Show Me the Money:
Implementation Costs
Calculating the
full costs incurred government agencies or
developers in order to produce affordable
housing using inclusionary housing is difficult
for two reasons. First, implementing
inclusionary housing requirements involves the
combined actions of public, private- and
non-profit sector organizations. Secondly, the inclusionary housing policies of different
jurisdictions are characterized by great
diversity, with each ordinance containing a
great variety of compliance thresholds,
developer incentives, and financing mechanisms.
However, inclusionary housing policies can be
designed and implemented in such a way that the
costs are kept at a minimum relative to the
overall benefits. In this section, some of the
factors affecting the implementation costs of
inclusionary housing policy for local
governments and housing developers are
considered broadly.
Cost to the Implementing Jurisdiction.
Implementing a mandatory inclusionary housing
requirement results in few ‘hard costs’ for
government agencies beyond the administrative
and compliance monitoring costs. However,
depending on the community’s unique economic
conditions and the particular developer
incentives that the jurisdiction chooses to
adopt, there other potential costs. Therefore,
it is important for your jurisdiction to conduct
a cost/benefit analysis of the trade-offs
associated with different alternatives in order
to determine the policy that is best suited to
your community (this is also helpful is
justifying a mandatory inclusionary housing
policy to potential opponents). The tables below list some of the
factors that your jurisdiction might want to
consider in quantifying the costs and benefits
of mandatory inclusionary housing. Weighing
factors such as these, an increasing number of
jurisdictions have found that inclusionary
housing is a cost-effective strategy for
increasing the supply of affordable housing in
their community.
Potential Costs:
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Administration and compliance monitoring
(can be contracted to non-profit housing
agency if not cost-efficient to handle in
house) |
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Lost permit
revenue (if reduced permit fees are
offered as a developer incentive) |
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Housing
subsidies (if the jurisdiction will
acquire affordable units and sell or rent
them below cost) |
Potential
Benefits:
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Increased
affordable housing supply |
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Integration
of affordable housing throughout the
community rather than being concentrated
in particular distressed areas |
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Increased
neighborhood stability (reduced
displacement as a result of being ‘priced
out due to gentrification or being ‘aged
out’ due to neighborhoods with a largely
homogenous housing stock) |
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Decreased
spending on other housing-related public
services (rental assistance, homeless
shelters, etc.) |
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Increased
property taxes (if density bonuses are
offered as a developer incentive and
affordable units are not exempted from
property taxes, more tax-assessed units
are created than under existing housing) |
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Increased
sales taxes (if working families spend
less on housing, they will have more to
spend on other goods and services and
presumably a significant portion of this
spending will occur in the community in
which they live) |
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Increased
social capital and economic
competitiveness (by potentially increasing
working families access to employment,
educational, and cultural opportunities) |
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Less traffic
congestion (by potentially reducing the
distance that working families must travel
to access jobs, childcare, shopping, or
other household needs) |
Cost to Developers. Requiring
developers to include units affordable to low-
and moderate- income families in all new
residential development projects is a very
cost-efficient and fair policy for increasing
the supply of affordable housing strategy for
four reasons. First, residential developers
obviously have more expertise in constructing
housing than any other local organization or
agency in the community. Secondly, when the
required affordable units are constructed at the
same time as the other market-rate units in the
development project, developers can benefit from
economies of scale. Third, a significant portion
of the value of any developable land can be
attributed to the public investment in the hard
infrastructure (transportation networks, sewage
systems) and social services (local schools,
police and fire protection) in the community.
Fourth, there is some evidence to suggest that
much if not all of the costs that developers
incur in building the required affordable
housing units are either passed on to
market-rate buyers and renters (in the form of
slightly higher housing prices) or borne
indirectly by owners of developable land (in the
form of slightly lower land values). Thus, the
argument could be made that, with mandatory
inclusionary housing requirements, the costs of
building affordable housing are distributed
widely amongst those households most able to pay
while the benefits are targeted to those
households most in need.
At the same time, a requirement to construct
affordable units in all new development will
result in tangible and measurable ‘hard costs’
for developers, which may actually have the
effect of discouraging residential
development. In order to avoid this
counterproductive result, and to make a
mandatory housing requirement more financially
feasible and politically palatable to
developers, most jurisdictions choose to include
financial incentives (or cost offsets) in their
inclusionary housing policies in order to
compensate developers for the costs of building
the affordable units. Your jurisdiction can
establish a package of incentives that will
allow developers to break even or perhaps turn a
profit on each affordable unit they construct.
In addition, developers may be able to take
advantage of government financing programs
targeted for affordable housing projects or
benefit from state or federal tax incentives
available to developers of affordable housing.
  
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