Designing short-sighted zoning policies
By Beth Cody, Writers’ Group member
Iowa City Press-Citizen
Wednesday, August 9, 2006

The Iowa City Council is debating whether to pass an inclusionary zoning law. But the Council should carefully consider just who the laws will help and who they will hurt.

Inclusionary zoning laws would require 10% to 30% of new houses be built for qualified low-income residents. This could either be done by making it mandatory for builders to build the units, or by offering builders financial incentives to build them.

The intention of the City Council is to make housing more affordable for low-income residents. But government policies often don’t result in the intended outcomes, because the laws of economics can’t be ignored and because people often don’t do what we expect them to do when we try to control them.

Mandatory inclusionary zoning requires builders to charge a lower price for some of the houses they build. Since the builders are usually required to build the same size houses on the same size lots, they will lose money on the low-income houses. They will need to raise the prices of the other houses in the subdivision to make a profit, or they won’t build the subdivision at all.

The higher prices of the new houses will contribute to the first unintended result of the law: an overall rise in the price of Iowa City houses. (Older houses will also be worth more, because more people will compete for them to avoid higher-priced new housing.)

It is true that the few low-income residents who purchase the limited number of these new houses will enjoy cheaper housing. But everyone else will pay more, including renters, whose rents increase with overall housing market prices. The majority of our low-income residents are renters, so this law will hurt more poor people than it helps.

Also, the increase in housing values will benefit people who already own houses. So the law will help most middle- and upper-income residents and landlords.

Of course, builders will probably respond to the law by building fewer houses in Iowa City. The Coralville City Council is undoubtedly overjoyed, since the law will encourage building in Coralville and North Liberty, increasing their tax bases. Iowa City’s loss will be their gain.

All of these results are borne out in a 2004 study by the Reason Foundation: This study of the Bay Area showed that for the median city that enacted inclusionary zoning laws, there was a 31% decrease in construction, prices rose significantly and only 15 affordable houses were produced per year.

The new law might merely offer financial incentives for builders to build low-income housing. But those incentives will come from our property taxes, so everyone (including renters) will pay more for housing. (If property taxes are not increased, the government must provide fewer services in other areas.) So again, most poor people will be hurt by the law.

And is it right to use the tax dollars of workers to enrich wealthy developers? No matter how noble the intention, it is still precisely the kind of corporate welfare that most people believe is government corruption. Many builders don’t oppose inclusionary zoning, which should tell you something.

So how can we help low-income residents afford housing? By asking the real question: Why is housing in Iowa City unaffordable in the first place? Part of it is inherent demand due to the student population and the growth of our town.

But short-sighted government policies greatly contribute to the problem: Housing codes that stipulate that lots must be a minimum size and houses must be set back a minimum distance from the street make houses more expensive. The mortgage interest deduction, which favors the middle-class over the poor, causes more people to purchase houses, resulting in inflated prices. And property taxes make home ownership harder for low-income residents. Many older residents cannot afford to keep their fully paid-off houses due to rising property taxes.

If we really want to help the poor, we should repeal these harmful government policies, not add more bad policies. Inclusionary zoning is yet another example of the government trying to “fix” a problem it created in the first place.