … Conversely, no one expects a developer enjoying lower than projected interest costs to lower rents or home prices accordingly.”
“Developers and landlords already charge the maximum rents and sales prices the market will bear. Therefore, any increase in development costs resulting from government regulation or other factors, will ultimately impact the price of land and/or profits to developers and owners, and cannot be passed on to the consumer.”
Taken from From Nico Calavita and Alan Mallach’s Inclusionary Housing, Incentives, and Land Value Recapture:
“… There is little doubt that there are costs associated with complying with a municipality’s inclusionary requirement. While developers often maintain that renters or buyers of market-rate units bear the cost of IH, economists point out that the developer, under most circumstances, absorb part or all of these costs. There seems to be agreement in the literature that in the long run … most of these costs will be passed backward to the owners of land.”
“A strong argument in support of this position is that a rationale developer will already charge the maximum housing price that the market can bear, and thus will be unable to pass along additional costs through higher prices. Under these circumstances, if newly imposed exactions increase the cost of development, either the price of the land or the developer’s profits will have to come down. While the developers may reduce their profit margins, it is likely that wherever possible they will seek a reduction in land costs. Critics of IH maintain that these represent unreasonable and unfair outcomes, while proponents argue that it is neither unfair nor unreasonable for the landowners to bear much of the cost of inclusionary programs.”
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