Although some believe that a zoning technique which requires builders of market-rate housing projects to set aside a portion of their product for moderate-income families is the best way to bridge the affordable housing gap, a new study says the process has failed miserably in California.

So-called "inclusionary zoning laws" enacted by 13 Southern California cities are actually backfiring, driving housing prices up by as much as $100,000 while also prompting significant decreases in new home construction, according to the latest installment of a study by the Reason Foundation, a self-described Libertarian think tank based in Los Angeles.

The new research comes on the heels of a similar Reason Foundation study in Northern California which found that attempts in the Bay Area to provide affordable housing by requiring developers to sell a percentage of new homes at prices below market value also have backfired.

In 45 Bay Area cities where inclusionary zoning has been enacted, new housing construction decreased by 31 percent the year following the adoption of the policies, the Northern California study found.

Both studies were commissioned by the California Building Industry Association. And their findings are diametrically opposite another recent report by the National Housing Conference which held that well-designed inclusionary zoning laws work for builders as well as buyers.

The Reason Foundation said that inclusionary zoning is actually making California's housing crisis worse.

The latest study finds that affordable housing mandates in cities within Los Angeles and Orange Counties increase the price of new homes by anywhere from $33,000 to $66,000 to compensate for the mandatory discounts on the "restricted" homes.

In San Juan Capistrano and Laguna Beach, inclusionary zoning adds more than $100,000 to the price of each new home, the study said.

The report examines data from all 13 cities that have implemented inclusionary zoning mandates within the two counties. In all 13, the average production of housing fell in the year following adoption.

It wasn't a one-year dip, either: In the eight cities with data for seven years prior and seven years following inclusionary zoning, 17,296 fewer homes were produced during the seven years after the adoption of inclusionary zoning. In those cities only 770 "affordable" units were produced.

"Homebuyers and taxpayers have to question whether a paltry 770 units are worth the cost when it means a total of 17,296 fewer homes," said Benjamin Powell, assistant professor of economics at San Jose State University and co-author of the report.

"By discouraging production of 17,296 homes in those eight cities, $11 billion worth of housing was essentially destroyed."

In Northern California, where 45 Bay Area cities have enacted inclusionary requirements, the price of new homes has increased by $22,000 to $44,000, the earlier study found.

In some communities, like Cupertino, Palo Alto, Los Altos, Tiburon, and Portola Valley, the price controls have added more than $100,000 to the price of new homes.

In addition, new housing construction decreased by 31 percent the year following the adoption of the policies. And 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-year period after the adoption of the ordinances.

"Inclusionary zoning should only be enacted if the goal is to make housing even more expensive and to decrease the quantity of new housing available," Edward Stringham, assistant professor of economics at San Jose State University and co-author of the report, said at the Pacific Coast Builders Conference in San Francisco earlier this month.

Adrian Moore, vice president of research at the think tank and the studies' project director, said the ever-growing mountain of evidence says inclusionary zoning is bad for buyers. "These affordable housing mandates started with good intentions, but are producing terrible results," Moore said. "The worst possible solution to our affordability crisis is to pass policies that restrict the supply of housing."

Published: June 23, 2004

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.