Among the affordable housing policy options the Anaheim City Council will consider tonight is a proposal to force housing developers to build a dictated number of affordable units in order to obtain permission to build any residential development – a policy known as “inclusionary housing.” The vote will test whether the 6-to-1 Republican-to-Democrat majority is worth its nominal partisan salt.
The city council will also consider amassing an affordable housing fund by imposing massive fees on new residential and commercial development. A third option is a resolution establishing the creation of more affordable housing as a policy priority for the city and pursuing that goal on a flexible, incentive-based basis that is least burdensome that those who actually undertake the construction of new housing.
California’s housing affordability crisis is, at its heart, a housing supply crisis. The demand for housing outstrips the supply – a shortfall that is expected to his 3,000,000 units in a few short years. The solution is to increase the supply – which is very difficult due to the lattice of stifling, expensive regulations that drive up the cost of development, compounded by the ongoing environmentalist drive to set aside build-able land as open space, as well as NIMBY opposition to even the smallest developments.
If we want a greater supply of affordable housing, then we need to increase the housing supply across the board. A rising tide tends to lift all boats, after all.
Inclusionary Housing Doesn’t Make Housing More Affordable
“Inclusionary housing” is a clumsy command-and-control tool that says to a developer, “If you want to build X-number of market-rate units, then you must sell a certain percentage of those at below-market prices. Let’s say the inclusionary housing mandate is 10%. Developers aren’t going to eat the cost of discounting those units – they’ll simply increase the per-unit price of the remaining 90%. So a few people get to buy a home at a discount, while everyone pays more than they would otherwise.
Furthermore, low-income set-aside units come with restrictions on the new owners to prevent speculators from buying them and flipping them. Typically, such restrictions cap how the annual increase in an affordable unit’s appreciation. Unlike owners of market rate units in a development with inclusionary housing set asides, owners of the low-income units don’t benefit much from rising home prices and have difficulty building equity. This precludes them from tapping home equity and is a disincentive for investing in the upkeep and improvement of their property. Inclusionary housing policies handcuff their supposed beneficiaries by restricting their access to the full benefits of home ownership.
In the final analysis, inclusionary housing mandates restrict property rights and do nothing to solve the actual problem by increasing the supply of housing. It’s also an example of “government picking winners and losers.”
But the politicians who support them sure do feel good about themselves for “doing something.”
The third option being presented to the City Council is to “direct staff to study and report back on the potential benefits and concerns of adopting a “linkage fee” ordinance similar in concept to what is being contemplated in the City of Los Angeles.”
First of all, it ought to go without saying that any policy being contemplated by the City of Los Angeles ought to be rejected for that reason alone. That is a good government axiom on a par with the physician’s maxim to “First, do no harm.”
The theory behind linkage fees is that new residential and commercial developments create impacts that must be mitigated. For example, new commercial developments result in more jobs, and since people working those jobs need a place to live, then the government has to tax the development to offset the impact of the newly-created jobs. The linkage fee revenues flow to civilization’s least efficient, nimble and imaginative institution – government – which is supposed to use the money to devise affordable housing solutions.
Never mind the strangeness of “mitigating” business formation and housing development – things we all agree we need more of – by making them more expensive.
The linkage fee is considering would be up to $15 per square foot for new housing and up to $5 per square foot for commercial development. That would tack another $19,500 onto the price of a new 1,300 square foot, 2-bedroom, 2-bathroom condominium. In other words, linkage fees make consumers pay a higher price for homes than they otherwise would have, in order to fund local government endeavors in an area in which it has a poor track record: home building. It’s not as if local government’s are exempt from the same pernicious taxes and regulations that retards home building.
Then again, we’re talking about Los Angeles, where wasteful, counter-productive policy posturing is the coin of the realm.
But why would the Anaheim City Council want to import failure?
Inclusionary housing policies makes housing more expensive for the vast majority of affected homebuyers. Linkage fees simply jack up the cost of commercial and residential developments and channel that revenue into the least productive means of increasing the housing stock. If either of these options is able to command a majority of the Anaheim City Council tonight, it should explode the idea that is has a Republican majority in anything but name only. We’ll find out whether the “People’s Council” has a Republican majority, or consists of a progressive Democrat with GOP collaborators.