How is that fair to those who pay full market value then? It doesn’t really matter if they’re from out of state, biotech workers etc. That’s irrelevant. People traveling downtown to work and back to the suburb or a different part of the city to live is not (or shouldn’t be) a foreign concept. It happens everywhere.
And yes, I do think that’s how it should be.
Regardless of the source or its purported truth, I think the point is that it is controversial to claim inclusionary zoning is a hoax. I’ve read endless back-and-forth on its merits and drawbacks.
Where I’ve landed over the years though is that cities like Portland and Baltimore provide a great example of how to make it work, by funding their inclusionary zoning with public money.
Portland adopted its first iteration of funded IZ in 2016. It required all multifamily developments with 20 or more units to set aside for 99 years either 10 percent of homes at rents affordable to 60 percent of area median income (AMI) or 20 percent of homes at 80 percent AMI. In exchange, the city granted a 10-year property tax exemption on the value of the entire residential portion of the building for projects in the downtown area. But outside downtown, it limited the exemption to only the value of the subsidized homes—a much smaller tax break.
Portland updated its program in March 2024 after it became clear that because it fell far short of funding the IZ outside of downtown, it was suppressing homebuilding there. The fix was to expand the tax exemption on the whole building to everywhere in the city. The city also took the opportunity to focus on deeper affordability and opted not to fund the 80 percent AMI option outside downtown.
Portland’s IZ abatements will reduce the city’s annual property tax revenue by an estimated $41 to $83 million, which, on the high end, is 0.5 percent of the total collected. (For comparison, Seattle spends about 4.5 percent of its property tax revenue on affordable housing subsidy.) And the program will yield an estimated 300 rent-restricted homes per year at a cost to the public of about $275,000 per home.
In Portland, incorporating affordable homes in privately developed housing is more cost-efficient than typical 100-percent-affordable projects developed by nonprofits. My colleague Michael Andersen writes:
If you do the math to calculate the public’s cost per home, the below-market housing created via fully funded inclusionary housing is less expensive than a comparable home created by a local housing bond. That’s presumably because the affordable homes hitch a ride on a project that was already being financed.
The whole article is really worth a read.
The most important part of inclusionary zoning to me is not about who is paying for it. The important part is that it’s policy that requires us to include affordable housing everywhere, interspersed in mixed income neighborhoods, and makes it a core part of the development process rather than an afterthought that is at the mercy of the success of housing bonds, nonprofits, federal funding, and land availability. Inclusionary zoning is still a huge win even if the private market isn’t paying for it.
Portland is probably an example of better implemented inclusionary zoning policies. Unfortunately, the data on IZ and it’s effects can be very hard to collect. The housing economics literature has mostly coalesced around the idea that IZ produces more Affordable housing units than not and that private, for profit developers tend to produce them at a lower cost than public or non-profit developments do. However, the costs are not simply borne by the developer / public coffers. Additional costs are incurred by non-Affordable housing consumers through higher prices and/or a lower total stock of housing produced.
I see where everyone’s coming from. It’s not about picking one side. We need more affordable housing. But, we also have to make it easier to build. I think we can all agree on a few thoughts here:
Nobody wants to see what’s happening in places like Crested Butte, where workers are stuck living out of their cars or getting bused in from hours away just to keep businesses running. That’s a disaster. But on the other hand, expecting developers to just eat the cost of making housing cheaper? That’s just not how business works.
We need both things at once. More affordable housing, obviously, but also fewer roadblocks when it comes to building. Outdated zoning laws don’t help anyone. Adding more housing doesn’t mean neighborhoods fall apart or property values crash, like the people in Livable Raleigh likely seem to believe. In Minneapolis, they made smart zoning changes, and things balanced out.
Even if we build a ton of housing right now, it won’t mean much if prices shoot back up in ten years. If we don’t keep housing tied to what people actually earn and stop investors from treating real estate like a stock market, we’re just gonna repeat the same cycle.
On top of all that, developers are already jumping through hoops just to build anything. Permitting, zoning restrictions, all this red tape—it slows everything down and drives up costs. If we actually want more housing, we should make the process faster and cheaper so supply can catch up to demand.
None of this has to be a fight. We don’t have to pick one thing over another. We can loosen zoning rules, cut red tape, push for affordable housing, and make sure it actually stays affordable long-term. Nothing about these ideas cancels each other out. We can do all of it at the same time.
