Let’s Talk Inclusionary Zoning: An Interview With Arnab Chakraborty

Below is an interview transcript with Arnab Chakraborty. 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): I want to make sure that when I’m summarizing the articles that I do it accurately. So that first question that I asked, that your paper didn’t find a big impact, or any impact on the supply of housing, do you feel comfortable with me summarizing it that way? You can send me an email later or something if you want to confirm.

Arnab Chakraborty (AC): I actually just looked at it again and that sounds fair. We, to quote from the paper, we did not find a significant reduction in the rate of single-family housing stock. This sort of reflects the general fear that if you start this sort of program that developers will just go elsewhere. To give you a little background you might be familiar with already, multi-family zoning programs work as a cross-subsidy. I think the Seattle current proposal, to add 5-7% of inclusionary zoning. Is that correct?

OP: Yes, it’s not finalized yet, but it will probably be somewhere between 3% and 10%, with 5% and 7% being the most likely outcome.

AC: And do you know whether this 3% to 10% would be a bonus on top of what the existing zoning allows by right or whether this would be within the requirements that the existing zoning allows.

OP: Yep, so the idea is that it will affect all existing zoning. It doesn’t just apply to new construction over what’s already allowed. It’s not just an incentive. It will apply to all construction, but the reason why this is going to take a little while and it won’t happen until later this fall is that they’re going to couple all the inclusionary requirements with upzones. The idea is that when an area is zoned for inclusionary zoning, at that time they’re also going to upzone the area. They might add another two stories to the commercial stuff. The most controversial part is that they’re going to be looking at upzoning single-family zoned areas. So there’s about 6% of the area in the city that’s zoned for detached single-family housing and will be upzoned. And when it’s upzoned it will be required to be inclusionary zoning.

AC: Ok, so this is sort of a compromise so to speak. When a new regulation is enacted there will be a little bit of relaxation on the zoning constraint of that land to give the developers a little bit more development capacity than the existing zoning would allow. However, with that development capacity comes a requirement to make 3-10% of the housing inclusionary.

OP: Right, that’s the idea.

AC: Ok, one of the fears that we were testing when doing that California study, the study that you’re talking about, was whether this policy was causing developers to go elsewhere. For example, do developers take their development to a neighboring municipality which does not have an inclusionary zoning requirement. This is not something that I’ve studied that specifically but other studies have found that inclusionary zoning policies are more effective when they are reasonably coordinated, when there’s not an incentive for developers to go to a surrounding area. I don’t know if this is the case in Bellevue or other parts around Seattle or the Tacoma area. Are there other cities that are considering this or is the policy just for the city of Seattle at this point?

OP: There are other cities that require inclusionary zoning already but I feel dumb not knowing which cities they are off the top of my head. Seattle certainly runs that risk, no doubt about that. I think that was part of the consideration when they were thinking about setting the level. A lot of people here complain about the level being lower than it is in other cities. But it’s not a fair comparison.

OP: So just to clarify, your paper didn’t find much of an impact on the supply of single family housing or any noticeable impact I should say. Do you remember off the top of your head the logic or logistics of why there wasn’t an impact? One of the common criticisms is that this is going to reduce the return that developers are going to get on their property. They’re going to have to subsidize units essentially. How are they going to make up that return? And I’m little curious what your experience explains how that happens. I’ve heard a couple explanations from different people and I’m curious if you have your own reasoning.

AC: The finding that it did not have a measurable impact on the supply of single-family housing, we did find that it did increase the supply of multi-family housing. We also did find that some of the market rate housing was a little bit more expensive. So even though the numbers did not change, the prices did go up. In California, we were looking at a variety of programs. That’s a caveat here. These programs could be put in three kinds of buckets. One is a flat out requirement with the existing land use controls or zoning allowances. In other cases, it was sort of an incentive-based program. If you develop X amount of inclusionary housing, you get a certain amount of incentive units or development bonus. And often times there was a threshold you had to meet before the requirement kicked in and that varied from community to community. When we look across municipalities in California we were not controlling for some of these internal variations in all the models. When I say overall, there was no measurable effect on single-family housing, these general underlying controls were not there.

