Free Market Solutions to the Housing Crisis: Reducing Displacement

Across the nation, individuals want to live closer to the central city. They want easy access to restaurants, retail stores, and entertainment. They want shorter commutes to work and “walkable” communities. In response to this growing demand, developers and entrepreneurs are investing in neighborhoods, many of them impoverished, near the central city.

As these investments transform and gentrify the neighborhood, property values rise and many long-time residents find that they can no longer afford to live in the neighborhood. These individuals are displaced and they must move. To slow, or even halt, displacement, many housing advocates and their political cronies are turning to “inclusionary” zoning. Inclusionary zoning requires a developer to include below-market housing in his project in exchange for government permission to proceed. In some jurisdictions, a developer can pay a fee into an affordable housing fund to escape the below-market requirement. In either case, the developer must pay if he wants approval for his project.

In many cities, these projects require a change in the zoning designation. Community activists frequently use the public hearings of zoning officials to oppose to the project, unless the developer agrees to their demands. Those demands often include below-market housing, sponsorship of community events (such as Kwanza celebrations), and repair of historic buildings in the neighborhood. Because zoning officials generally side with the community residents, the developer must accept those demands or abandon his project.

Like the other issues that we have examined, inclusionary zoning is founded on the group as the standard of value. In this instance, the individual’s interests are subordinate to the interests of the community—i.e., long-term residents. Because the issue of displacement is addressed as an isolated issue, housing advocates are unable to see alternatives to inclusionary zoning.

For property owners in gentrifying neighborhoods, the primary cause for displacement is rising property taxes. Though the developer is not responsible for tax rates, the developer is required to pay in order to offset the consequences of the increasing property taxes imposed by public officials.

If government officials are truly concerned about displacement in gentrifying neighborhoods, they have the power to address that issue without the use of coercive inclusionary zoning. Those officials can reduce displacement by providing tax exemptions for the existing property owners in gentrifying neighborhoods. Such exemptions should protect the existing owners from dramatic increases in property taxes. This would enable them to remain in their homes if they choose and benefit from the improvements in the neighborhood.

Government officials certainly like the additional revenues generated by rising property values, and they frequently dislike any measure that lowers tax revenues. Coercive measures such as inclusionary zoning allow those officials to obtain additional revenues while pretending to care about displacement.

Enabling existing property owners to remain in their homes has the added benefit of allowing those owners to later benefit from the increased value of their properties. Many Progressives cite the lack of equity in property as a major reason for the wealth gap between whites and non-whites. Tax exemptions would give those owners the means to enjoy growing equity as the neighborhood gentrifies. It is truly a win-win.