Yes, these are the primary critiques of traditional inclusionary zoning, but funded inclusionary zoning seems to address them. I have not read any similar critiques of funded IZ, but that’s because only three cities have it and it’s too new. Baltimore’s only went into effect last year, and Portland’s revised policy did too. But in theory, funded inclusionary zoning should not significantly impact market prices if it adds no additional cost to developers. Here’s how Baltimore’s policy works:
Like Portland, Baltimore grants a property tax reduction to offset the lost rent income. But instead of a predetermined abatement, each year it grants the owner a tax credit equivalent to the building’s actual forgone revenue—that is, the difference between the rent collected from each required below-market-rate unit, and the rent collected from a comparable market-rate unit.
It’s an elegant scheme. If the tax credit matches the full costs of meeting the affordability mandate, the policy has zero impact on the financial feasibility of constructing housing. That’s because a building’s net operating income—and therefore its value—will be the same as it would have been without IZ. And that remains true even if market-rate rents change over time, because the size of the tax rebate automatically adjusts for such changes every year. Consequently, in the equation for evaluating the go/no-go decision on a proposed homebuilding project, a rent-restricted unit looks just like a market-rate unit.
Beyond that, it is clear and probably uncontroversial to say that the public usually pays for affordable housing in one way or another – whether it is through a housing bond, taxes, or a slight increase in overall housing costs due to IZ. Whether or not that is right or worth it is a political question that I won’t unpack here other than to say that the idea that housing costs might be impacted by policy like this isn’t a dealbreaker to me. I am more concerned about policy’s impact on constraining new housing supply, which is why I think it’s so important to constantly re-evaluate and tweak to find what works for the market.
Every broad survey of inclusionary zoning policies has found that, by far, the most successful producer was Montgomery County MD’s in its early years. An astonishing percentage of all IZ production nationwide to date was accomplished by that pioneering program, but only early on, and nobody’s managed to copy its success since (including, notably, MoCo since 2000 once it ran out of land to sprawl).
Back then, its “Moderately Priced Dwelling Unit program” was (1) low-cost, and (2) fully funded.
Today, too many advocates try to bully developers into providing high-cost units (e.g., high-rise apartments, which easily cost twice as much to build and maintain as suburban townhouses) at very low income prices (i.e., half as much as moderate income). That doesn’t work. That’s what’s happened in MoCo, where new development is now mid-rise or high-rise and so much costlier to build/operate, and the allowable sales/rental prices were indexed to incomes (and rose slowly) rather than to costs (which have risen much faster). So now MPDUs are costly and sold at a loss, imposing a big burden on developers’ costs.
@paytonc Mathematically, it’s hard to see how IZ can work effectively in the long term in the US, particularly if the land beneath the buildings doesn’t appreciate enough to offset the inevitable depreciation of the property as it reaches the end of its life. Without land value appreciation to support the overall asset, the economics of IZ can quickly fall apart. As buildings age and their structural and mechanical systems deteriorate, the cost to maintain or replace these elements often outweighs the value of the property itself.
Until we begin to view shelter as a depreciating asset, IZ will remain just another layer of regulation in a free market that’s already struggling with a fundamental imbalance between supply and demand. In places where land values don’t appreciate, this added regulation only complicates an already difficult market, driving up development costs without necessarily solving the underlying issues of affordability and sustainability.
To make IZ truly effective, we need to reconsider the way we approach housing as an asset. Instead of treating it as an investment that will always appreciate, we should focus on long-term, solutions that prioritize constant delivery of new supply (that is also durable quality construction), much like Japan, where the emphasis is on high-density, long-lasting housing that doesn’t rely on speculative land value increases to remain viable. Until then, IZ may only offer temporary relief at best, without addressing the deeper structural challenges at play.
Why Tokyo has Tons of Affordable Housing but America Doesn’t
This makes all the sense to me. Essentially it’s a PPP, so not really IZ in the classic sense. Either way, yes that’s a great model
i one hundred percent agree. Never understood why people have to live near their work. Is it convenient? Sure. There’s lots of things that make life more convenient and those convenience usually come with a premium.
No reason people who can’t afford to live where they work can’t 1) get a different job (there are PLENTY of jobs hiring of many types or 2) ride transit if they don’t have/want a car to deal with near their work.
Have never understood why it’s society’s responsibility to ensure housing is provided. It’s not a “right.” It’s certainly WISE to not have homeless, but it’s ok if people are inconvenienced to have to get the living/working arrangements in balance, and live and work somewhere cheaper. If employers can’t get employees due to lack of local workforce, they’ll have to pay more to get employees, and with higher pay comes “voila” more housing that is suddenly “affordable.”
