Opinion: Inclusionary zoning hurts middle-class renters

Inclusionary zoning or an affordable housing ordinance have two unintended consequences that negatively impact housing.

Drew Hamrick
Senior vice president
of government affairs, Colorado
Apartment Association

The vast majority of Coloradans do not support rent control as the solution to fix Colorado’s housing shortage and the high prices that go with it. A 2019 Baselice poll showed that people prefer public-private partnerships and building more housing over the option of governmental rent restrictions. Most of us get that when prices are artificially restricted, people offer fewer units to rent, housing become scarce and the price is bid up in one form or another.

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Rather than listening to voters, some Colorado elected officials simply repackage rent control policies under new names. “Inclusionary zoning” and “affordable housing ordinances” are proposed as an alternative to rental caps, but as Forbes aptly concludes, inclusionary zoning is simply “rent control 2.0.” As with rent control, Colorado’s hard-working middle class is stuck shouldering the financial consequences of these policies.

Whether labeled inclusionary zoning or an affordable housing ordinance, the concept is to require the owner (as a condition of getting the government’s permission to build new rental housing) to agree to limit the rent (typically to 60% of the market rate) for a portion of the community (typically 20%) and rent those units only to people who make less than a certain percentage of average income (typically 60%).

These policies have two unintended consequences that negatively impact housing. First, inclusionary zoning makes many new housing communities unfeasible to build. If you cannot make money on building a rental unit, you do not build it. No one can live in a housing unit that is not built.

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However, even when the community can be built, these restrictions unfairly transfer the full cost burden of subsidized rent to the other residents in the community. If an owner is forced to reduce the rent by 40% on 20% of the units, the other 80% of the units must bring in an additional 10% to pay for the subsidy. An inclusionary zoning/ affordable housing ordinance simply raises the rent for the majority of the units to subsidize the rent for a few of the units.

You might think this was a fair arrangement until you look at who is paying the extra rent. When subsidizing the rent for those making 60% of average income, the people left paying the extra rent include entry-level teachers (72% of area median income ), automotive mechanics (85% AMI), police officers (90% AMI), firefighters (96% AMI) and nurses (101 % AMI).

Affordable housing initiatives should be funded through a fair contribution from the entire tax base. It is not effective policy to require rent subsidy revenue only from nonsubsidized residents in the apartment community. This financial burdening is neither fair, nor sustainable, for middle-income Coloradoans.

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Colorado’s population is growing rapidly every year, particularly in metro Denver. The state needs additional housing units to meet this demand, not increased barriers to construction, like inclusionary zoning initiatives. Constraining new development or the related financial incentives to build will reduce new housing supply and drive up rental costs across the state. Colorado policies should be focused on removing local barriers to creating housing units, not granting local governments the power to create additional obstacles.

Inclusionary zoning will not solve Colorado’s affordable housing crisis. Instead, the solution lies in removing local barriers to building more units. To do so, state and local governments must work together with the private sector to create multilayered and individualized solutions where all residents can benefit. Government can support construction by expediting the building permit process for construction, contributing land for development, and reducing building permit and development fees, offering tax credits, increasing co-living and single room occupancy zoning, relaxing restrictions on building and expanding zoning for denser housing communities, increasing funding for affordable housing vouchers and reducing the administrative burdens of accepting those vouchers. All of these funding sources for affordable housing spread the cost across the entire tax base, not just the middle-class residents unlucky enough to need housing in the rent regulated community.

Colorado must support the many residents who are responsible for the state’s economic well-being. Hardworking teachers, police officers, maintenance contractors and auto mechanics all deserve the chance to live in units they can manageably afford. Inclusionary zoning policies hurt the majority in an attempt to help the vulnerable. There are better ways to support low-income residents in Colorado, but the private and public sectors must work together to seek those solutions.

Featured in CREJ’s May 2020 Multifamily Properties Quarterly

Edited by the Colorado Real Estate Journal staff.