Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
A new tool shows that developers can profit by building affordable housing almost anywhere.
It can feel like a mantra among private developers: Requirements by municipal governments to include affordable units in market-rate housing developments make those developments unprofitable, even unfeasible. It may be one of the most frequently repeated claims about housing in general. Can it possibly be right?
That’s the question that Jennifer Bradley, founding director of the Center for Urban Innovation at the Aspen Institute, posed during an afternoon session Monday at The Atlantic’s CityLab 2015 summit in London. As it turns out, it’s not a rhetorical question. Affordable housing isn’t a profit proposition. It’s a question of morals.
The Inclusionary Calculator is an effort to settle this question—and to prove that one major assumption about affordable housing is a myth. Developed by the Cornerstone Partnership, the tool allows users to simulate the balance sheets for market-rate developments for any number of scenarios. It accounts for factors such as costs of production, financing, affordability set-asides, and parking requirements.
No matter what kind of market scenario you run, developers can still produce market-rate housing developments that include affordable housing, according to George W. “Mac” McCarthy, president of the Lincoln Institute of Land Policy.
“The point is to challenge the often unchallengeable development logic that says, ‘We can't afford to build affordable units in San Francisco. We can't afford to build affordable units in Manhattan,’” McCarthy says. “The point is they can.”
Users can mirror market conditions across the U.S.—or even in different areas within a single metro area—by adjusting the variables for a hypothetical housing development. Researchers at the Lincoln Institute used the Cornerstone Partnership’s tool to model the real-estate markets for several cities across the nation.
“In almost every case, we could target a 10 percent profit for the developer and still leave at least 12 to 15 percent of the units to be affordable,” McCarthy says.
This is important for a number of reasons. It’s not just a useful start at countering a line of logic that many people greet as conventional wisdom: that inclusionary zoning requirements beyond a certain threshold make market-rate development impossible in cities such as San Francisco, New York City, or Washington, D.C.
The Inclusionary Calculator is also useful for understanding what happens when developers include affordable units in market-rate housing. The tool is currently in beta mode; developers at Cornerstone welcome user feedback.
“Generally, developers do not pass on the costs of inclusionary housing to tenants and homebuyers,” writes Rick Jacobus, founder of Cornerstone,* now a consultant, and author of a policy report on inclusionary zoning for the Lincoln Institute.
“The local real-estate market sets the prices of market-rate units, and developers of one project can’t change the overall market price or rent,” Jacobus adds. “Therefore, the costs associated with construction of inclusionary housing are either absorbed by modest declines in land prices or reductions in developer profits, or some combination of the two.”
So, not only does inclusionary zoning not raise the costs of market-rate construction beyond reason, it also does not raise the price of market-rate units for homeowners. It eats away at developer profits. That makes affordable housing a moral question, not a feasibility issue: Do leaders dare to challenge developers on their profit margins?
Perhaps they do so at their own peril, from a political perspective. But cities can’t afford not to challenge developers to build more affordable housing.
*CORRECTION: This post initially misreported Rick Jacobus’s current role at the Cornerstone Partnership. While he is the organization’s founder, he presently works with the group on a consultant basis.