Better roads to affordable housing than Ontario’s inclusionary zoning

Theglobeandmail.com
April 19, 2016
By Benjamin Dachis and Jennifer Tsao

The Ontario government announced recently that it will give cities the power to require home builders to set aside housing in new developments for low-income families. Municipal politicians might like the plan, but it will be costly for home buyers and is not the most effective way to give low-income families good housing.

The province’s plan is called inclusionary zoning. Inclusionary zoning is about changing the way social housing is built in our cities. Currently, the City of Toronto owns 62 per cent of government-subsidized housing. Inclusionary zoning would put more of the burden of building low-income housing on private developers instead.

Why do governments support such a change?

First, cities can offload the direct cost of building social housing onto developers. The result is lower property taxes for voters who would have financed social housing.

Second, low-income families might be better off living in middle-income neighbourhoods as opposed to traditional social-housing buildings. The hope is that by moving low-income families from low-income neighbourhoods (such as Moss Park in Toronto) to wealthier areas, children from low-income families will develop better health, educational and economic outcomes.

There is some evidence that such benefits exist, but it’s mixed. The latest evidence of similar programs in the United States found that older children were slightly worse off after such a move. Adults also saw little improvement with such a policy. Canadian evidence shows that characteristics common among siblings explain earnings differences better than exposures to different neighbourhoods. What your family is like is more important than neighbourhood factors in a child’s development. However, the same evidence in the United States shows that younger children benefited the most from moving into mixed-income neighbourhoods. Young children who moved into affluent neighbourhoods saw significantly improved college attendance rates, went to better colleges and saw higher earnings later in life.

These are worthy goals. And moving young children into mixed-income neighbourhoods does seem to have some long-term benefits. But every social program has a cost. Inclusionary zoning is like a tax on new housing to pay for subsidized housing. When governments tax something, prices go up, less of it gets made or both. Developers will pay the initial cost of building the low-income units. But the evidence from inclusionary zoning elsewhere is that home buyers will ultimately pay.

Many California cities have implemented inclusionary zoning rules. What happened there? On average, new house prices in cities with inclusionary zoning increased by 2 per cent to 3 per cent faster compared with California cities without inclusionary zoning. Houses that sold at above-average prices saw prices go up 5 per cent faster. California home builders cut back on the size of below-average-cost new housing. The evidence shows that home buyers will pay for the inclusionary zoning one way or the other.

Ensuring housing affordability for low-income families is important. So, what could governments do better than forcing developers to provide low-income housing?

One option is to put money directly into the hands of low-income families who need housing. These could be vouchers for housing costs for renters to use wherever they like. That would open the entire housing market to low-income residents. In contrast, the inclusionary zoning plan would apply only to new buildings, making the supply only a trickle.

With a voucher program paid by taxes, the costs to governments would be clear. Queen’s Park or City Hall could easily assess the benefits of people finding housing relative to the costs of the subsidy. In contrast, the costs of inclusionary zoning will be difficult to measure - and the results may not be all that inclusionary.

If low-income housing is a citywide priority, then all of us should pay through taxes. Inclusionary zoning puts the burden largely on new home buyers.

Ontario’s announcement on new inclusionary zoning powers for cities could be a major cost for home buyers. Cities should think twice before taking up the powers they will be granted.