The Failure of Inclusionary Zoning
30th July 2013
Data from the 2011 American Community Survey indicates that the median value of owner-occupied homes in Denver is nearly four times median family incomes. It should be just two times, which is typical for cities that don’t have urban-growth boundaries or other restrictive land-use laws. So housing prices are nearly twice as high as they ought to be.
As this city document explains, Denver’s “inclusionary zoning” ordinance requires developers who build 30 or more homes or condos at one time to sell at least 10 percent of those homes at “affordable” prices. Typically, this means an average of about $40,000 less than market prices, which is likely below the actual cost of constructing the homes. To make up for the losses, developers have to sell the remaining 90 percent for more than they would otherwise.
The people who buy these homes don’t really get a windfall. They are required to live in the houses themselves (i.e., they can’t rent them out at market rates) and, if they sell them within 15 to 30 years after buying them, they can’t sell them for more than they paid for them plus inflation. None of the buyers are really poor; anyone who earns up to 80 percent of the city’s median income is eligible. It is likely that many of the buyers are young people whose lifetime earnings are likely to be well above median incomes.
Markets do what markets do, despite what cities tell them to.