Why Your House Costs So Much…


…if you're lucky enough to live in a progressive area with "inclusionary zoning" ordinances.

These laws, ostensibly designed to create low- and moderate-cost housing, actually limit the overall supply and thus drive up home costs, says a new study by San Jose State economists Benjamin Powell and Edward Stringham. From an account in the San Jose Mercury-News (reg. required):

In 45 cities for which data was available, they said, production of new housing units fell an average 31 percent the year following the adoption of the inclusionary zoning policy.

And by restricting the supply of new homes, the report said, inclusionary zoning laws have resulted in new-home prices that are $22,000 to $44,000 higher than they would be without such laws.

Powell and Stringham said that when some units in a development are sold or rented for less than the market rate, developers compensate for their lost profits primarily by increasing the cost of the market-rate units, making home ownership or rentals more expensive to the consumer.

"Ultimately our findings are very consistent with what the laws of economics predict,'' Powell said. "Inclusionary zoning acts essentially as a tax on developers. A tax increases price, and reduces quantity; that's Economics 101."

The full study--which was done for the Reason Public Policy Institute, a nonpartisan think tank funded by Reason Foundation, the nonprofit that also publishes Reason magazine and Reason Online--is online here.