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Appendices SEIR No. 339 City of Anaheim Response to Comments Appendix A. Affordable Housing Information ---PAGE BREAK--- Appendices The Planning Center October 2010 This page intentionally left blank. ---PAGE BREAK--- 3 mi. 5 mi. 5 mi. 3 mi. 1 mi. 1 KL KL KL KL KL KLK LL KL KL KL KL KKL KLL KL KL K KLL K KL KL KL KL KL L KL KLKL KL KL KL KKL LKL KL KL KL K KL KL KL K KLL KL KL KKL LKL KL KL KL K KL KL KL L L KLL KKL LKL L KL KL L LL KLK KLL LL LL KLL KLKL LK LKL L KLK KLL KL K LL KL K KLL KL KL KL KL KL K KLKL KL KLL KLK KLL KL KL L LL LKL K KL L L KL KLKL R KR KR KR KR K BL BL BL TU A A NA NA N OU OU O B S L _ _ _ ϯϭϵϳ ĨĨŽƌĚĂďůĞ,ŽƵƐŝŶŐWƌŽũĞĐƚƐ .H\WR)HDWXUHV Bus Stops* Bus Routes* 1/4 Mile radius from bus stops Affordable Housing Projects KL In Process KL Underway KL Completed Platinum Triangle The Anaheim Resort™ Anaheim City Boundary l 0LOHV 2FWREHU * OCTA GIS data from March 2010 ---PAGE BREAK--- PROJECT NAME ADDRESS RENTAL / FOR SALE NEW / REHAB AFFD/MARK/ MIXED TOTAL UNITS AFFORDABLE UNITS MARKET UNITS ZipCode DISTRICT STATUS 121 N. Drive 121 N. Drive Senior Rental New Mixed 11 4 7 92801 West Completed 125 N. Gilbert Street 125 N. Gilbert Street Senior Rental New Mixed 9 3 6 92801 West Completed 1532 E. La Palma Avenue 1532 E. La Palma Avenue Family Rental New Mixed 14 2 12 92805 Central Completed 1627 E. Sycamore Street 1631 E. Sycamore Street Senior Rental New Mixed 4 1 3 92805 Central Completed 208 S. West Street 208 S. West Street Senior Rental New Mixed 6 2 4 92805 Central Completed 302 E. Broadway 302 E. Broadway Family Rental New Mixed 14 2 12 92805 Central Completed 318 S. Bush 318 S. Bush Street Family Rental New Mixed 4 1 3 92805 Central Completed 318 S. Lemon St. 318 S. Lemon Street Family Rental New Mixed 22 2 20 92805 Central Completed 322 S. Bush 322 S. Bush Street Family Rental New Mixed 4 1 3 92805 Central Completed 721 W. La Palma Avenue 721 W. La Palma Avenue Family Rental New Mixed 12 2 10 92801 Central Completed 833 S. Dakota 833 S. Dakota Family Rental Rehab Affordable 4 4 0 92801 Central In Process Acaciawood Village 1415 W. Ball Road Senior Rental New Mixed 123 31 92 92802 Central Completed Anaheim Memorial Manor 275 E Center St Senior Rental New Affordable 75 75 0 92805 Central Completed Angelina Apartments 1034 N. Kemp Senior Rental New Mixed 8 2 6 92801 Central Completed Atchison Street Infill Atchison/Broadway Family For Sale New Affordable 10 10 0 92805 Central Completed Bel'Age Manor 1660 W. Broadway Street Senior Rental Rehab Affordable 180 180 0 92802 Central Completed Bell View Apartments 622 S. Velare Street Family Rental New Affordable 46 46 0 92804 West Under Const. Broadway Arms ‐ CIM Broadway/Clementine Family Rental New Market 95 0 95 92805 Central Completed Broadway Village 1245 E. Broadway Family Rental New Affordable 46 46 0 92805 Central Completed Build Your Heart Out 403 E. Broadway Family For Sale New Affordable 1 1 0 92805 Central Completed California Renaissance (SFD) Broadway/East Family For Sale New Mixed 87 49 38 92805 Central Completed California Renaissance (townhomes) Broadway/East Family For Sale New Market 65 0 65 92805 Central Completed Cantada Lane 3119‐3173 W. Lincoln Family For Sale New Mixed 28 8 20 92801 West Completed Cantada Square 2300‐2400 W. Lincoln Family For Sale New Mixed 82 41 41 92804 West Completed Carnegie Plaza ‐ CIM Anaheim/Broadway Family Rental New Market 64 0 64 92805 Central Completed Casa Alegre 2761 W. Ball Road Special Needs Rental New Affordable 23 23 0 92804 West Completed Casa Del Sol 1820 W. Gramercy Special Needs Rental New Affordable 4 4 0 92801 Central In Process Casa Delia 1105 Citron Street Family Rental Rehab Affordable 12 12 0 92801 Central Completed Cherry Orchard 2748 W. Lincoln Family Rental New Affordable 45 45 0 92804 West In Process Cobblestone Apartments 870 Beach Boulevard Family Rental Rehab Mixed 64 13 51 92804 West Completed Colette's Children Home 3431 W. Olinda Special Needs Rental Rehab Affordable 4 4 0 92804 West Under Const. Colony Park I ‐II N/E Corner Olive/South