Still Not Convinced Against Incentive Zoning

I enjoyed last week’s discussion about incentive zoning, but am still not convinced by the arguments against it.

Incentive zoning is Seattle’s practice of allowing projects to be built above the zoned height restrictions, in exchange for developers agreeing to offer a certain amount of affordable housing or to pay a per-square-foot fee to go to affordable housing elsewhere in the city.

The argument against incentive zoning is that increasing the housing supply is the best solution to create more affordable housing, but that incentive zoning adds additional fees to developers for higher density buildings, discouraging them from building high-density buildings and ultimately leading to more expensive housing overall. This argument makes two assumptions: that greater supply will lead to lower housing prices, and that the incentive zoning policy represents a high enough financial burden to lead developers not to build as high as they would have otherwise. I am not qualified to judge the first assumption, but it makes intuitive sense to me and seems to conform to classical economic theory. However, I was not convinced by the evidence which has been presented to me so far to support the second assumption, and am therefore not yet ready to accept the overall argument against incentive zoning.

The central pillar of this argument, which has also been echoed in class readings, is that developers who would have chosen to build higher in an unregulated environment, have chosen not to build above the standard zoning limits because the fees and requirements make this an unviable option. I recognize that if these fees are too high they could lead developers to decrease density, but I am still waiting to see proof that the current fees are too high. The evidence which most causes me to doubt this hypothesis was actually presented to me by an opponent of incentive zoning, who pointed me to a letter to the Puget Sound Business Journal from a developer who had chosen not to apply for a higher building permit because of the fees and because of the much higher costs of construction for building a tall building. Short developments can be built with wood frames, but higher buildings require significantly more costly construction materials, representing a much greater expense than the lost revenues from a few rent controlled units. To me, this letter seemed like a more powerful argument for incentive zoning than against it, because it suggested that physics and building costs played a much greater role in the developers’ decisions than the incentive zoning regulations. If this is the case, then the incentive zoning policy did not lead to lower density or reduce housing supply, but did lead to a few more affordable housing units, and therefore appears to be a beneficial policy.

To be clear, I am not ready to argue for incentive zoning yet either; I am just saying that I have not yet been convinced by the arguments which I’ve heard against it. I would not be so skeptical if I were presented with specific numbers, or even if I were shown anecdotal evidence showing that this policy led a single developer to choose not to build as high. But the evidence which has been presented to me so far has been underwhelming.  I am still agnostic about this policy and feel that abandoning the policy would pose a greater risk for the city at this point. After all, if we’re unsure how effective the policy will be, isn’t the best course of action to continue to learn from the pilot projects so that we can make better decisions in the future?

I am also still somewhat unclear on the alternative proposal to this policy. One alternative would be to eliminate height limits for all developments (in other words, eliminate the fees required to build high). I am willing to consider this as a potential solution, but am waiting for the evidence that it would actually lead developers to build higher. Other proposals which I have heard have been less viable. For example, the some have said that the city could subsidize higher buildings and that the funding from this could come from a housing levy. However, this would require a levy-lid lift which would be beyond the City Council’s power to implement unless it passed by a popular vote in a public election, which would be very unlikely. I don’t believe that even the opponents of incentive zoning believe thata levy-lid lift to fund subsidies would be a viable policy option; rather, I believe that it has merely been offered the example to show how different policies could lead to different results. But, if this was in fact an allegorical policy alternative, then I am still patiently waiting to be presented with a realistic and data-backed option. And if there is additional evidence which provides a stronger argument against incentive zoning, then I would very much appreciate the opportunity to consider it and possibly revise my opinion.



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