26 Pages Posted: 2 Aug 2015

Date Written: 2012

Abstract

Inclusionary zoning, also known as below-market housing mandates, is now in place in one-third of California cities and is spreading around the united states. Supporters of this policy advocate making housing more affordable by placing price controls on a percentage of new homes. But if almost all economists agree that price controls on housing reduce quantity and cause shortages, why do so many policymakers or voters support them? Ellickson [1981] argued that inclusionary zoning may be popular precisely because, contrary to the expressed goals of the program, it actually restricts supply and leads to higher prices. incumbent homeowners and policymakers catering to them can benefit from restricting new supply. using panel data and a first difference model, we test how the policy affected the price and quantity of housing in California cities between 1980, 1990, and 2000. under various specifications we find that cities adopting below-market housing mandates end up with higher prices and fewer homes. Between 1980 and 1990, cities imposing below-market housing mandates end up with 9 percent higher prices and 8 percent fewer homes overall. Between 1990 and 2000 cities imposing below-market housing mandates end up with 20 percent higher prices and 7 percent fewer homes overall. Consistent with Ellickson’s hypothesis, the program may not be about increasing the supply of housing or making it more affordable overall.