AC: Going back to your question, why we did not see a measurable impact, part of my answer is that some of these differences might be getting washed out among these models. On the other hand, it’s partly a matter of how much supply there is of land. If you’re talking about a small city without land to grow. The small city is already built out. These policies would have an affect on the redevelopment of already existing areas, that get redeveloped to higher density if the zoning constraint allows it. That might follow a different path than a larger municipality in terms of area, not population, with plenty of land to grow with different regional dynamics with other communities in the vicinity that people could go to live.

OP: You think the biggest risk is that a municipality might push development to other areas within the region. Is that the biggest risk you see with a policy like this?

AC: That is one risk. I think that the returns outweigh those risks if the policy is designed properly. I think the other consideration one may take when thinking about how to design these policies effectively would be to see what sort of capacity currently exists in the market. If demand exists, there’s a lot of demand for single-family priced units, but not enough demand for affordable units and you try to push more affordable units on the market, that would cram the single-family side and vice versa. You have to find that percentage, 3% or 10% but that’s politics and why you start low. But if there is enough land that developers are not getting pushed out. If the market supports the cross subsidy, let’s say they believe there is a market for the affordable housing that will be generated as part of this policy. And there is a market for slightly more expensive market priced housing that will continue to be there despite this policy, then everybody wins. You create more affordable units for those that need it and you still create ample market priced units for those who want it and can afford it.

OP: The description you’re making there goes like this: I’m a developer trying to decide what to do with my property. I see that I can recover the costs of the subsidized units for charging a little more for the market rate unit, it’s a win-win?

AC: As long as there remains a market for the market rate units. That was the last missing piece. If people will still buy the market rate unit, yes. And I think many people will buy a slightly more expensive or slightly smaller unit, that has become more expensive or smaller because of the cross-subsidy, rather than move 30 miles away, or 50 miles away.

OP: So you describe this as a cross-subsidy basically. I’ve talked to quite a few people about this and different people see this different ways. The most negative perception I’ve seen about this policy is that it does actually reduce the supply of housing. So the cross-subsidy doesn’t even happen. The developer doesn’t see it as feasible anymore and they don’t build it. So that’s kind of what the argument you see, I don’t know if you remember this at all, in the Powell Stringham study that was done by the Reason foundation. That’s basically what they were trying to show. And then the second argument is basically what you’re saying, if the market is right and the inclusionary zoning policy is not terribly crafted, you can see cross-subsidies where there are more expensive units in a building to subsidize the lower cost units. The last argument I’ve heard from people is that the developers will bid less on land ultimately. That will actually be part of it at some point. So rather than having it subsidized with their market rate units, they end up lowering the cost of land or keeping the cost of land steady where it’s rising. Is that something that you think is a reasonable outcome or is that something you disagree with and you think the cross-subsidy is more likely to happen? Or are you speculating a little?

AC: I think you’ve framed these three arguments quite well. I would not speak too closely with this cross-subsidy argument. I think that’s part of it, probably a big part of it, the cost got transferred from the affordable units to the market rate units. That’s essentially what our paper found. More generally though I think it depends on how you design the policy. Those two are not the only players. There’s also the developer. A cross-subsidy between an affordable homebuyer and a market rate homebuyer is framing it as if the developer has no additional costs and no additional benefits. I think the other two arguments think about it from the other angle. The third argument thinks more from the developer perspective. If the developer finds it too expensive, they’ll either bid less on the land or move away. That’s where the specifics matter on how you design a policy that is acting as some cross-subsidy but also incentivizing developers to do it so you create the affordable housing. If all you are doing by creating this policy is deflecting developers, then it doesn’t help. You need the developers to develop the affordable housing and it’s not just cross-subsidy. It’s useful to think of it as a marginal cross-subsidy. There’s significant benefit for the affordable home buyer as well as a significant incentive for the developer. If the cost to the market rate unit can be kept as low as possible. The benefit to the developer should be kept visible and reasonable, which are the incentives. And you create a significant supply of affordable housing, that’s the win-win solution and that’s sort of the challenge of setting up a policy like this.

