Let’s Talk Inclusionary Zoning: An Interview With Vinit Mukhija

Below is an interview transcript with Vinit Mukhija. This transcript is part of a series of interviews that are meant to shed light on how experts think about inclusionary zoning. You can see a full listing of all the transcripts here. This transcript was lightly edited for clarity.

Owen Pickford (OP): The first question I have is are you paying much attention to the politics of inclusionary zoning around the country and are you at all familiar with Seattle’s policies they are looking at adopting

Vinit Mukhija (VM): No, not that much. I have been looking a little bit. I’m more focused on the California debate, a little bit on New York, not much on Seattle. I have done some research on Seattle and I will bother you at some time in the future to get your insights on backyard cottages. But I don’t know much about your progress on inclusionary zoning.

OP: So it looks like probably this fall they’re going to be adopting policy, or voting on policy around it. They are looking at a 3-10% inclusionary requiring and they’re going to couple it with upzones. The places that get upzones, they’re going to do the inclusionary requirement. The places that they are looking at are what the city calls urban villages or urban centers. Which are just really the areas in the city that they zoned to have enough development capacity to take growth. They have areas where they don’t really zone any development capacity and other areas where they do. It’s areas where they’ve zoned development capacity that they’re looking at enacting this.

VM: Sounds good. And then, Owen, I think my understanding is that you have state legislation that enables cities to put inclusionary zoning when they upzone.

OP: There is controversy around the legal requirement. There was some belief that the state law might see an inclusionary requirement that was not coupled with an upzone as a taking. And so that’s kind of where this comes from, the dual policy. It’s also a political choice. The idea is to get developers on board with it. They wanted to create a larger coalition so they’re adding the upzones in with an inclusionary requirement.

VM: Ok.

OP: So with that background, this is what I know right now. There are a few papers that have been published. At least two which have negative repercussions on housing supply from inclusionary zoning. The two I’m familiar with are the piece out of the Furman Center for Real Estate which found a negative impact in Boston. And then the Stringham and Powell piece which was not peer reviewed and taken pretty critically by most people who know a lot about it. Are you familiar with any other papers that have found a negative impact on supply from inclusionary zoning?

VM: I’m trying to remember. I think the Furman one is the best piece available. There may have been another one from Maryland…

OP: Gerrit Knaap?

VM: Yes, Gerrit Knaap’s group. So I think there might have been one that he and his colleagues did that also like the Furman paper, found a slight impact on supply. A small impact. And as you know the Powell and Stringham piece was not done nicely in terms of controlling for and seeing how supply or prices had changed in the jurisdictions.

OP: Yep. Ok, so beyond those studies that may have found a negative impact. The other research I’m familiar with has basically not found a negative impact. For the most part it’s found in some cases there may be an increase in rents, found in some situations. But for the most part, no negative impact on the total number of units of supplied. And the other studies that I was thinking of was, one, the Gerrit Knaap study which you’re familiar with, your study, which is the reason I reached out to you. The study you did with three other people. And the David Rosen study. And there might have been one more. Are you familiar with any other studies that take an empirical view of this, collecting data, not just modelling, and don’t find an impact on supply?

VM: You know, I think these are the ones, Owen. I’m trying to remember. You noted that we had this other paper, follow up paper, on the trade-offs. I’m trying to see if we added one or two more studies in there. But when we did the initial research, these were the ones we came across. The ones you already mentioned.

OP: Ok, just generally from your perspective, do you think impacts on supply can be avoided with a well crafted policy?

VM: Yes, definitely. And I think additional density is the key to that.

OP: Can you expand on that, what you mean by additional density?

VM: I think that there may be a tradeoff. There is a cost, so to speak, of the additional units and the question is where does the cost go? If the landowners are bearing the cost, then I think there is no effect on future supply or prices of units. But if the developer is bearing the cost, then it is likely that some of that costs gets transferred to buyers. And the best way to avoid that is through additional density that allows the developer to make up for the lost revenue of inclusionary units. In a way the cost may go elsewhere. This is controversial, but the cost may go to increased congestion at the street level. The neighborhood absorbs the cost.

OP: Uh huh, because there’s more people is what you are saying?

VM: Exactly.

OP: I’m not a planner by trade. I’m an amateur. It’s just a topic that fascinates me. I’m not an economist by trade either. Can you explain, as clearly and simply as possibly, how a cost that a developer would bear… Let’s say you’re a developer. You have an inclusionary zoning policy that’s enacted. It applies as a percentage of your units to the entire project. Can you explain how adding additional density, let’s say you add floors, would make up that cost to them? In my head, I’m thinking that every single floor you add, you’re also adding more inclusionary units that you need to build, right. So adding more floors, in my head, doesn’t necessarily mean the developer has more revenue, right?