Family For Sale New Mixed 270 78 192 92805 Central Completed Diamond Street 1310 W. Diamond St Special Needs Rental New Affordable 25 25 0 92801 Central Completed Doria Lofts ‐ CIM Broadway/Lemon Family Rental New Market 60 0 60 92805 Central Completed Elm St. Commons 111 Elm St. Family Rental New Affordable 52 52 0 92805 Central Completed Fairhaven Apartments 536 N. Fairhaven Senior Rental New Mixed 17 6 11 92801 Central Completed Five Points Lofts 1128 W. Lincoln Avenue Family For Sale New Affordable 2 2 0 92805 Central Completed Five Points SFD 1219 ‐ 1231 W. Center Family For Sale New Market 6 0 6 92805 Central Completed Gilbert Park Apartments 925 S. Gilbert Street Senior Rental New Mixed 24 8 16 92804 West Completed Greenleaf Greenleaf/Glenoaks Family Rental New Mixed 20 20 0 92801 Central Pipeline Habitat for Humanity 326‐328 Julianna St. Family For Sale New Affordable 4 4 0 92801 Central Completed Harbor Lofts 435 W. Center Street Promenade Family For Sale New Mixed 129 34 95 92805 Central Completed Heritage Park Apartments 950 S. Gilbert Street Senior Rental New Mixed 94 29 65 92804 West Completed Heritage Place ‐ 3 Center Street Family For Sale New Affordable 28 28 0 92805 Central Completed Heritage Place 4 Cypress/Olive Family For Sale New Market 31 0 31 92805 Central Completed Heritage Place 5 Cypress/Olive Family For Sale New Market 46 0 46 92805 Central Completed Heritage Square infill (move‐on) Heritage Place/Cypress Family For Sale New Market 5 0 5 92805 Central Completed Heritage Village 707 W. Santa Ana Street Senior Rental New Mixed 196 49 147 92805 Central Completed Hermosa Village 1515 S. Calle del Mar Family Rental Rehab Affordable 517 517 0 92802 South Completed Integrity House 921 S. Beach Blvd. Special Needs Rental Rehab Affordable 49 49 0 92804 West Completed Jasmine Creek Apartments 206 N. Coffman Family Rental New Mixed 20 2 18 92805 Central Completed K&B Olive Street Infill Olive Street Family For Sale New Market 6 0 6 92805 Central Completed Kraemer Building 201 E Center St. Family Rental Rehab Market 21 0 21 92805 Central Completed ---PAGE BREAK--- PROJECT NAME ADDRESS RENTAL / FOR SALE NEW / REHAB AFFD/MARK/ MIXED TOTAL UNITS AFFORDABLE UNITS MARKET UNITS ZipCode DISTRICT STATUS Legacy Cypress/Olive Family For Sale New Mixed 58 47 11 92805 Central Completed Lemon / Water III Lemon/Water Family For Sale Move‐on Market 9 0 9 92805 Central Completed Lemon / Water I‐II 600‐624 Lemon Family For Sale Move‐on Affordable 7 7 0 92805 Central Completed Linbrook Court 2240 W. Lincoln Avenue Senior Rental New Affordable 81 81 0 92804 West Completed Lincoln Village Center/Philadelphia Family Rental New Market 285 0 285 92805 Central Completed Magnolia Acres 640 S. Magnolia Avenue Senior Rental New Mixed 40 10 30 92804 West Completed Manchester Manchester and Orangewood Family Rental New Affordable 119 119 0 92802 South In Process Manzanita Walk 550‐684 W. Vermont Family For Sale New Affordable 48 48 0 92805 Central Completed Monarch Pointe 1810 W. Crescent Ave. Family Rental New Affordable 63 63 0 92801 Central Completed New Horizons 835 S. Brookhurst Street Senior Rental New Mixed 80 32 48 92804 West Completed Newporter Apartments 3424 W. Orange Family Rental New Mixed 22 4 18 92804 West Completed Nutwood Apartments 1668 S. Nutwood Street Family Rental New Mixed 30 2 28 92804 West Completed Olive Street Townhomes Olive Street family For Sale New Market 9 0 9 92805 Central Completed Paint Your Heart Out 511 E. Broadway Family For Sale New Affordable 1 1 0 92805 Central Completed Palacio Villas 435 S. Anaheim Hills Road Senior Rental New Mixed 117 27 90 92807 East Completed Palm West Village 644 S. Knott Ave. Family Rental New Mixed 58 23 35 92804 West Completed Park Vista 1200 Robin St. Family Rental Rehab Affordable 392 392 0 92801 Central Completed Paseo Village 1115 N. Citron Avenue Family Rental Rehab Affordable 176 176 0 92801 Central Completed Pebble Cove Apartments 2555 W. Winston Road Family Rental New Mixed 112 45 67 92804 West Completed Picadilly / Ventura / Minot 2507‐2525 Picadilly / 1115‐1195 Ventura / 1140 N. Minot Family For Sale New Market 17 0 17 92801 West Completed Pradera Apartment Homes (CHOC) 1275 and 1287 Lincoln Avenue Family Rental New Affordable 146 146 0 92805 Central Pipeline Renaissance Apartments 3433 W. Del Monte Family Rental New Mixed 127 51 76 92804 West Completed Sage Park 810 N. Loara Street Senior Rental New Mixed 100 25 75 92801 Central Completed Sea Wind Apartments 1925 W. Greenleaf Family Rental Rehab Mixed 91 18 73 92801 Central Completed Single Family RFP Sites 1303 N. Devonshire Rd. