Inclusionary Exclusion

Doug French

As hopeful homebuyers camp out in front of model home complexes, hoping to be offered the chance to buy new homes, Mayor Oscar Goodman and the City of Las Vegas are following Henderson’s lead and exacerbating the housing problem.

The City of Henderson recently nominated a 1,940-acre parcel for auction by the BLM. However, developers—looking at Henderson City Hall’s infrastructure requirements and inclusionary housing ordinance—judged the land’s minimum bid of $250 million too high.

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.

Thus, instead of letting price determine who buys which home, city politicians plan to decide who gets on the list. Under Henderson’s inclusionary housing ordinance, potential homebuyers must earn from 60 percent to 120 percent of the median income to qualify. How a person gets anointed for this housing give-away is unknown.

Now Oscar Goodman is proposing the same nonsense. A Las Vegas Review-Journal article of January 25th quoted the mayor as saying “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.” Judging from that comment, the Mayor evidently has an idea who will get on the list for these subsidized homes, at least in the City of Las Vegas.

Goodman was speaking at the U.S. Conference of Mayors, which Henderson Mayor Jim Gibson also attended. Gibson told reporter Tony Batt: “We’ve adopted an affordability provision as a part of our policies. The problem is implementing it.”

The problem is that inclusionary housing ordinances make development too expensive. Land buyers can’t make the numbers work for large land purchases that carry a city requirement of subsidized housing. If 10 to 25 percent of all housing must be sold below the market, the remaining price of the market units must rise to make the project work economically. Thus far the result has been that less housing has been constructed than there would have been had city government minded its own business.

Andrew T. Allen, professor of economics at the University of San Diego, lists a number of findings that question the effectiveness of inclusionary housing programs, including, “Inclusionary housing programs may make housing less affordable,” and “may not result in any additional low-income housing [being built].”

California’s Home Builders Association of the Central Coast cites a number of problems with inclusionary housing. An HBA report notes that these programs “raise the price of a project’s market rate housing since those homes must subsidize the affordable units.” Ultimately, builders avoid these projects, the HBA points out, and thus “affordable housing doesn’t get built.”

Similarly to Henderson, the City of Las Vegas has nominated a large parcel for auction by the BLM—1,600 acres near the junction of U.S. Highway 95 and Kyle Canyon Road. Developers who normally would be likely to bid already are grumbling about the requirements mandated for the parcel’s master plan.

City officials initially intended to require that 40 percent of the acreage be left open. But even some city bureaucrats thought that was crazy. Now the city plan calls for 10 to 30 percent of the land to be left as open space. Of course, this doesn’t include land that must be deeded to the city and state for schools, parks and fire stations.

Not to mention the infrastructure requirements awaiting any bid-winning developer.

Combine these infrastructure costs with the open space requirements and an inclusionary housing requirement, and developers will again be sitting on their hands this November when the parcel comes up for auction.

John Ritter, chief executive of Focus Property Group, has been a frequent bidder at BLM auctions. Ritter knows what projects cost and what he can sell land for. Ritter told the Review-Journal’s Michael Squires recently, “There are a lot of cutting-edge concepts being talked about [by the City of Las Vegas]. Some of them are economically feasible. Some of them are not.”

If city government officials really wanted more affordable housing to be built in their cities, they would make sure the land was auctioned and then stay out of the way, letting the market dictate what kind of housing will be built and at what price.

Doug French is executive vice president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.