Pittsburgh Will Force Private Developers To Build Affordable Housing

These "inclusionary zoning" policies have a record of increasing housing costs and suppressing new housing supply.

Pittsburgh is expanding on a remarkably straightforward approach to creating new affordable housing: Force private developers to build it.

On Tuesday, the Pittsburgh City Council unanimously passed an ordinance expanding preexisting requirements that developers include below-market-rate units in their projects to more areas of the city. Now, builders of 20 or more units in Pittsburgh's Polish Hill and Bloomfield neighborhoods must offer at least 10 percent of those new units at affordable rates to lower-income buyers and renters.

These types of "inclusionary zoning" policies are common across New Jersey, California, and the Washington, D.C., metro area. Supporters argue they ensure that existing residents see some benefit from new, luxury developments going up in their neighborhoods.

"There are imminent developments that could reshape our neighborhood, and we want to be able to preserve a balanced approach to development that ensures people of all income levels can find a home," said John Rhoades of the Polish Hill Community Association to TribLIVE earlier this month.

Critics of inclusionary zoning say that even the best-designed policies have a poor record of creating new housing while raising overall housing costs. The theory is that developers raise rents on market-rate units to cover the lost revenue from the discounted, affordable apartments they're required to build.

"It effectively becomes taxation on housing," says Jim Eichenlaub, executive director of the Builders Association of Metropolitan Pittsburgh, to Reason. "You're taxing those other units to pay for the subsidy." Eichenlaub adds that if the market couldn't support those higher rents, then the project probably wouldn't have been built in the first place.

A City Council presentation for Pittsburgh's ordinance estimates that an affordable one-bedroom rental unit covered by the city's inclusionary zoning policy would have to be offered at $795 per month. Apartment-listing websites show market-rate one-bedroom apartments in the Polish Hill and Bloomfield neighborhoods costing anywhere from $1,000 to $1,600 a month. That's a significant discount developers are being required to eat.

One 2019 study of inclusionary zoning policies in the Baltimore and Washington metro areas found that they increased overall housing costs by 1 percent per year. The same study did not find any impact on housing supply from inclusionary zoning.

A 2004 study published by the Reason Foundation (which publishes this website) found that inclusionary zoning policies in the San Francisco Bay Area reduced housing supply and raised prices.

But the impacts of inclusionary zoning on housing supply turn on the details of the policy itself.

"Voluntary" inclusionary zoning policies—where a developer can agree to create affordable units in exchange for a tax credit, subsidy, or permission to build a larger building than typically allowed—are generally considered to be less impactful on housing costs and housing supply. "Mandatory" policies like Pittsburgh's—where developers must include affordable units—are naturally going to be more burdensome.

Portland, Maine, and Portland, Oregon, offer twin cautionary tales about the effects of mandatory inclusionary zoning policies.

Since 2017, Portland, Oregon, has required developers of buildings with 20 or more units to rent some out at below-market rates. A 2019 policy brief from the group Up For Growth shows that building permit applications for buildings of 20-plus units tanked once these requirements went into effect, while permit applications for smaller 12–19 unit buildings rose significantly in 2017 and 2018.

A more recent analysis from March 2021 by Joe Cortright found that the inclusionary zoning ordinance in Portland, Oregon, ironically kicked off a brief construction boom. Developers rushed to get their permit applications into the city before the ordinance went into effect. Those projects then got built in the first few years that the law was on the books.

But now, notes Cortright, the pipeline is mostly dry. Multifamily construction in 2020 and 2021 is a fraction of what it was in previous years, with new 21- to 25-unit developments almost completely disappearing.

It appears to be a similar story in Portland, Maine.

In November 2020, city voters passed a "Green New Deal" referendum tightening the affordability requirements of the city's preexisting inclusionary zoning law. An analysis by the real estate firm The Boulos Company found that multifamily construction fell by 81 percent in 2021.

As of November 2021, only one project has been approved in Portland, Maine, that meets the city's strict, new inclusionary zoning mandates. Other developers are shrinking the size of their projects to avoid the affordability requirements.

The inclusionary zoning policies of both cities do provide some benefits, including tax abatements and "density bonuses" that allow developers to build more units than the zoning code would normally allow.

Pittsburgh's inclusionary zoning policy offers none of these incentives. "When they're doing this, they're not bringing any money to the table to subsidize those units. The developer will be the sole people to underwrite the cost of those units," says Eichenlaub. That suggests that the policy's effect on supply will be even more damaging in the neighborhoods it covers.

Inclusionary zoning offers a superficially attractive solution to the post-pandemic rebound in rents and ever-rising home prices: If new housing is expensive, why not require developers to offer it at lower prices?

The record of these policies is not great, however. On net, they appear to make housing affordability worse by raising prices overall. Poorly designed programs can also significantly suppress new housing supply.

Worse still, they have the potential to neuter otherwise positive zoning reforms.

In San Francisco, for instance, politicians are debating how best to legalize four-unit housing developments citywide. That's a great idea that would lead to new homes being built across the housing-starved city. Proposals to pare those reforms with a requirement that at least some (or all) of the new units be offered at affordable rates would basically stop any for-profit developer from actually building the new units.

Policymakers are starting to understand that allowing new housing construction is essential to making cities affordable places to live. In contrast, trying to engineer affordability by taxing new housing, which inclusionary zoning effectively does, will likely just raise prices and reduce supply.

That's a net loss for affordability, as Pittsburgh will likely soon discover.