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 1241 N. Aetna St. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 2138 W. Fir Ave. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 2144 W. Fir Ave. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 919 N. Ivy Ln. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 923 N. Ivy Ln. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 900 N. Maple St. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 2060 W. Catalpa Ave. Family For Sale New Market 1 0 1 92801 Central Completed Single Family RFP Sites 219 S. Walnut St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 1122 W. Santa Ana St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 554 S. West St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 716 S. Illinois St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 720 S. Illinois St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 837 W. Cottonwood Cir. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 313 E. Water St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 317 E. Water St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 211 N. Olive St. Family For Sale New Market 1 0 1 92805 Central Completed Single Family RFP Sites 1421 N. Buckingham St. Family For Sale New Market 1 0 1 92801 West Completed Single Family RFP Sites 1446 N. Buckingham St. Family For Sale New Market 1 0 1 92801 West Completed Single Family RFP Sites 1447 N. Buckingham St. Family For Sale New Market 1 0 1 92801 West Completed Single Family RFP Sites 2526 W. Avondale Ave. Family For Sale New Market 1 0 1 92801 West Completed Single Family RFP Sites 1301 W. Avondale Ave. Family For Sale New Market 1 0 1 92801 West Completed Single Family RFP Sites 2535 W. Picadilly Way Family For Sale New Market 1 0 1 92801 West Completed Solara Court 3335 W. Lincoln Avenue Senior Rental New Affordable 132 132 0 92801 West Completed South Street 700 E. South Street Family Rental New Affordable 92 92 0 92805 Central In Process Sterling Court 935 S. Gilbert Avenue Senior Rental New Affordable 34 34 0 92804 West Completed Sunset Plaza Apartments 2771 W. Ball Road Family Rental New Mixed 106 9 97 92804 West Completed The Boulevard 501 S. Anaheim Family For Sale New Mixed 56 36 20 92805 Central Completed The Fountains 225 S. Festival Drive Senior Rental New Mixed 259 130 129 92808 East Completed ---PAGE BREAK--- PROJECT NAME ADDRESS RENTAL / FOR SALE NEW / REHAB AFFD/MARK/ MIXED TOTAL UNITS AFFORDABLE UNITS MARKET UNITS ZipCode DISTRICT STATUS The Promenade ‐ CIM Anaheim Blvd/Center St Prom. Family Rental New Market 58 0 58 92805 Central Completed Tyrol Plaza 891 S. State College Blvd. Senior Rental New Affordable 60 60 0 92805 Central Completed Villa Anaheim 3305 W. Lincoln Avenue Senior Rental New Mixed 135 47 88 92801 West Completed Villa Catalpa 1680 Catalpa Drive Senior Rental New Mixed 18 6 12 92801 Central Completed Village Center Lincoln/Claudina Senior Rental New Affordable 100 100 0 92805 Central Completed Vineyard Town Homes 325‐425 S Vine St Family Rental New Affordable 60 60 0 92805 Central Completed Vintage Apartments 200 S. Citron Street Senior Rental New Mixed 82 21 61 92805 Central Completed Westchester 125 S Westchester Dr Family Rental Rehab Affordable 65 65 0 92804 West Completed Westwood Apartments 115 N. West Street Family Rental New Mixed 16 1 15 92801 Central Completed 6272 3627 2645 Projects in Process Projects Underway ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- 5 57 425 DU 520 DU 5,175 DU* 516 DU 1,219 DU 690 DU 352 DU 1,450 