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So there are various ways government policy could try to make housing cheaper, but one that I see a lot of people pushing now is a form of inclusionary zoning. Specifically, especially from what I've been told by Cambridge/Somerville politicos, requiring that a percentage (10-30%) of new units (of large developments) be rentable at low price. Not because they're smaller or more cheaply built, but just at a lower price. As Wikipedia says, "Many jurisdictions require that inclusionary housing units be indistinguishable from market-rate units"
(I don't know how that applies to a building that was planned to have diverse housing anyway. I suppose a percentage of each housing class?)
Developers[1] push back on this, and I've seen it described as a tax on them. Is that a fair description? Time for a simple thought experiment: imagine a building of 100 units, planned price of $1000/month, total revenue of $100,000/month. Then the city passes a new law during construction, requiring 30% be offered at $800. That's 30 units getting a $200 discount, $6000/month, which yes, you can think of as taxing the developer 6% and giving that back to the lucky tenants.
6%, not of profit, but of gross revenue. That's a lot! If the developer was anticipating profit of 5%, it is no longer worth building. Even if they anticipated 8%, that's now 2%; you might as well quit and invest in 30 year federal bonds. Or build hotels or condos that won't be hit by IZ, or just go build somewhere else.
And it can be worse. 30% requirement is high, but 20% subsidy might be low; 15% at $500/month would mean $7500, or a tax of 7.5%.
What's the alternative? Say the city instead decided to attach an explicit public subsidy to some of the new units. The $6000/month, $72,000/year cost would be spread among the whole population and tax base, not one developer. For a 77,000 person city like Somerville, that's under $1/person.
That's not quite fair though: that's just one development, and IZ applies to all of them, so we should look at that. Then again, there aren't many big developments in Somerville, which has "ambitious" plans to barely keep up with population growth at about 1% a year, and historically has done far less than that (3% total over some 20-30 year period I now forget, when Boston and MA did 12% and the country grew 24%). If we're adding units at 1% a year, and 30% of those are subsidized, then the subsidy of a new unit is spread over 300 existing ones. At a simplifying assumption of one person per unit, $2400/year ($200*12) is spread over 300 people, so $8/year.
(Most of what I've heard about recently is about a proposed 500 unit development in Union Square; assuming Somerville's 77,000 people live in 30,000 units, that's over 1% right there. But it'll take a few years.)
Of course, this is supposed to apply to all new housing, so after 30 years the subsidy support will have climbed to $240/year. This is pretty significant, especially compared to municipal taxes and revenue; probably talking about raising those up to 10% of existing levels. Also, affordable (or subsidized) units will be almost 10% of the housing stock.
But then someone might reasonably say "why should we dick around with only subsidizing new units? Why not just go ahead and subsidize 10% of all units, right now? The math's the same." And all the economists nod in agreement, and all the politicians blanch in terror...
Personal conclusion: yes, it is a tax on developers, and as with unfunded mandates[2] in general, it's an unfair tax, pushing a requirement onto a small subset of society, instead of funding it honestly out of general taxes and expenditure.
Of course, I feel that we shouldn't be trying to subsidize our way to cheap housing, which won't even address the real problem of more people wanting to live in cities now; we should enable building *more housing*, by removing the massive artificial restrictions on urban supply imposed by local governments. But that's another topic.
[1] 'Developer' has gotten a bad rep somehow; what if we called them builders, instead? It's not even a euphemism, more like an anti-euphemism: they are literally building new buildings and housing. Especially for the projects that get hit by IZ; you could argue that converting a house into apartments isn't real building (though it is real construction work, and more 'real' than hedge fund finance, say), but IZ applies to big projects, which are mostly new buildings.
But then it sounds worse: what kind of asshole opposes building new housing? (People who already have housing and don't want more neighbors, that's who.) Much easier to intone against "developers" and "profit" (as if homeowners don't hope to profit from growth in their home values, not to mention from their jobs.)
[2] Also see EMTALA, requiring ERs to stabilize anyone regardless of ability to pay; it's great that they do that, not so great that government didn't both reliably compensating them for it, so the costs were driven into other medical prices. Or landowners sometimes winning the anti-lottery of discovering there's an endangered species on their land and now they can't use it; protecting the environment is cool, but it would be fairer to compensate people for unexpected loss. And yes, strictly speaking minimum wage is an unfunded mandate on employers, and a price floor on labor, both nominally bad ideas, though that issue gets complicated by data and macroeconomics.
