Shamubeel Eaqub
Is it time for inclusionary zoning?
We aren’t building enough houses, let alone affordable houses. I have little confidence that central government will get on top of this, regardless of what happens at the upcoming general election.
Local governments should use inclusionary zoning, which requires a portion to be retained for affordable housing in return for greater density at new developments.
In an ideal world, housing supply is very responsive to demand. There is sufficient supply of housing to grow total supply. Even if much of the new supply is near to the top end of the market, sufficient supply of second-hand stock is available for lower-income and lower-wealth households.
The real world is different. Because of structural frictions in the supply of housing, which could be related to planning, infrastructure provision, landbanking and other factors, there has been a sustained undersupply in several housing markets in New Zealand.
The accumulated undersupply cannot be solved easily or quickly. The use of a broad approach, by encouraging more housing supply, will tend to favour larger and more expensive homes. This means the affordable end of the market remains undersupplied for a long period of time – until supply shortages are largely resolved.
Inclusionary zoning, which requires new developments, provides a component of the new supply that is affordable and ensures any new supply also meets the needs of low-income and low-wealth citizens.
The planning provisions usually require retention of the affordable housing in the social sector, or similar. Otherwise, the affordable stock enters the broader market and the price is bid up unless there is sufficient supply relative to demand (the original problem).
Because affordable housing usually returns a lower margin than larger and more luxurious houses, the planning rules usually compensate the developer, with additional density provisions within design and amenity guidelines.
Inclusionary zoning is a necessary tool only when housing supply has been unresponsive for some time. It should not be required in every administrative region, nor a permanent feature – because inclusionary zoning should be self-limiting, triggered on the back of a formal housing needs assessment, against an objective set of metrics agreed by the local community or national standards.
In these circumstances, inclusionary zoning can provide the vehicle to supply affordable housing, when the market in the prevailing regulatory and commercial environment would not provide enough housing for everyone.
Inclusionary zoning has been used in many jurisdictions around the world. And there is often strong opposition from local residents, who fear that their property values will be lowered, or that there will be an increase in crime, or that affordable housing will not be properly maintained and be a blight on their community.
International experience suggests these fears do not come to pass. Increased crime tends to be an issue only if inclusionary zoning increases an already high concentration of poverty and crime. Maintenance and fit are easily solved by making them part of a community housing programme.
The big fear that properties will be devalued by the presence of neighbouring affordable houses is also unfounded.
In a report for Community Housing Aotearoa, I looked at the impact of affordable housing on neighbouring properties in Queenstown, which has used inclusionary zoning in recent years. There was no significant variation in house price increases in Queenstown between houses neighbouring affordable properties and control groups.
Queenstown results are consistent with international evidence, which shows very minor impact of inclusionary zoning on neighbouring properties.
With each passing year, I am less and less optimistic of our willingness and ability to build houses on a large scale. In the absence of that leadership, local governments could use inclusionary zoning to build affordable houses and retain them in community housing trusts, for use by people who need them the most.