AC: There are other factors that have to be mediated. One of those is the size of the municipality. Is it a small place in a large region that ends up deflecting development or is it a large place or dominant municipality that has a booming market and there’s not a lot of deflection? The other thing is maybe starting low. 3-10% keeps it politically viable. The other factor I think is how the housing market is. Is it really busting at the seams? Then the consumers are able to handle increase in prices. It’s really intolerable for the affordable homebuyers. There’s really an imperative to have a policy like that. Another thing that doesn’t get talked about often is, ‘What do you mean by affordable housing?’ If you look at some programs, say Montgomery County Maryland, where they have this long-running program called ‘moderately priced living units,’ well moderately priced living units have gone for almost close to a quarter million dollars or more. So they’re moderately priced from the perspective of what’s around them, yeah, when everything else is half a million or more, then they’re moderately priced. But they’re still not affordable really. So the 3-10% is not the only parameter of the policy. It’s generally set at 60% of area median income or something like that. Whatever the variable is, that’s going to matter.

OP: This is a good segue into my next question. What I’m trying to tease out from people who have studied this, given a well crafted policy, do you think cities should be pursuing this? If not what policy should they be pursuing because ultimately the city is going to try to do something to solve this problem. The inclusionary zoning problem is two types of problems. It’s not just can we get enough affordable housing units. It’s also where are those units going to be? Are our communities going to be inclusive? It seems like a lot of people I’ve talked to say they are pretty positive about the policy. They think cities should be pursuing it. A few people I’ve talked to are more skeptical and I ask what they should be pursuing instead and housing vouchers come up a lot. I’m curious where you might fall on that spectrum? If you’re the dictator of Seattle, which policy would you pursue first?

AC: That’s a good question. I think some of things you said are applicable more generally. It’s not just creating affordable housing but where it’s being created. You don’t want affordable housing created in some remote corner where people who live there don’t have access to transit and things like that. Some of the places I’ve looked at, these policies work more broadly over the entire municipal jurisdiction. Where people take this on, is a different question. Sometimes the neighbors want to push affordable development to the edges. That goes into how inclusive the community is and there are different kinds of experiences in different parts of the country or even within a metro area.

AC: Going back to your question about housing vouchers, I think these target different income segments. If you’re talking about federal programs like Section 8 or other housing vouchers, I see them targeting a lower section of the income group than affordable housing. At least the way some of the programs are designed. When you are talking about affordable housing as part of a new development, you’re not talking about the same market as a Section 8 voucher. Of course we’d like everyone to have access to quality housing but the market reality is difficult. Affordable housing is going to a household making 50, 60 or $80,000, depending on your metro area. Section 8 would be much lower. So it depends on what sort of distribution your housing stock currently has and what sort of demand distribution you’re currently facing. If you have much greater demand in a lower income segment, then you’ll target your resources towards creating more opportunities for Section 8 housing. But if your demand is more in the middle income category, where people are earning a median income or slightly above it but can’t live in the community they work and go three counties away, this policy is for that segment.

OP: What you might call workforce housing.

AC: Yep.

OP: You probably know people who study this. You’ve probably worked on this awhile now. I’m curious if there are people who genuinely disagree with and you understand their points of disagreement and you can represent what that is and where they’re coming from when it comes to inclusionary zoning policies?

AC: To over simplify it, it’s sort of economists versus planning kind of argument. Free market economists might say your intervention is a problem. Planning is creating this problem. And they would argue that inclusionary zoning is just more planning. Some of the criticisms are certainly valid. I think there has been a lot of poorly crafted legislation. However, if their solution is to let the free market prevail in creating affordable housing, the realities are not going to support it. Am I getting at the question you’re asking?

OP: That’s a good example. I’ve talked to other people and they’ve said something similar, that there tends to be a divide between people who come from a planning perspective and people who come from an economics background. The way they sort of articulate is that divide is attributable to the end goals these people are thinking about. That sounds like what you’re saying.

AC: Yes, and not all economists are free market enthusiasts and not all planners are inclusive. I would argue a lot of planning has been from the perspective of protecting housing values and character of the community and all the accommodations that come with it. But there’s a lot of diversity within these groups. There isn’t just a generic planning perspective but there is a problem. We have a lot of communities where living is out of reach for a lot of people who work there. How do you create housing in that community? It’s not going to happen if you just remove all the legislation that’s in place. First of all, that’s not practical. It’s not zoning that’s stopping developers from developing multi-family housing. It’s a lot of other realities, attitudes, markets, and having a requirement to create more affordable housing in these areas might help.

Arnab Chakraborty is an associate professor of urban and regional planning at the University of Illinois at Urbana Champaign. He has a background of research in planning and housing with specific research on inclusionary zoning. You can read more about him here.