(I don't know how that applies to a building that was planned to have diverse housing anyway. I suppose a percentage of each housing class?)
Developers[1] push back on this, and I've seen it described as a tax on them. Is that a fair description? Time for a simple thought experiment: imagine a building of 100 units, planned price of $1000/month, total revenue of $100,000/month. Then the city passes a new law during construction, requiring 30% be offered at $800. That's 30 units getting a $200 discount, $6000/month, which yes, you can think of as taxing the developer 6% and giving that back to the lucky tenants.
6%, not of profit, but of gross revenue. That's a lot! If the developer was anticipating profit of 5%, it is no longer worth building. Even if they anticipated 8%, that's now 2%; you might as well quit and invest in 30 year federal bonds. Or build hotels or condos that won't be hit by IZ, or just go build somewhere else.
And it can be worse. 30% requirement is high, but 20% subsidy might be low; 15% at $500/month would mean $7500, or a tax of 7.5%.
What's the alternative? Say the city instead decided to attach an explicit public subsidy to some of the new units. The $6000/month, $72,000/year cost would be spread among the whole population and tax base, not one developer. For a 77,000 person city like Somerville, that's under $1/person.
That's not quite fair though: that's just one development, and IZ applies to all of them, so we should look at that. Then again, there aren't many big developments in Somerville, which has "ambitious" plans to barely keep up with population growth at about 1% a year, and historically has done far less than that (3% total over some 20-30 year period I now forget, when Boston and MA did 12% and the country grew 24%). If we're adding units at 1% a year, and 30% of those are subsidized, then the subsidy of a new unit is spread over 300 existing ones. At a simplifying assumption of one person per unit, $2400/year ($200*12) is spread over 300 people, so $8/year.
(Most of what I've heard about recently is about a proposed 500 unit development in Union Square; assuming Somerville's 77,000 people live in 30,000 units, that's over 1% right there. But it'll take a few years.)
Of course, this is supposed to apply to all new housing, so after 30 years the subsidy support will have climbed to $240/year. This is pretty significant, especially compared to municipal taxes and revenue; probably talking about raising those up to 10% of existing levels. Also, affordable (or subsidized) units will be almost 10% of the housing stock.
But then someone might reasonably say "why should we dick around with only subsidizing new units? Why not just go ahead and subsidize 10% of all units, right now? The math's the same." And all the economists nod in agreement, and all the politicians blanch in terror...
Personal conclusion: yes, it is a tax on developers, and as with unfunded mandates[2] in general, it's an unfair tax, pushing a requirement onto a small subset of society, instead of funding it honestly out of general taxes and expenditure.
Of course, I feel that we shouldn't be trying to subsidize our way to cheap housing, which won't even address the real problem of more people wanting to live in cities now; we should enable building *more housing*, by removing the massive artificial restrictions on urban supply imposed by local governments. But that's another topic.
[1] 'Developer' has gotten a bad rep somehow; what if we called them builders, instead? It's not even a euphemism, more like an anti-euphemism: they are literally building new buildings and housing. Especially for the projects that get hit by IZ; you could argue that converting a house into apartments isn't real building (though it is real construction work, and more 'real' than hedge fund finance, say), but IZ applies to big projects, which are mostly new buildings.
But then it sounds worse: what kind of asshole opposes building new housing? (People who already have housing and don't want more neighbors, that's who.) Much easier to intone against "developers" and "profit" (as if homeowners don't hope to profit from growth in their home values, not to mention from their jobs.)
[2] Also see EMTALA, requiring ERs to stabilize anyone regardless of ability to pay; it's great that they do that, not so great that government didn't both reliably compensating them for it, so the costs were driven into other medical prices. Or landowners sometimes winning the anti-lottery of discovering there's an endangered species on their land and now they can't use it; protecting the environment is cool, but it would be fairer to compensate people for unexpected loss. And yes, strictly speaking minimum wage is an unfunded mandate on employers, and a price floor on labor, both nominally bad ideas, though that issue gets complicated by data and macroeconomics.