DU 321 DU 250 DU 1,208 DU 438 DU 2,681 DU 663 DU 364 DU 320 DU 350 DU 336 DU 859 DU 382 DU 390 DU E KATELLA AVE S LEWIS ST E CERRITOS AVE S STATE COLLEGE BLVD E ORANGEWOOD AVE S SUNKIST ST S MANCHESTER AVE E CHAPMAN AVE S DOUGLASS RD E GENE AUTRY WAY N THE CITY DR E HOWELL AVE W ORANGEWOOD AVE S LEWIS ST 3196 PTMU Overlay Zone: Residential Development Map Location City of Anaheim Planning GIS October 4, 2010 Platinum Triangle Anaheim City Boundary Sites with residential development Sites analyzed for residential development that do not have a development agreeement Sites with a development agreement for residential development * Residential development is currently precluded by the City's lease agreement with the Angels. ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- This is a summary of Housing Supply and Affordability: Do Affordable Housing Mandates Work? by Benjamin Powell, Ph.D and Edward Stringham, Ph.D, April 2004, www. rppi.org/ps318.pdf Reason • 3415 S. Sepulveda Blvd., Suite 400 • Los Angeles, CA 90034 W hile most of America is enjoying a housing boom and more people than ever can afford to buy a home, in some areas the story is not so happy. From New York to Silicon Valley, and from Milwaukee to Las Vegas, many urban areas nationwide face a housing affordability crisis. In these communities new housing production has chronically failed to meet housing needs, causing housing prices to escalate. In most of those communities there is great pressure on state and local govern ments to “do something” about the hous ing affordability crisis. One of the most popular responses has been “inclusionary zoning” ordinances that mandate develop ers sell a certain percentage of the homes they build at below-market prices to make them affordable for people with lower incomes. The number of cities with affordable housing mandates has grown rapidly. A report published in the mid-90s esti mated that about 10 percent of cities over 100,000 population had inclusionary zoning requirements, and many advocacy groups predict the trend will accelerate in the next five years. New Jersey and California were early leaders in the adop tion of inclusionary zoning, spreading to hundreds of communities in both states. In California, between 1990 and 2003, the number of communities with inclusionary zoning more than tripled—from 29 to 107 communities—meaning about 20 percent of California communities now have inclu sionary zoning. The way inclusionary zoning tries to tackle the affordable housing problem is by mandating that developers sell a certain percentage of new homes at a cut rate. Affordable housing advocacy groups push inclusionary zoning as the best way to address affordable housing needs. “Inclu ---PAGE BREAK--- 2 Housing Supply and Affordability REASON PUBLIC POLICY INSTITUTE • WWW.RPPI.ORG sionary zoning may be the only effective available tool left for local governments to meet the housing needs of hard working residents,” says the chairman of the National Housing Conference, a coalition of such groups. But Economics 101 tells us that price controls like those imposed by inclusionary zoning will likely lead to less housing, not more, and may well reduce the amount of affordable housing available in the communities that need it the most. As developers have often pointed out, if they are required to sell some houses a prices below market rates, they will have to make up the difference by raising the prices of the other homes in the development. And if that does not work, they can simply shift development to other communities where there are not inclusionary zoning man dates. Either way you get higher prices or less housing. So which is true? Is inclusionary zoning virtually a silver bullet to solve affordable housing problems, or is it a sure-fire way to decrease the supply of housing and drive up prices even further? Or, as policymakers should be asking: 1. Does inclusionary zoning lead to more affordable housing? 2. What effects does inclusionary zoning have on the housing market? 