I think of this in comparison to ski resort towns. “Employees can’t afford to live here at these wages.” Nobody is requiring you to work at a ski resort. That seems like a life choice because you like to ski. Deal with it or get a different job, move away from the ski resort. Whatever. If there is a shortage of employees, just like downtown example, employers have to pay more (or build subsidized housing they own and operate) to ensure they have a workforce.
Let’s keep this scenario going. If operating a business downtown now becomes more expensive, businesses won’t open or start moving to cheaper places, like the suburbs. If businesses won’t open in downtown, then we get less buildings. With less growth, we get a stagnant downtown. I, for one, do not want that.
I know this has less to do with affordability, but man I miss walking to work. It was built-in exercise that made me a more productive and accurate worker. I know I can get out and walk at work, but it certainly made a difference to me and my employer. [/Getting off my ass now to take the elevator down to go walk]
“just get a different job that pays more money” LMAO if only shit were that simple … this kind of mentality drives me absolutely nuts dude 
I’d really like to live in 400H downtown. Why do I not have vouchers to be able to afford it?!
they’ll have to pay more to get employees, and with higher pay comes “voila” more housing that is suddenly “affordable.”
I follow the logic to the point of companies needing to pay workers more to get them to stick with the commute. If the argument is companies need to lower their profits to afford that, maybe I can get with that, but that’s more or less impossible in the current market system for a variety of factors.
So it’d seem the other option is to charge more to pay those wages. The ski resort comparison is apt, really. Do we really want cities to function like exclusive resorts? Seems like a recipe for collapse to me. Not to mention ‘charge more’ probably wouldn’t be limited to only those stores in city centers, since then even the wealthy people who can still live there would just drive to the suburbs for groceries. This whole thing is a lot more intermeshed than your ‘common-sense’ response accounts for, imo. And again, I’d also support destabilizing and lowering corporate profits as an option for making your logic more sustainable!
Cities are older than free market economies. I tend to think if our current economic inventions don’t support them well, we may have to revise, reinvent, or circumvent. It’s not really about ‘rights’ or ‘conveniences’ as much as whether our systems support human society or hamper it. We have more than one option, much more, but I’m impatient with modes of thinking that want to load all the inefficiencies onto workers and never question any other part of things as if it were laws of nature.
I mean, even the Assyrians had currency, “multinational” firms, and rich and poor people. Basic free market economics are really old.
What happened to the middle finger emoji?
This is very simplistic view of things. Kind of like “If you don’t like XYZ about the country, state, cty, just move.”
Existing regulations and policy(zoning/building code/highway subsidy) essentially force development to be further out from places from employment (traditionally CBDs) than they otherwise would be. If you want to gruel through a 2 hour commute every day so you can experience “country living” I’m not going to stop you, but current practices can make that the only choice for people (not so bad in the Triangle yet but is the case in many metros). There are many barriers that prevent the housing market from functioning in the way that it would need to meet demand.
There’s also an argument to be made that forcing people to live further out limits their access to a vibrant economy, jobs, and schools.
For me, it’s the fact that a bunch of big corporations made some cash grabs 70 years ago at the expense of millions of people being able to afford a nicer life. People don’t HAVE to live near where they work, but making it so that most people are required to spend two hours of their day just getting to and from their place of work makes them (and therefore society as a whole) less productive.
I also don’t vibe with “it’s okay if people are inconvenienced to have to get living/working arrangements in balance, and live and work somewhere cheaper.” The way our economy is set up, all it takes is having one bad landlord, one hospital visit, or being laid off from a job to be dumped out in the streets where your chance of death for any reason jumps 250%. Plus, the annual cost of having to own and maintain a car can be crippling in itself, but is a de facto tax on those who can’t afford (or choose not) to live close to where they work. This “inconvenience” is one imposed on poor people to keep them poor to the advantage of the billionaires.
And your analogy of people who live and work in a ski resort town breaks down when the thing that it is that people “like” to do is “afford to live.” The hardship on the employer will always lag behind the hardship of the employee, so many people’s lives need to be uprooted before the company starts to feel those effects and start to act on them. Why put people through that when we, as a society, can decide that a) people have the right to live in a place that is secure and comfortable and where they have freedom of movement, and b) it is better for society in the long run to pull together resources to ensure that everyone has the opportunity to achieve that.