VM: No, you’re right. But here’s what’s happening. If you start out with a development in which you had, let’s say it was twenty units, and of those twenty units, we use the Seattle example 10% inclusionary, you would say, “We would want to have 2 affordable units.” Essentially what you are doing is telling the developer, “We’ll take 2 affordable units but instead of building twenty, we’ll let you build 10% more, so 22.” Or whatever extra upzone you end up doing. If you follow some other places, you might upzone more than 10%. The developer is not making a loss there because it’s in addition to what they would’ve built without the upzoning.

OP: Ok. In my head, I’m thinking, “Yeah, if you add two more units and you don’t have to add any more inclusionary units, then that makes sense. But if it’s a ratio and every single time you add units you also have to add some inclusionary units.” Then it seems like it wouldn’t really matter what it was zoned at. It would just always be a percentage of the total cost, the same percentage anyways. This is the most controversial part in Seattle about this. There is a large political coalition of people that think adding more housing is a really important part, private market housing, is a really important part to affecting supply. So they have this fear that if we do inclusionary zoning, we’re actually going to negatively affect supply. And the argument boils down to who’s eating the cost. Is it the landowner or the developer? If it’s the developer they’re afraid that we’ll reduce supply. If you think that a well-crafted policy won’t reduce supply, can you tell me, does that well-crafted policy work because the landowner eats it? Or does it also work because even if the developer pays it, they can make it up in other ways? Or is it both?

VM: It’s more of the latter. If the landowner eats it over the long-term, it doesn’t make a difference. It gets reflected in prices. But what you’re worried about is if the developer is owning the land and then this policy comes or is planning to buy the land and the price of land hasn’t changed. Then how do you make sure that the developer is still attracted to these projects? By allowing a density bonus, you assure the developer that their profits are marginally affected.

OP: Ok. So you’re thinking, in the short run, that’s a big problem. You need to make sure that the developer can still profit in the short run?

VM: Yes, that’s usually the concern. That’s basically the concern my empirical study tried to examine, whether supply falls because of these requirements.

OP: Ok, then in the long run, where would you put yourself at? Do you think the land ultimately adjusts? The land prices ultimately adjust in the long run?

VM: That’s what economic theory would suggest, that in the long run it doesn’t make a difference. The prices will adjust. So it shouldn’t. But no one quite looks at it over the long periods. But it shouldn’t make any difference. I think even the strongest critics of inclusionary zoning would acknowledge that.

OP: Ok. So you say ‘economic theory,’ and when I hear that it sounds like you don’t have a study that might show that or attempted to answer that question.

VM: That’s a good point. I don’t think anyone has because honestly nobody knows, I believe, but I’m not a land economist, but I think nobody knows what that long term horizon should be. Is it five years, ten years, twelve?

OP: Ok, and that has a little elasticity of land costs, right?

VM: Probably. And demand.

OP: Ok, but you’re not familiar with studies that attempt to show that?

VM: I’m not. No.

OP: I’ve read studies that attempt to do that with impact fees. Are you familiar with any of those studies?

VM: Yes I am. Again, I think Gerrit Knaap has a few. Or his folks at The University of Maryland.

OP: Just out of curiosity, do you think that’s a fair comparison? If you were trying to extrapolate the impacts of inclusionary zoning and you did a study on impact fees, do you think that would be a fair way to extrapolate those impacts?

VM: I think that is possible. Again, the  big thing that makes inclusionary zoning in practice different from all other fees, is that usually it’s always accompanied by these density bonuses. So that’s what makes it different from any other kind of exaction. If there were no density bonuses and it was just a requirement without that, then I think it would more closely approximate those fees.

OP: Ok. So there’s also some other criticisms of inclusionary zoning. One common one is that it doesn’t produce enough units. Each of those criticisms can be answered with various other benefits and that’s sort of thing. One of the things that’s most compelling to me about the criticisms of inclusionary zoning, is that it’s not that’s bad but it’s the wrong thing to be focused on. If you imagine a world where politicians can only spend so much time on things and you have to prioritize your political capital, people argue we should really be focused on something. While I think that’s a valid concern, one of the things that I think is troubling about saying that is that I’m not familiar with other policies that specifically try to address economic integration in neighborhoods. So I’m kind of curious, for someone that’s studied this, if you know of other policies or if you were the dictator of a city, if you would focus on other policies first before inclusionary zoning. That might housing vouchers or liberalizing the zoning code or various other things.

