Freedom: An Idea that Works

Imagine for a moment, that you want to open a restaurant in an impoverished neighborhood in your city. When you apply for the necessary permits at the Health Department, you are told that you will only be allowed to open your restaurant if you agree to sell a percentage of meals below your costs. You would probably find this outrageous. But in principle, this is what is being done to real estate developers across the nation.

One of the latest trends in the endless effort to provide affordable housing is inclusionary zoning. Under this scheme, any housing development in designated areas must include a set percentage of affordable housing—housing that is priced below market rates.

Atlanta has become the latest city to jump on the inclusionary zoning bandwagon. Last week, the City Council approved an amendment to the city’s zoning ordinance that forces developers to offer at least 10 percent of the new housing units in designated neighborhoods at below-market rates. This, we are supposed to believe, will encourage builders to increase the supply of affordable housing.

Not only must the developers grovel at the feet of city bureaucrats for permission to build housing, they must then sell a significant percentage of that housing for little or no profit. Of course, the developers will likely increase the price of the remaining units to compensate. And this will drive up housing prices further.

Affordable housing is certainly a laudable goal. But good intentions don’t necessarily result in good policies, and this is one example.

If city officials truly want to solve the affordable housing crisis, they must begin by looking at the role that they have played in creating that crisis. Land-use regulations like zoning decrease the land available for housing, which drives up the cost of that land. In Seattle, nearly two-thirds of the land zoned for residential use is zoned for single family homes. This means that a lot that could hold multiple housing units, and thus house multiple families, can only hold housing for one family.

In late 2019, Minneapolis abolished all single-family zoning in the city. The pandemic and ensuing lockdowns stifled all economic activity, including housing starts. According to data on the website for the Department of Housing and Urban Development, construction of single-family housing declined 35 percent in Minneapolis between 2019 and 2020. However, during the same time, starts for small multi-family housing increased by 20 percent (from 45 units to 54 units). In raw numbers, this isn’t impressive, but it happened during a recession and it is consistent with what we should expect. Freeing housing producers enables them to make better use of the available land.

Minneapolis is a rarity. Rather than remove the regulations and controls that drive up the cost of housing, city councils pile more regulations and controls on developers. Regulations and controls have created the housing crisis. It’s time to try something that really works—freedom for housing producers.