Wall Street Journal: How Not to Build Affordable Housing (Hint: Inclusionary Zoning)

Headline: "Pittsburgh repeats a mandate that failed in Portland, Oregon"

Pittsburgh has just mandated inclusionary zoning to the entire city.  

Opinion of the Wall Street Journal Editorial Board, May 4, 2022

Bad ideas never die; they merely move to a new city. Witness Pittsburgh’s adoption of an affordable-housing rule that will lead to . . . less affordable housing.

On Monday the mayor signed an ordinance passed unanimously by the City Council to expand the city’s inclusionary zoning requirements. Developers building 20 or more units in the gentrifying Bloomfield and Polish Hill neighborhoods will have to set aside at least 10% for affordable housing. Under the rules, a designated studio apartment could rent for no more than $742 a month, though the average rent for one is $1,300 in Pittsburgh, according to the housing search website Rent.com.

This regulatory imposition comes as the cost of building materials is up 8% since the start of 2022, according to the National Association of Home Builders. Prices are up 33% since the start of the pandemic.

Some developers will respond to the Pittsburgh mandate by building more luxury apartments to offset the cost of the ones they have to rent for artificially low prices. Others will avoid the requirement by building apartments with fewer than 20 units. And some may choose not to build apartments in the neighborhoods where the zoning requirements are in effect—or in Pittsburgh at all. None of this will increase the city’s stock of affordable housing.

Pittsburgh tried inclusionary zoning in the Lawrenceville neighborhood beginning in 2019. The pandemic months that followed make it difficult to quantify the effect, but proponents attribute the creation of 40 affordable housing units to the zoning requirements. However, “all 40 of those units were created with government subsidy, so they would have been created without inclusionary zoning,” says Jim Eichenlaub, executive director of the Builders Association of Metropolitan Pittsburgh.

In contrast, inclusionary zoning forces developers to set aside affordable housing whether or not they receive government incentives, so “the other 90% of the units have to subsidize that cost,” Mr. Eichenlaub says. “They are making the developer and the owners of those units, or renters, absorb those costs. Effectively, it’s a tax on housing.”

And when you tax something, you get less of it. Portland, Ore., introduced inclusionary zoning in 2017. Permits for residential buildings with 20 or more units plummeted 64% in 25 month as developers went smaller to get around the mandate. The nonprofit Up for Growth concluded that “rather than increasing the number of affordable units,” the zoning scheme “appears to be diminishing the supply of housing at nearly all income levels.”

Now Pittsburgh is following Portland’s folly, and families will pay for how politicians distort the housing market.