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Federal Stimulus Cannot Overcome Local Exclusionary Zoning

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No single level of government can provide true affordability; any level can thwart the other levels.

To our great cost, we have forgotten this, and as a result, our national housing policy has been stretched beyond tolerance, with the federal government doing too much and local government doing too little. The reason is simple algebra:

A = D x F

Delivery cost is measured by the average per-home development price tag. It’s driven upward by environmental restrictions, zoning, remediation requirements, approval rights, and labor contracts. Most of all, cost is shoved upward by NIMBYism that makes cynical common cause with environmental obstructionism.

Financing cost is measured by the weighted average of cost of capital – debt and equity – of the entire resource stack that delivers affordable housing. It’s driven up or down by inflation, fed policy, income tax rates, depreciation rules, program availability (FHA and Fannie/ Freddie), subsidies, and tax credits.

Now, financing cost is driven almost exclusively by federal decisions, whereas delivery cost is driven almost exclusively by local decisions. Hence the federal government is engaged in an unwinnable conflict with localities – or those localities unwilling to accommodate affordable housing. No matter how much Chairman Bernanke wants to revive housing production, a city council in Whittier, for example, can use California’s absurdly obstructive CEQA (California Environmental Quality Act) to stop in its tracks any new development the neighbors don’t like … and the neighbors don’t like any new development.

Some localities have become development fortresses, repelling invaders with minimum lot sizes and setback requirements and death-by-town-meeting approval processes. In this they are tacitly aided by homebuilders, who like building codes that prohibit multi-household housing and hence prevent the return of the rooming house or the RBK (room-bath-kitchenette), both of which used to be common urban accommodations, or the 300 sf micro-apartments that some cities (like New York and San Francisco) are now trying belatedly to re-introduce.

Because no amount of federal stimulus can overcome local exclusionary zoning, the proper political champion is not national but state-level. Inclusionary-zoning laws like Massachusetts’ Chapter 40B allow states to mandate an affordable housing fair-share, and then in zoning overrides and density bonus rights give private developers a crowbar to pry open under-performing cities. The breathtaking speed with which the formerly antagonistic discover the hidden virtues of existing affordable housing, and their sudden awareness in counting their inventory (including mobile homes and even prisons!), may do little for a low-income family’s faith in humanity but a great deal for that family’s ability to live in the communities that give them the best chance to make a better life for themselves and their children.

David A. Smith is the founder and chairman of Recap Real Estate Advisors.

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work. Have a pressing question you’d like us to consider? Please leave it in the comments section. We encourage you and our expert bloggers to add comments, contributing to the national dialogue on solutions for the future of the housing sector. Expert bloggers are not members of the BPC Housing Commission. Any views expressed on this forum do not necessarily represent the views of the Housing Commission, its Co-Chairs, or the Bipartisan Policy Center.

Affordability equals the product of Delivery cost times Financing cost.


2012-11-20 00:00:00
What should be the interaction (if any) between state and local policies that impact housing availability and affordability?

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