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.

Comments

[Diane Reynolds (Paul.)]

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.

I think San Francisco's housing problem might be taking care of itself.

Between April 2020 and July 2021, the city's population declined by 58,764 residents, according to new figures from the U.S. Census Bureau. SF's drop represents a 6.7% drop in population and places the city second only to New York County (better known as Manhattan) as the county with the greatest drop nationwide.

[Full Of Buckminster]

Any chance a libertarian organization could argue that targeted citizens shouldn’t be required to subsidize other people, full stop, rather than it doesn’t have the intended results?

[Its_Not_Inevitable]

Thank you.

[Bluwater]

The counter to that is the city isn't targeting individuals, they are targeting size of developments, and this isn't unusual. Companies of varying sizes have different legal requirements, such as an under 50 employer. There are luxury taxes on yachts, those who use more water or power pay higher rates and the list goes on. Our entire progressive tax system is based on some people subsidizing others.

[Diane Reynolds (Paul.)]

The science behind locking down 330,000,000 people and declaring half the country "non-essential" over a disease with a 99.99999999999999999999999999999% survivability is questionable.

Had the science not been questionable, then the policy would have been ok.

[freedomwriter]

If the private sector paid "essential" workers decent wages we wouldn't need these housing mandates. The goal is for all economies to pay workers third world wages. Free trade is one of the tools to achieve it.

[Rev. Arthur L. Kuckland]

Absolutely.
Why do you think reason is libritarian?

[sarcasmic]

Because that won't persuade as many people as pointing out that it doesn't work.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Why not both? If you've got two barrels, why prefer one trigger over the other?

[Diane Reynolds (Paul.)]

I think that's the question here, we seem to only prefer the 'outcome' trigger while not even loading the 'principle' barrel.

[mpercy]

I want to try to give Reason the benefit of the doubt, and go with the notion that Full of Buck's notion is assumed. Then, given that, the fact that the laws don't work and are almost certainly counterproductive to their stated goals is the 2nd best argument. And one that should be made loudly and clearly.

It would have been nice if Reason included some sort of "Of course, libertarians would never require citizens to subsidize other people." somewhere in each of these types of articles.

Casual readers of Reason, perhaps people to whom their libertarian friends have directed to this page, might not know the underlying libertarian principles and so those should be restated in most articles.

[Longtobefree]

and "density bonuses" that allow developers to build more units than the zoning code would normally allow.

So doesn't this show that the density rates are not based on anything but the whim of the politicians? As such, it would seem these waivers are thinly disguised bribes. Lock them all up!

[Stuck in California]

yeah, that's the way it works.

I've said this before, but I grew up in an exurb of a city that promoted "densification" as a way to resolve traffic problems. The end result was that out in the county where I lived all the developers were able to build craploads of crackerbox apartments, so lots of housing at the ends of those freeways, where there were no other support services and businesses, but no real infill. Much more traffic.

It was basically a give away to devlelopers who bought land cheap in a place with 1 acre minimum lot sizes then got to put 50 apartments on that acre due to the "special" approval. Made things a lot worse for traffic and for the small exurbs.

[Earth-based Human Skeptic]

Sounds like an elites success story. Where's OBL to celebrate?

[Bluwater]

Single-family zoning means nothing around here anymore. Of the 280 zoning variances that were requested in 2021, 9 were withdrawn and none were rejected. I'm not sure why they even still have zoning unless it's the political ace up the sleeve that can be pulled if a given developer steps out of line.

It's all about density now because politicians see more tax revenue per block, even if the value of independent residences on average is lower.

[sarcasmic]

Pittsburgh Will Force Private Developers To Build Affordable Housing Develop Somewhere Else

ftfy

[John C. Randolph]

Bingo. If you want more housing, don't pile on the bullshit hoops for developers to jump through.

-jcr

[Fist of Etiquette]

Good thing so many flock to the region to enjoy its spectacular weather.

[Eeyore]

Long live higher rents. Hip hip hurray.

[Moonrocks]

It's odd that this doesn't qualify as a war on free enterprise.

[JFree]

I wonder if Pittsburgh had or would have had a similar problem/approach 20 years ago. They had a version of a land value tax from 1914 to 2001

[Jeff Mason]

Another stupid law that will have the opposite effect. Pittsburgh is not a big city. Developers can simply cross a rive and be in a different jurisdiction but still be within walking distance of downtown. Any developer with a brain will do just that. If the city really wants low income, below market cost, housing they should put forth a bond issue to raise money and build it. When the voters are asked to build it with their money instead of some developer’s, they might just say, “No.” Is that not democracy?

