By BENJAMIN DACHIS
The Business Journal reported last week that the median price of a house in Los Angeles dropped nearly 4 percent in October. Of course, “dropped” is a relative term because you still need $525,000 to buy the average home here. With most workers priced out of the local housing market, Mayor Antonio Villaraigosa is offering up a new affordable housing plan.
His plan, dubbed “inclusionary housing,” would force developers to sell a percentage of their homes at below-market prices.
As a new resident of Los Angeles, I am living the affordable housing crisis first-hand. I am paying nearly 40 percent of my income in rent because I work near Santa Monica and didn’t want a two-hour commute. Middle-income earners like me are eating mac and cheese in exchange for manageable commutes. Unfortunately, Mayor Villaraigosa’s plan will make my plight, as well as thousands of low-income households throughout the city, worse not better.
Inclusionary zoning is really a hidden tax that makes it harder for everyone to find and afford housing. A 2004 Reason Foundation study by San Jose State University economics professors found inclusionary zoning laws already in place in parts of Los Angeles and Orange County have increased housing prices by $33,000 to $66,000 per home. In high-priced cities such as San Juan Capistrano and Laguna Beach, inclusionary zoning has added more than $100,000 to the price of each new house, the professors found.
To make matters worse, the study found the laws also prompted developers to build 17,296 fewer homes in L.A. and Orange County during the seven years after the adoption of inclusionary zoning regulations. That’s $11 billion in housing that the laws scared away.
And while the inclusionary housing plan is driving up housing prices and reducing supply, it won’t be producing the “affordable” houses it is supposed to. The Bay Area needs nearly 25,000 new affordable houses each year, yet that area’s inclusionary zoning laws have resulted in just 228 “affordable houses” being built per year.
Good intentions
The inclusionary zoning study’s authors, Edward Stringham, Ph.D., and Benjamin Powell, Ph.D., concluded, “Despite the good intentions of those who support inclusionary zoning, economics tell us that price controls on new housing will have the unintended consequence of reducing the quantity of new homes built. Rather than helping, inclusionary zoning will actually make the affordability problem worse.”
So what should the mayor do instead?
His plan to relax arbitrary mandates on the number of parking spaces per housing unit is a good one, and his call for a bonus that would allow builders to increase the maximum number of units allowed in developments would also help, but should be applied universally, not selectively.
Ultimately, though, Southern California’s affordability problem is the result of limitations on both the demand and supply sides of the housing market.
New housing is actually fairly cheap to build; it is the land that is made artificially scarce through planning and zoning restrictions that increase the cost of housing by nearly half. California cities lead the nation in the amount that housing prices outstrip the cost of construction according to Harvard and Wharton economists. Local land controls, zoning laws, permit processes and other regulations can add hundreds of thousands of dollars to home prices in the state.
Increasing the supply of available land by relaxing building restrictions on undeveloped land, and by further relaxing height and zoning restrictions to bring the price of new housing in-line with the cost of building will do much to improve housing affordability.
Inclusionary zoning is definitely not the answer to our housing woes and should be labeled for what it truly is: a tax on new housing. And the last thing this city needs is another tax.
Benjamin Dachis is a policy analyst at Reason Foundation, a free market think tank based in Los Angeles.
