Editor: David Reiss
Brooklyn Law School

April 23, 2014

Inclusionary Housing and Stigma

By David Reiss

Hughen and Read have posted their abstract for Inclusionary Housing Policies, Stigma Effects and Strategic Production Decisions to SSRN (it is not available for download from there and must be purchased from the publisher one way or the other). The abstract reads,

Inclusionary housing policies enacted by municipal governments rely on a combination of legal mandates and economic incentives to encourage residential real estate developers to include affordable units in otherwise market-rate projects. These regulations provide a means of stimulating the production of mixed-income housing at a minimal cost to the public sector, but have been hypothesized to slow development and put upward pressure on housing prices. The results of the theoretical models presented in this paper suggest that inclusionary housing policies need not increase housing prices in all situations. However, any observed impact on housing prices may be mitigated by density effects and stigma effects that decrease demand for market-rate units. The results additionally suggest real estate developers are likely to respond to inclusionary housing policies by strategically altering production decisions.

The authors conclude that “Density bonuses can limit the upward pressure on housing prices in strong markets, but may prove much less effective in weak markets where developers have little incentive to increase production in response to this type of economic incentive.” (609)

As NYC Mayor de Blasio drafts his ambitious affordable housing plan, he needs to maintain flexibility in his inclusionary zoning initiative. I think the stigma effects discussed in the article are much less relevant in NYC than in many other jurisdictions because NYC has a long history of successful mixed-income housing projects. But I do think that the de Blasio Administration needs to ensure that its initiative is designed to work effectively during both strong and weak markets.  The administration will also need to ensure that it works well in the outer boroughs as well as in Manhattan’s red hot housing market.

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