End, Don’t Mend, County’s Inclusionary Housing Program


End, Don’t Mend, County’s Inclusionary Housing Program

Monterey's affordable housing plan failing

The housing crisis in Monterey County and the Bay Area is getting worse by the day.

Monterey now ranks as the third least affordable major metro area in the entire country behind only Santa Barbara and Los Angeles, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index. Just 3.7 percent of homes in Monterey County are affordable to families making the county’s median income of $60,300 per year.

Certainly, a large part of the recent price increases is due to the historic real estate upswing and low interest rates. But it is also time for officials to start looking in the mirror and re-evaluating laws and regulations with unintended consequences that have seriously hurt first-time homebuyers and middle-income families.

The county planning commission recently started down this road by creating a subcommittee to study its controversial inclusionary housing program, which was supposed to increase the affordable housing available by requiring developers to build at least 20 percent of new units at below-market prices.

According to the county’s latest Annual Housing Report, less than 20 inclusionary units were built in 2004, compared to a projected annual need of almost 340 new affordable homes.

Unfortunately, instead of asking the obvious questions – Why are we short 94 percent of our affordable housing goal? Did the plan drive away home builders or stunt other development? – the subcommittee is focusing on restrictions that prohibit owners of the “affordable” homes from reselling them at market rates. Housing advocates justifiably complain that these resale restrictions prevent homeowners from benefiting from their investments, effectively making them long-term renters.

But by failing to ask real questions, politicians are missing the big picture. Inclusionary housing programs have a proven track record of failure: they make affordable housing problems worse.

A Reason Foundation study by two San Jose State professors found that inclusionary zoning increased the price of new homes by up to $44,000 in the 45 Bay Area cities that had enacted the regulations. The average city produced less than 15 affordable units per year, and the authors estimated that inclusionary zoning would only produce 4 percent of the Bay Area’s projected affordable housing need. Just as worrisome, the economists found that new housing construction decreased by 31 percent the year following the adoption of the mandates.

This isn’t just a Bay Area phenomenon. The researchers, San Jose State’s Benjamin Powell and Edward Stringham, found strikingly similar results in Southern California. Inclusionary zoning laws in Los Angeles and Orange Counties increased the price of new homes by up to $66,000 to compensate for the mandatory discounts on the “restricted” homes. And over the seven years following the mandates, new housing construction decreased by 61 percent, meaning 17,000 fewer homes were produced during the seven years after the adoption of inclusionary zoning.

The message is clear: inclusionary zoning laws have a disastrous effect on local housing markets, helping a select few – just 20 buyers in Monterey last year – while making homes more expensive for everyone else.

To effectively target the affordable housing crisis, Monterey County should assist and leverage non-profit organizations like Habitat for Humanity, who has built tens of thousands of affordable homes across the country. Encouraging the expanded use of market innovations like location-efficient mortgages – which offer preferential mortgage terms to families living in places deemed efficient in terms of auto commuting – is another idea worth exploring.

There are no quick fixes to the affordable housing problem. But removing self-implemented obstacles – like inclusionary housing mandates – that are needlessly driving prices even higher and failing to deliver anywhere close to the affordable units promised is a good place to start.

Leonard Gilroy is a certified planner and policy analyst at the Reason Foundation