The Clark County Community Growth Task Force has completed its work, producing a hefty 190-page report. Affordable housing is listed as Clark County’s number one priority.
Yet, instead of restricting its focus to policies that would aid builders in the development of housing that is affordable, the growth task force is suggesting “workforce” or “inclusionary” housing ordinances that, if implemented, will actually cause the dream of home ownership for low-to-middle income families to vanish.
Task force members correctly noted that the “high cost and decreasing availability of land and other factors” are behind the shortages and rapidly rising prices of the homes that would be needed to meet the community’s affordable housing needs.
The task force also discussed positive ways to increase the amount of affordable housing. Speeding up the process for disposing of federal land to private owners, examining construction defect litigation, and streamlining permitting processes to reduce costs, were all mentioned.
But task force members also suggested that the “larger community” might like to explore requiring that inclusionary housing provisions be inserted into master development agreements, and that subdivision ordinances mandate “dispersing lower income households throughout the community.”
Inclusionary housing rules require developers to sell a certain percentage of the homes in their projects not at the market prices, but at below-market prices. Yet the designated inclusionary units must blend in with, and cannot be segregated from, the market-rate units.
The idea of inclusionary housing ordinances has been floated by both the City of Henderson and City of Las Vegas. Las Vegas Mayor Oscar Goodman is a big fan of inclusionary housing and insists, “It’s going to happen here.”
According to the Las Vegas Review-Journal, Goodman said last year that, “instead of living in houses worth $125,000, Las Vegas nurses, teachers and police officers should be able to live in homes worth up to $500,000.”
But as land use attorneys Brian W. Blaesser and Janet R. Stearns point out, “Mandatory inclusionary zoning essentially levies a tax on the production of new housing. Depending on local market factors, this technique will likely: (1) increase general housing prices and further limit housing opportunities; or (2) decrease land values, which increases the burden on property owners of undeveloped land; or (3) shift development away from the community.”
Economics professors Ed Stringham and Benjamin Powell, of San Jose State, have studied the effects of inclusionary housing ordinances in California. They echo Blaesser and Stearns. In a paper prepared for the Independent Institute, Stringham and Powell called “seriously misleading” reports claiming that inclusionary housing will provide more affordable housing in California.
Popular with government officials in the Golden State, inclusionary housing ordinances are implemented in 116 communities. But as Stringham and Powell explain, these local “governments do not pay for the cost of producing the price-controlled units, so inclusionary zoning works like a tax on builders.”
Rather than passively accept lower profits, builders in California construct fewer homes and charge more for the homes they are allowed to sell on the open, unrestricted market. Essentially, the cost of the below-market units is added onto the market units. The San Jose State professors estimate that in some California cities inclusionary zoning adds over $100,000 to the price of a new home.
When inclusionary zoning is adopted, fewer new homes are constructed. Between 1973 and 2001, 45 municipalities in the Bay Area adopted inclusionary zoning. The year after these ordinances were implemented, housing construction dropped 31 percent, Stringham and Powell found.
The results are similar over longer periods: “For the 33 cities with data available, in the seven years after the adoption of inclusionary zoning, 10,662 fewer homes were produced than in the seven years prior to the adoption of ordinances.”
Because builders avoid inclusionary zoning, only 6,836 below-market units were constructed in the Bay Area over 30 years, report Stringham and Powell. The average Bay Area city produces fewer than 15 affordable units per year. “If inclusionary zoning continues at its current pace,” they point out, “it will take 100 years for inclusionary zoning to meet the region’s current five-year housing need.”
Mayor Goodman and members of the Clark County Growth Task Force may be well intentioned. But price controls are the worst way to encourage the construction of more affordable housing. When the price of anything is suppressed by government edict, supply is constrained and scarcity ensues.
Homebuyers will benefit most from less government interference in the housing market, not more.
Doug French is executive vice president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.