Urban planners regularly refer to themselves with workmen-like terms. They seek to “build” communities, and to “make” places. They refer to their arsenal of regulatory mechanisms and rules as a “toolbox” and each rule is a “tool.” And now one of these regulatory tools, the blunt hammer known as “inclusionary zoning,” is being challenged at the Supreme Court.
Last week, the Pacific Legal Foundation (PLF) announced that it would appeal a California Supreme Court ruling in California Building Industry Association v. City of San Jose, which found San Jose’s inclusionary-housing role legal. The PLF press release succinctly explains the regulation:
“San Jose’s ordinance requires developers of 20 homes or more to dedicate 15 percent for city-designated buyers at below-market prices. Alternatively, a builder must pay a fee, estimated by the city itself as [US]$122,000 for each unit that would otherwise have to be dedicated for the inclusionary-housing program.”
They argue that this rule is an unconstitutional taking of private property to pay for a public affordable-housing program which should be funded through tax dollars, rather than exactions from developers. PLF has famously fought and won other cases in this vein, Nollan v. California Coastal Commission and Koontz v. St. Johns River Water Management District. But while Nollan and Koontz were important, these cases have to do with regulations that have far less economic impact than inclusionary-zoning rules.
First is the simple fact that the specific law in question has a real impact on economic growth nationwide. Research from earlier this year found that lowering land-use rules to the national median in San Jose, San Francisco, and New York would increase economic growth nationwide by 9.7 percent.
Because inclusionary zoning is one of the most important land-use regulations in San Jose, ending the inclusionary-zoning program there alone could reasonably add a few tenths of a percent to growth nationwide. That says nothing about the effect of ending inclusionary-zoning laws elsewhere, as there are about 170 other cities with similar laws that might be affected if the regulations are found to be illegal.
Moreover, inclusionary zoning has more impact in major cities than Nollan and Koontz. The former applied to coastal building codes, which are a larger part of the land-use regulatory regime in places like small coastal vacation towns. They matter in cities, but are a far smaller part of the overall equation.
Koontz involved wetland preservation, a prominent issue in regions where new areas are being built-out, rather than the typical infill development that sees costs rise due to inclusionary zoning. Large cities have generally higher wages, productivity, and — as a new paper from Glaeser, Ponzetto, and Zou notes — attract more skilled workers.
Nollan and Koontz both helped rationalize land-use regulation, but the end of inclusionary zoning would have far more impact.
The damage from inclusionary zoning is fairly transparent. Developers are forced to set aside a percentage of their units for city-run affordable-housing programs. In Washington, DC, the wait can last for decades to get access to a below market-rate unit. While planners hold the programs up as a way to create affordable housing, they do not reliably create enough units to make a difference to housing affordability overall.
If anything, the policies raise the cost to the general development of new market-rate housing, reducing building, and with it the long-term housing supply. If the goal is to make cities more affordable, it is disingenuous to say that any program that makes people wait decades for help is successful at its goal.
The fact is, command and control mandates cannot make it cheaper to live in cities in the aggregate or in the long run. They can create some housing more affordable to those willing or able to wait in long lines. This is an uncontroversial point. Inclusionary zoning is simply a complicated, opaque version of rent control, which economists understand to make housing less affordable in the aggregate and over the long run.
Inclusionary zoning is a complicated attempt to address the even more complex problem of housing affordability in US cities. Cities would be far better off scrapping these micro-managing programs and instead issue a simple rent subsidy or voucher if they wish to subsidize rents.
This is a choice they could make on their own, and smart city politicians would be wise to do so. And they should hurry. If California Building Industry Association v. City of San Jose ends inclusionary zoning in the next few years, they just might not have a choice.
EspañolBy Cecilia Fernández and Daniel Birrell The crumbling approval ratings of Chilean President Michelle Bachelet and her administration suggest there will be a new alignment of political parties (and candidates) for the 2017 primaries. However, presidential hopefuls from the two largest political coalitions, the New Majority and the Alliance — or whatever they might call themselves by then — frequently praise Bachelet's mantra: Chile needs reforms. Some conservative politicians have even rushed to support Bachelet's proposals, arguing that they just need better planning and implementation. In other words, the problem is not the recipe but rather the chef. What is troubling is that the Chilean government is showing clear signs that usually precede populism. Even though Bachelet has conceded that her administration won't be able to roll out the reforms as intended — what she has dubbed "realism without compromises" — traces of the classic populist trail that drive countries to fiscal catastrophe and bad relations with their neighbors are emerging. The Importance of Macroeconomics Chile's dependence on commodity prices, such as copper, aggravates the economy's ups and downs — and will continue to do so for many years to come. Lean times are inevitable. They will keep the country from supporting a welfare state that, in theory, was designed to reach fiscal balance during the so-called commodities super cycle. The Chilean government has turned its back on the tradition of strong macroeconomics that prevailed since the 1980s under every administration. In addition, for better or worse, Chilean officials have relaxed their controls on public spending and infrastructure projects. The capital's public transportation system, Transantiago, is a prime example of bad practices. Rates of investment in the Chilean economy show "the worst numbers in the last three decades," according to a report released by the Central Bank earlier this year. [adrotate group="8"]Government officials have tried to blamed it on the turmoil of international markets, but even their own publication shows that the economic actors' lack of confidence began to play a larger role during the second half of 2014. Such has been the disappointment with Bachelet's administration that it has not only scared away investors, the flood of reforms also rendered the opposition incapable of stepping forward with alternatives. Crisis of Confidence Chile's main problem is neither an adverse international scenario nor a bad administration. It is rather a deep crisis of trust in the political system. Chileans don't believe their party leaders, congressmen, judges, or government officials in general anymore. They doubt the efficiency of police officers and the ethics of big firms and business leaders; they question the quality of state-run health care and the legitimacy of the private alternatives. Chileans no longer think their social-security system is sustainable, nor that they get quality public education. Even the previously well-esteemed tax agency is now considered a tool for political vendettas. In the eyes of many Chileans, making money is a suspicious activity. They question private property in water, electricity, and mining enterprises. Chileans openly debate the legitimacy of the rule of law and whether the Araucanía region really belongs to Chile. It doesn't matter who will succeed Bachelet. The current crisis leaves little room for mistakes and weak, unfocused leaders. Chile Needs Sensible Leaders An unexpected legacy from this government is the return of Chile's famous three-party system — right, left, and center — thanks to a new electoral law that promotes fragmentation. The resulting ephemeral majorities in Congress will make it harder to move away from a strong presidential system. This means it's unlikely that liberals will have enough votes to put the emphasis back on personal responsibility and private entrepreneurship. However, it is worth speaking up, even if we lose the election, because there will come a time for such ideas. We need a local Churchill who dares to say "I have nothing to offer but blood, toil, tears, and sweat," and leads the effort to make Chile a star of the developing world again. There is room for reform in Chile, even a comprehensive one, that leaves a narrow margin for abuses. We need a plan aimed at the majority who has learned that prosperity does not come from government handouts. We have no time for vague, grandiose promises à la Bachelet. Crises demand responsible reform. For instance, it might be a good time to advocate for a deep overhaul of the financial system by improving contracts and liberalizing interest rates. If Bachelet's campaign-finance reform advances in Congress, we can expect more sober candidates in 2017. I hope this will also be an opportunity to put forward a sound government plan focused on gradually recovering Chileans' confidence. Cecilia Fernández Taladriz runs a literature workshop, is a fashion designer, and painter. Daniel Birrell is a businessman and economist. They write opinion articles for several websites, and for their blog https://fernandezcecilia.wordpress.com. Translated by Adam Dubove.