IZ Is Bad For Renters
The City of Portland recently released an analysis of its Inclusionary Zoning (IZ) policy by an outside consultant. The analysis confirms that in Portland, just like in other jurisdictions, IZ policies increase housing costs and harm renters. However, some proponents of IZ count it as a “tenant protection” alongside genuine tenant protections like rent control. This couldn’t be further from the truth. Instead, IZ weakens the market power of tenants by preventing new housing creation and raising rents across the board.
“Inclusionary Zoning” is the name for rules which charge extra fees for housing projects over 10 units to fund affordable housing development. Projects can also construct deed-restricted affordable units themselves instead of paying the fees. CA YIMBY has a good explainer in general, and our earlier policy proposal contains more details on Portland’s specifics. The upshot of these extra fees is that they make infeasible many potential housing projects that otherwise would be built, weakening Portland’s supply of housing. Our prior analysis of city permit data demonstrates this effect.
The IZ analysis by the city’s consultant makes explicit the high rents in new construction implied by IZ. It indicates, on page 15, that IZ required an $88 per month rent increase to cover the cost of IZ from 2016-2020, and a massive $360 per month increase from 2021 onward. If the new homes can't attract tenants at these raised prices, a potential project will not be built.
Tenants of older buildings are not off the hook, either. Because IZ makes new apartment buildings infeasible, market rents will climb until new rents can absorb IZ fees. This enriches incumbent landlords by shielding them from competition, as they no longer need to worry that a better offer might lure their tenants away.
Some may say that market rents do not matter, because Portland has rent control. But this ignores the fact that it is nearly impossible to find a rent-controlled unit with a below market rent. Such apartments either have current tenants, who cannot afford to move, or are quickly rented via word-of-mouth when a vacancy arises. They are rarely available to the general public. Owner-occupied buildings are exempt from rent control, rents on new buildings aren’t limited, and the housing market is interconnected, so market rent prices matter for everyone.
Rent control is still useful to protect tenants from sudden price increases, but it is not a solution to the housing shortage. In a shortage, the only option is rationing—whether by price, lottery, social connections, or some combination of those. Since all of these rationing strategies leave some people in the cold, we need to address the shortage directly.
Affordable housing is worth investing in. That’s why the Urbanist Coalition proposed investing in affordable housing for every new development, whether a new commercial building, single-family home rebuild, or an apartment building. But an unfunded IZ mandate hides the cost of these investments, while impairing construction that would alleviate the housing shortage.
Renters should be clear-eyed that the interests of landlords and developers are distinct: landlords make money when homes are scarce, and developers make money from creating new homes. Portland’s policymakers and advocates should not be afraid to replace our flawed IZ policy with a housing strategy that works and grows the power of renters.