[Sevo]

If the government sticks its nose in a financial issue, no matter how dysfunctional the issue is now, it will get far worse.
Every time.

[Longtobefree]

More accurate headline:
Pittsburgh will force private developers to go elsewhere.

[freedomwriter]

If capitalism did the right thing we wouldn't need government protections for anyone.

A guest column by Chuck Gabriele published Dec. 12 in The Desert Sun used a fabricated conversation between FDR and Harry Truman to accuse Democrats of pushing the U.S. toward socialism.

Abraham Lincoln feared that would happen when he freed slaves in 1863, but his crystal ball was better than Franklin and Harry’s. Old Abe knew capitalism would be the root cause.

Using some of Lincoln's actual words as a basis, I can imagine Abe talking to his wife, Mary, when drafting the Emancipation Proclamation:

“Even as I write this Mary, I worry about those damned capitalists.”

“Abe, capital has its rights, which are worthy of protection as any other right.”

“Capital is only the fruit of labor, Mary, and could never have existed had not labor first existed. Labor is the superior of capital, and deserves much the higher consideration.” His mood grew grim. “These capitalists generally act harmoniously and in concert, to fleece the people.”

“Fleece is a strong word, Abe.”

“You’re right, Mary. Abuse is a better descriptor. Mark my words, those capitalists will refuse to share profits with employees, the workers who generated those profits. Or, they’ll hold wages down. Hell, they might even find ways to have work done by machines or in other countries to eliminate jobs.”

“Why would they do that, Abe?”

“Because maximizing shareholder wealth is their priority. Capitalists don’t care about workers. To them, labor is expendable, easily replaceable and abundant in supply.”

“Abe, calm—”

The great man slammed his fist on the table.

“This greed will extend into controlling food, water, housing, and healthcare. Can you imagine what capitalists will do to the cost of education? The average working man won’t be able to afford to send his children to college or buy a house or take a decent vacation. They won’t ever be able to retire; all their meager income will go to food and rent. Both parents will have to work — which will endanger the family as a sacred unit. They’ll toil so feverishly until they wear out and get sick. Of course, capitalism will take control of people’s medical care. They’ll make care something that only the rich can afford. They’ll dream up Machiavellian excuses to avoid paying for people’s care.”

“Abe, how will they do that?”

“Capitalism will create mechanisms of control to influence what people read, listen to and learn in school. Like a fox, they will trick people into believing false narratives like the Civil War was about states’ rights instead of slavery. When Tom Jefferson wrote ‘All men are created equal and endowed by their Creator with certain unalienable Rights’, he meant all people, not just people with money.

“They might even go so far as to say there is no point in protecting the masses from pollution or disease. Where does all that smoke from trains and factories go, Mary? Can you imagine if George Washington did not inoculate his troops against smallpox? There’s no way we would have won the Revolutionary War if he hadn’t mandated that. If Ben Franklin knew capitalists would pervert his free press to support all of this, he would roll over in his grave.

“Capitalists want to divide people into have and have-nots because poor people will always be hungry and therefor easier to control. When people go hungry, not just for food, but also their right to life, liberty and the pursuit of happiness, they will become unruly and desperate. They’ll use their guns to take their frustrations out on the world.”

“How much damage can a musket do, Abe?”

“Trust their greed, Mary. Capitalists will invent better weaponry that will eviscerate people in mass quantities. If I had my way, I’d allow people to bear arms, but restrict the seriously dangerous weapons to our military.”

“But the Second Amendment allows you to regulate the militia. It’s necessary to the security of a free state.”

“It also says it shall not be infringed, Mary. Capitalists will focus on the part that allows them to profit.”

“Whoever drafted that Abe, should be sent back to grammar school.”

“I agree. Ultimately, the people will look to their leaders for solutions. But I fear, Mary, instead of solving the root cause — that capitalism abuses the worker — we will drift toward socialism. Someone will create a retirement fund or tax-funded education or medical care.

“The sad part is it all could be avoided. If capitalism would simply do the right thing — share their profits with their workers, at least enough to lead a comfortable life — there would be no need for socialist solutions.”

“I’m not optimistic, dear husband,” Mary said, “But I hope capitalists take your advice.”

https://news.yahoo.com/counterpoint-capitalism-did-thing-wouldnt-173456550.html

[Jerry B.]

Here's that guest column with the conversation between Roosevelt and Truman. I prefer it.

https://www.desertsun.com/story/opinion/contributors/valley-voice/2021/12/11/what-would-democrats-fdr-and-truman-think-our-drift-socialism/6435923001/

[27b05a7]

I grew up in Polish Hill. I never would have dreamed that it would experience this type of problem.