3. What are the fiscal effects of inclusionary zoning? As a recent report observed, “These debates, though fierce, remain largely theoretical due to the lack of empirical research.” Without knowing the economic and other real world consequences of inclusionary zoning, policymakers have difficulty assessing the merits or faults of the policy. We set out to answer those questions and provide the first thorough empirical analysis of the effects of inclusion ary zoning. To do so we use data from the San Francisco Bay Area in California, which consistently ranks as one of the least affordable housing markets in the nation, and which has been very aggressive in adopting inclusionary zoning in more than 50 communities so far and going back as far as 1973. These communities have various sizes and densities with different income levels and demographics, so they provide a good sample to tell us how inclusionary zoning is probably working nationwide. DOES INCLUSIONARY ZONING LEAD TO MORE AFFORDABLE HOUSING? The real acid test for inclusionary zoning is whether or not it leads to more units of affordable housing being built and sold in the community. But we found that after passing an inclusionary zoning ordinance, the average city produced fewer than 15 affordable units per year. Bay Area cities started adopting inclusionary zoning in 1973, and were among the very first areas to begin experi menting with this policy tool. And with all those years to work on getting it right, inclusionary zoning still has resulted in few affordable units. To date, the 50 Bay Area cities with inclusionary zoning report they have produced fewer than 7,000 affordable units. The average since 1973 is only 228 units per year. Contrast this with the Association of Bay Area Gov ernments estimate that the region needs 24,217 afford able housing units per year. At current rates, inclusionary zoning will only produce 4 percent of the region’s estimated affordable housing need (See Figure This means inclu sionary zoning will require 100 years to meet the current five-year housing need. The reason inclusionary zoning has failed to create more affordable housing is that price controls don’t get to the root of the affordable housing problem. In fact, by caus ing fewer homes to be built they actually make things worse. The real cause of affordable housing shortages is a shortage ---PAGE BREAK--- 3 Housing Supply and Affordability REASON PUBLIC POLICY INSTITUTE • WWW.RPPI.ORG of overall housing caused by government restrictions on supply. The Bay Area is a good example, since from 1990 through 2000, the region added nearly 550,000 jobs but only about 200,000 new homes. The California Depart ment of Finance recommends 1.5 new jobs per new home; the Bay Area produced only 55 percent of the suggested amount of housing. Supply has not kept up with demand due to artificial restrictions. One recent study found that 90 percent of the difference between physical construction costs and the market price of new homes can be attributed to land use regulation. The solution is to allow more construction. When the supply of homes increases, existing homeowners often upgrade to the newly constructed homes. This frees up their prior homes for other families with lower income. Inclu sionary zoning restricts this upgrade process by slowing or eliminating new construction. With fewer new homes avail able, middle- and upper-income families bid up the price of the existing stock of homes, thus making housing less affordable for everyone. WHAT EFFECTS DOES INCLU SIONARY ZONING HAVE ON THE HOUSING MARKET? W ho bears the costs of inclusionary zoning? Restricting prices below market increases demand and decreases Figure 1: Housing Needs Versus Expected Units Produced under Inclusionary Zoning ---PAGE BREAK--- 4 Housing Supply and Affordability REASON PUBLIC POLICY INSTITUTE • WWW.RPPI.ORG value of homes in those 33 cities, $6.5 billion worth of hous ing was essentially destroyed. But the loss in “the homes that could have been” is even greater than that. Recall that over the past 30 years inclusionary zoning in the Bay Area has only led to a