Scrapping the Zoning Code to Solve LA’s Housing Crisis

Inclusionary zoning backfires

Los Angeles’ affordable housing crisis is no secret. Mayor James Hahn, in particular, has recently been criticized by political opponents for not doing enough to address the housing shortage and higher housing prices.

Ironically, the mayor and city officials may be trying to do too much. The solution to the housing crisis may be for the city to do less.

The city is faced with two options-look toward the private housing market or use public policy to force the real estate industry to meet city housing goals. The city appears to be opting for a heavy handed approach.

The proposed “inclusionary” housing ordinance is a case in point. The ordinance, which is subject to its final public hearing on Oct. 9, would require developers of projects with five or more new housing units to dedicate between 10% and 40% to low and moderate-income households.

While inclusionary housing ordinances have gained popularity across California and the nation, the results have generally been poor. Rarely are enough homes built through these programs to meet more than a small fraction of the need.

Politically, however, they provide the illusion of a win-win: Developers “win” because they get to build houses and apartments. Low-income households appear to “win” because more housing available in their price range.

The problem is there is an invisible cost that chokes off the housing market in cities where these ordinances are adopted.

San Jose State economists Benjamin Powell and Edward Stringham have documented this. After examining programs in Los Angeles and Orange Counties, they found that the higher costs of building in communities with inclusionary housing ordinances reduced the supply of new homes by 17,296.

Moreover, these programs made housing affordability worse. Because the price controlled apartments and homes were often 60 percent below the market price, market rate homebuyers subsidized low income households, paying about $33,000 to $66,000 more per home.

The city council should be looking for ways to make it easier to build homes in the city, not harder. One of the best ways to do this is to take a critical look at the zoning code and consider scrapping it altogether.

The city’s experience with its voluntary inclusionary housing program is instructive. Builders have willingly accepted the city’s price controls (higher costs) on some units in exchange for their ability to build at higher densities than currently allowed by the zoning code. Mayor Hahn’s office estimates that this program alone will produce 2,400 affordable units, more than twice what mandatory inclusionary housing programs produced throughout Los Angeles and Orange Counties over a decade.

This suggests the city has a strong market for new housing at higher densities. The task for the city council is how to unleash these market forces to more effectively meet these housing needs.

The city is simply incapable of addressing the city’s housing needs using traditional planning tools. The city planning bureaucracy can’t control how many people live in its city limits or the demand for housing as a consequence. Indeed, as incomes increase, so do the demands and expectations of its citizens. The city cannot possibly anticipate all the nuances, details, and niches emerging in a housing market more diverse demographically and geographically than any other metropolitan area in North America (with the possible exception of the New York).

On a more practical level, the city could consider applying something called the “Urban Transect”, a set of design principles developed by traditional town planners to guide the development of an urban area. The transect avoids regulating by land use, instead focusing on the physical landscape, density, bulk, and the interconnectedness of urban neighborhoods.

Properly applied, the transect could provide a framework for a radical deregulation of the land market that also encourages the creation of housing in LA’s neighborhoods consistent with the natural evolution of the city.

As L.A. experiences one of the strongest housing markets in more than a decade, the city council should be wary of adopting new regulations that risk cutting off the supply of new homes.

In the long run, the city will be better off letting citizens reshape the city through the housing marketplace instead of adopting heavy handed tools like inclusionary zoning to impose price controls and direct the content of housing.

Samuel Staley is director of urban and land use policy at Reason Foundation and co-editor of the book “Smarter Growth: Market-Based Strategies for Land-Use Planning in the 21st Century.”