VM: I think the criticism that the production of affordable units through inclusionary zoning is limited has some merit. To take your Seattle example, particularly if it’s going to be 3-10%, that is going to be more limited. But I look at New York and what they’re trying to do, it seems like they are looking at much more aggressively, I think it’s 20-30%. In that case it starts adding up significantly more. I also think that when we did our Southern California study, we found that the numbers were limited but we also found that those numbers didn’t quite include the in-lieu fees that were being collected and leveraged to produce other affordable units. There’s a little under counting. I think we also know that this is such a complex issue, provision of affordable housing, that from a policy perspective I think there is not a single silver bullet. And certainly inclusionary zoning is not a silver bullet. But it can, in my mind, be a part of a slew of options. But again to get at what you were sort of saying, I think it would be advisable to be cautious about expecting too much from inclusionary zoning.

OP: Yep. I think Seattle has a goal of 6,000 units across their policies and it might only be 2,000 from inclusionary zoning. I can’t remember off the top of my head. But it’s not a huge number. And that’s over ten years. So one of the things I was trying to get at, if you’re ranking a priority of solutions to housing affordability, would you put inclusionary zoning near the top? Or would you put it at number one? Or would you pick something else first?

VM: If you gave me the option that we could build a lot more public housing, I would pick that. But that just doesn’t seem to be an option that’s afforded to us. Then it becomes a function of trying to alternatives, all of which have their flaws in many ways. Then you’re right. These are political battles. One has to see what’s feasible in a certain context. But if inclusionary zoning can be done with density bonuses in a way that you have some political consensus, then I think it is worth doing.

OP: Ok, yeah. I have one more question really. I’m curious if you have colleagues who you respect and you think they have valid points, but you don’t agree with them about inclusionary zoning? I’m curious if you’re able to represent what they think and what your  disagreement is?

VM: I think one disagreement might be… When we did the study looking at supply, we didn’t really look at potential effects on prices. We thought we would look at supply, that’s the key, that’s the criticism. Some of the subsequent research that I have seen does show a slight effect on prices. Some of the market rate housing is slightly more expensive. I might personally think that’s not a big deal but I could see an argument saying that is important and that’s why it’s not a good policy. The other criticism I think you pointed out. The numbers are really, very small in terms of what has been produced. Except for Maryland. Everyone would point to Maryland as the exception.

OP: Yeah, it’s like 17,000 units or something like that, right?

VM: Right. So that’s sort of makes me think, “Then it can be done!” The other criticism I have heard from others, and I think it has some merit, is tracking the affordability of the set aside units, making sure they’re fairly allocated. Who does that? How? I think that system is not very well developed.

OP: Yeah, ok that’s an interesting point. Would you advise cities that are looking into inclusionary zoning to have some sort of enforcement or regulatory teeth about how the units are built and rented?

VM: I think so. I think it has to be, and I haven’t studied this, but I think it probably has to be the housing department that looks into affordable units that are outside nonprofits, that stay affordable or rent controlled and stay rent-stabilized. Someone has to be responsible in ensuring these affordable units are properly allocated and stay affordable. Again Maryland might be a good example to study the institutional system there.

OP: Ok, one last question. Sorry, I know said that last question would be last but I’m just thinking about this now. Would you think a policy like what Seattle is proposing where they’re looking at 3-10% affordability and an upzone coupled with it, is a reasonable policy? Given that amount of information you might support it?

VM: I think 3% seems very low to me. What does that mean? What is the minimum threshold at which this kicks in? Is it only for projects above 30 units.

OP: I think they were initially talking about projects above 10. But 3% at ten, I don’t think it would kick in until you had 20 or so.

VM: So 3%… I think you would have to hit 33 units to even get one unit out of it.

OP: Yeah, depending on how they do the rounding and stuff.

VM: So 3%… These details are important in structuring these policies. Usually when we talk about subsidies… The density bonus in a way is a subsidy to the developer. So I think the design of that subsidy has to be, as they say, fair, adequate, and not excessive. I think they have to look at these calculations a little more carefully so that they ensure the right amount of affordable units are being required.

OP: You’re in LA, right?

VM: Yes.

OP: So let’s say you have a city with a wage structure similar to LA. What do you think is the ceiling in LA for an inclusionary requirement? Is it 30% do you think? If you had to give a ballpark figure?

VM: You mean, what is the maximum you could require?

OP: Yeah, without having negative repercussions?

VM: I’m really not sure. All I can tell you is that the ones we looked at in Southern California were on an average of about 15%, from about 10-20%.

OP: The laws were…

VM: And I can tell you that they worked. They didn’t have negative effects. But I’m not sure how much would be too much.

OP: Yeah, and you’re not familiar with research that’s tested the upper bounds of that?

VM: No, not really. I don’t think so. As the New York evidence becomes more clear, we’ll have something. I think Maryland is around 15%. So we know that’s a reasonable expectation 10-20%. But I don’t think we know how things change after that.

Vinit Mukhija is a Professor and Vice Chair of Urban Planning in the Luskin School of Public Affairs at the University of California, Los Angeles (UCLA). He’s personally done empirical research on the inclusionary housing programs. You can read more about him here.