reported 6,836 affordable units, which amounts to 228 per year. Taking an optimistic approach, if we look at the 45 inclusionary cities that produce the yearly average of 14.7 affordable units, we might expect as many as 663 units per year in the region. For the 45-city sample, however, the data indicates that inclusionary zoning may be decreasing the production of housing by upwards of 2,982 units per year (See Figure That is a net loss in the region of over 2,300 homes each year. This is crucial because most entry into the housing market by lower-income families is by buying older homes freed up when middle-income families move into new homes. Reducing the overall production of housing both drives up prices and means that the people crowded out of the housing market are the lower–income, would-be homeowners. WHAT ARE THE FISCAL EFFECTS OF INCLUSIONARY ZONING? I nclusionary zoning has two major effects on local econo mies. First, the costs in the housing market drain wealth out of the local economy. Second, inclusionary zoning leads to losses in state and local government revenue. Inclusionary zoning imposes large burdens on the housing market. For example, if a home could be sold for supply. When units must be sold for a loss, someone must pay for that difference. It turns out that, no surprise, land owners and market-rate buyers will ultimately pay the cost of the mandated affordable units. Unfortunately, this tax on new housing makes housing less affordable for everyone but the lucky few. Inclusionary zoning only exacerbates the affordability problem by increasing market prices and further discouraging supply. We estimate that inclusionary zoning causes the price of new homes in the median city to increase by $22,000 to $44,000. In high market-rate cities such as Cupertino, Los Altos, Palo Alto, Portola Valley, and Tiburon we estimate that inclusionary zoning adds more than $100,000 to the price of each new home. But developers have another option besides eating the cost of mandated affordable units or trying in a large regional market to sell the rest of the units at jacked-up prices: they can go elsewhere to build. And they do. Inclusionary zoning drives away builders, makes landowners supply less land for residential use, and leads to less housing for homebuyers—the very problem it was instituted to address. In the 45 Bay Area cities where data is available, we find that new housing production drastically decreases the year after cities adopt inclusionary zoning. The average city produced 214 units the year before inclusionary zoning but only 147 units the year after. Thus, new construction decreases by 31 percent the year following the adoption of inclusionary zoning. (See Figure 2) In the 33 cities with data for seven years prior and seven years following inclusionary zoning, 10,662 fewer homes were produced during the seven years after the adoption of inclusionary zoning. By artificially lowering the Figure 2: Average Housing Production the Year Prior and the Year Following the Adoption of Inclusionary Zoning ---PAGE BREAK--- 5 Housing Supply and Affordability REASON PUBLIC POLICY INSTITUTE • WWW.RPPI.ORG $500,000 but must be sold for $200,000, the revenue from the sale is $300,000 less. In half the Bay Area juris dictions this cost associated with selling each inclusionary unit exceeds $346,000. In one-fourth of the jurisdictions the cost is greater than $500,000 per unit, and the cost of inclusionary zoning in the average jurisdiction is $45 mil lion, bringing the total cost for all inclusionary units in the Bay Area to date to $2.2 billion (See Figure And yet, inclusionary zoning ordinances are often sold to policymakers as the proverbial free lunch, with proponents claiming, “A vast inclusionary program need not spend a public dime.” They argue that even if market- rate buyers and landowners end up paying the price of the subsidy, at least local governments need not spend revenue to create affordable housing. “From a local agency stand point, inclusionary zoning provides affordable housing at no public cost” (emphasis