Is Inclusionary Zoning pro-displacement?
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NOTE — “Inclusionary Zoning” (IZ) can mean any number of different policy programs depending on where you are in the country. The current San Francisco version of Inclusionary Zoning requires that projects that are larger than 25 housing units set aside 25% of the housing for low or very low income renters. Projects 10–25 units set aside 12%.
In San Francisco, unlike other jurisdictions, there is no property tax abatement or other public funding to pay for the revenue gap between the market rents and the below market rents.
We at YIMBY Party are against San Francisco style Inclusionary Zoning because it’s a pro-displacement policy. There are a wide variety of Inclusionary Zoning programs, many work well. The San Francisco program does not work well. This is a really important issue so we would be thrilled if you had the time to think it through with us …
First of all, we really believe that Not Building market rate housing displaces people. This is because we think the demand for housing is caused by jobs, and high income people with jobs who want to live near their job will do so, whether new housing is built or not.
I started on this journey by supporting housing in the Mission & Potrero Hill, because middle income people who were displaced from the Mission by high income people were moving to my neighborhood at the time — West Oakland, which had no new building underway — and displacing low income people in turn. This chain of displacement could be stopped or at least reduced by adding housing for high income people in the places they want to live.
Therefore, any policy that reduces the amount of housing being built, including market rate housing, winds up being a policy that causes displacement. These policies include zoning below what developers think they could finance & build, the discretionary process itself and inclusionary zoning like we have here in SF. Inclusionary zoning in San Francisco reduces the amount of housing built by narrowing the profit margins on proposed development. The kind of housing we most want — projects with smaller profit margins — become not worth the trouble, and developers just don’t build them at all.
Indeed, there are policies that reduce the amount of housing we could have otherwise built that are none-the-less worth it. A person could probably argue that health & safety regulations reduce the amount of housing built, but they are worth it because housing that might kill its residents is not housing anyone should live in in any case. In addition, there are non-housing concerns that cities have to address — space for offices, retail, government use, libraries, hospitals, courts, school, daycare, roads, sanitation and recreation. Between each sphere the city has to allocate space.
Inclusionary zoning purports to have an upside that makes it worth the housing it destroys, but it doesn’t — for every Below Market Rate (BMR) unit IZ produces, the SF TAC report estimates that 5 market rate units aren’t built. This is from the table on page 9 of the TAC report:
27,685 market rate units at 12% inclusionary minus 21,920 market rate units at 18% inclusionary = 5,765 market rate units lost — and this is the important part — therefore 5,765 otherwise affordable housing units in West Oakland, Bayview, Excelsior, Portola, Daily City, or the Sunset become unaffordable because the people who could have been living in new housing, paying off the construction loans for that new housing via rent or mortgage payments, instead out competed a lower income household to pay inflated rent to a landlord, or paid an inflated house price to a lucky (probably boomer) homeowner.
Ok, 5,765 households displaced by the housing not built, but what about the increase in Below Market Rate housing we get by increasing the IZ rate? BMR housing saves some people from displacement.
4,812 Below Market Rate units produced at 18% inclusionary minus 3,775 Below Market Rate units produced at 12% inclusionary = 1,037. At the cost of displacing 5,765 households, we are saving 1,037 households. The net displacement is 4,728 households.
This is a bad program. As an anti-displacement group, it shouldn’t be surprising to anyone that we oppose it. The numbers supporting our position are produced by the city, and available to everyone to see for themselves.
The reason San Francisco style Inclusionary Zoning is popular, politically, is that the no-growth crowd knows it kills development (which is their goal), and the pro-affordable housing crowd believes it cuts into developers’ profits and reduces displacement (neither of which are true).
From the government’s side, Supervisors & City Council members like to appear to be producing affordable housing, without having to do the hard work of raising taxes or taking money away from other popular ways of spending it.
Inclusionary zoning in other places doesn’t necessarily make marginal projects infeasible. In most places, the program is voluntary. That’s the biggest difference. This voluntariness safeguards against the possibility of creating an IZ program that kills housing. If the program is poorly designed, then developers won’t participate, and the public won’t lose out on housing.
In some places the city gives developers a discount on their property taxes in exchange for setting side some housing at a lower price. In other places, the developer can get height or allowable density increases, or other wavers from the zoning code, if it agrees to set some housing aside. Programs like this can be very popular. The developer volunteers to participate in the incentive, and the public gets both market rate and below market rate housing out of the deal.
Our goal, at the YIMBY Party, isn’t to willy nilly promote policies that are popular, just for the sake of being agreeable. Our goal is to decrease displacement by promoting policies that decrease it, and opposing policies that increase it.
