As I wrote in Part 1, inclusionary housing ordinances are touted as a powerful tool to address the issue of affordable housing in high value markets. And the City is now considering adopting one precisely because our housing affordability problems are really getting out of hand.

But how much can an inclusionary housing ordinance help to solve that problem? Turns out that answer depends entirely on how you define success. So in 10, 20 or 30 years, when we look back at whether Costa Mesa’s inclusionary housing ordinance was “successful”, what will we be looking for?

Is it the number of affordable units produced? This seems like the most straightforward metric of success. If inclusionary housing ordinances seek to produce deed-restricted affordable units, simply counting the number of units produced by each program has to tell us something about whether the program is working as intended. Right? Well, it’s a bit more complicated than that.

First off, it’s important to keep in mind that inclusionary housing ordinances generally don’t produce affordable units themselves, but instead try to force (or more gently, “incentivize”) developers to include affordable units in their projects. But if including affordable units is a condition to build nearly anything in a jurisdiction, one wonders how many housing projects aren’t built at all because the inclusionary housing ordinance is too costly. So in other words, you could have a jurisdiction that is regularly producing affordable units because there is sufficient demand to build even with the affordability requirement, but the overall number units produced is lower than it would have been without that requirement. So while there are more affordable units produced, the fear is that the rent for the market rate units will continue to rise as supply doesn’t meet demand.

There have only been a handful of good studies looking at this issue and the results are mixed, though I think some skepticism is warranted when one looks closely at the data and methods. For example, an older but often cited paper was done by the Furman Center for Real Estate and Urban Policy of New York University, which arguably is the best urban policy school in the country. In “The Effects of Inclusionary Zoning on Local Housing Markets,” the authors investigated inclusionary zoning policies in Boston, San Francisco and Washington, DC, and concluded that, in the San Francisco market at least, “there was no evidence that [inclusionary zoning] has constrained supply or increased prices.” However, the authors themselves also state that such results “should be interpreted with caution”, and rightly so: for example, hte permit data that was used to determine whether inclusionary zoning impacted permit activity was single family permits, which of course are rarely directly affected by inclusionary housing programs. Additionally, the authors readily admit that their sample size is very small and the jurisdictions studied all had highly varied inclusionary housing policies, with widely varying levels of enforcement.

They also noticed an interesting pattern in the number of affordable units produced by each program in the Bay Area that suggest inclusionary zoning can have a downward effect on overall supply: they found that the “number of [affordable] units built increases with the presence of a density bonus and minimum project size that triggers [inclusionary zoning]. These results suggest that less stringent programs actually produce more affordable units, a plausible explanation if developers avoid jurisdictions with highly stringent programs” (emphasis mine). In other words: it’s not the elements of the inclusionary housing program itself that drives development outcomes, but the burden of inclusionary zoning relative to the costs of development in neighboring cities.

… Which also suggests that more housing overall would have been produced without any inclusionary housing policy, especially if neighboring cities have them. And therein lies the problem with measuring success by the number of affordable housing units produced.

Yes, building more deed restricted affordable units will create affordable housing for the lucky few that get to live there. But even if we consider cities that have “successful” policies in this regard – our City Manager, Lori Farrell Harrison, passionately pointed to Huntington Beach as one such example (see remarks at the 2:58ish mark) – the number of affordable units produced is breathtakingly small compared to (1) current demand and (2) the overall private housing market. For example, Huntington Beach claims to have produced almost 3,000 units of affordable rental housing since the program’s inception in 2005 (almost 18 years ago), which sounds like a lot. But according to Huntington Beach’s regional housing needs assessment (RHNA), Huntington Beach should be looking to add 13,368 units, with 8,153 of those units targeting very-low-to-moderate income renters in the next ten years. So from a regulatory standpoint, even a “successful” program in terms of producing affordable units isn’t working well enough.

Worse still, the Huntington Beach Housing Element estimates that, in 2019, there were 81,494 units of housing overall in the City. Which means that, no matter how many affordable units are produced, the vast majority of Huntington Beach residents – including low income residents – will live in market rate housing.

So how should we measure success if it isn’t the number of affordable units produced? Well, since it is a housing policy, I modestly propose we evaluate it on how it affects the overall market for housing. I’ll dive into that topic in Part 3.