added). The story, however, is not that simple. The advocates fail to take into account that inclusionary zoning leads to direct losses in state and local government revenue. Price controls on new development artificially lower assessed values, and so taxes on those homes are collected based on a value below the true market value, costing state and local governments tax revenue each year. But price- controlled homes cost state and local government the same as market-priced homes to service. How ironic that these cities that impose this loss on themselves, when housing already does not typically generate sufficient tax revenue to pay for the services cities provide. Because inclusionary zoning restricts resale values for a number of years, the loss in annual tax revenue can become substantial. The total present value of lost state and local government revenue due to Bay Area inclusionary zoning ordinances is upwards of $553 million. Besides leading to lost revenue, inclusionary zoning also imposes direct costs on local governments. Cities have to enforce price-control requirements in new developments and have to police the resale of price-controlled units as long as they exist to make sure they are not resold at market prices. Running and monitoring the program in Palo Alto costs $40,000 to $60,000 in annual administrative costs alone for 253 units over the past 30 years. In addition, inclusionary zoning creates other adminis trative costs because the price-controlled units are far more difficult to sell than market-rate homes. One of the biggest challenges for builders of price-controlled units is qualify ing buyers. Some builders estimate that the administrative cost of selling price-controlled homes is about double what Decrease in overall new construction associated with inclusionary zoning (for 45 cities in one year) Inclusionary units produced for 45 cities for one year Figure 3: Comparing the Increase in “Affordable” Units to the Overall Decrease in New Construction Associated with Inclusionary Zoning ---PAGE BREAK--- 6 REASON PUBLIC POLICY INSTITUTE • WWW.RPPI.ORG Housing Supply and Affordability is spent on market-rate homes. One builder describes the costs of qualifying buyers for a current development in Novato: For the 40 buyers we have to date, we have pro cessed over 270 applicants. The conversion ratio is so low that we are hiring additional staff to process the workload. The city also required us to have a custom software program developed to manage the list of applicants. The procedure is so complex that the software costs over $400,000 to develop. This cost is for only 352 homes. The process also takes time. The same builder says that at the Meadow Park development in Novato, “The process, as mandated by the city, is so cumbersome that we have only been able to sell 40 homes in six months. We started with over 2,600 prequalified buyers and have only been able to process 270 potential buyers netting 40 sales in six months. We literally can build the homes faster than we can process sales.” Both the direct administrative costs and the financing cost of carrying unsold inventory while searching for qualified buyers are additional administrative burdens created by inclusionary zoning ordinances. CONCLUSION I nclusionary zoning has failed to produce a significant number of affordable homes due to the incentives cre ated by the price controls. Even the few inclusionary zoning units produced have cost builders, homeowners, and gov ernments greatly. By restricting the supply of new homes and driving up the price of both newly constructed market- rate homes and the existing stock of homes, inclusionary zoning makes housing less affordable Inclusionary zoning ordinances will continue to make housing less affordable by restricting the supply of new homes. If more affordable housing is the goal, govern ments should pursue policies that encourage the production of new housing. Ending the price controls of inclusionary zoning would be a good start. ■ Figure 4: Average Cost Associated with Selling Each Price-controlled Unit