Land-use scholars have offered a variety of policy proposals that attempt to identify institutional reforms to reduce the incentive for homeowner NIMBYs to protest development. For example, in a 2013 paper law professor David Schleicher proposed a policy called Tax Increment Local Transfers (TILTs). When a municipality permits a new development, the new construction will increase its tax base by an amount called the tax increment. Schleicher suggests that the tax increment could be transferred to NIMBY homeowners to buy their support for new housing.
But homeowners aren’t the only vocal opponents to new housing. Anti-displacement activists are also prominent opponents to new construction. What if we also dedicated TILT revenues to anti-displacement causes?
Making new housing construction feasible in the cities with the best job opportunities is of serious importance for economic opportunity and mobility. Research by Peter Ganong and Daniel Shoag (covered here by Sandy and me and here by Matt Yglesias) demonstrates that restricted housing supply in the U.S.’s most productive cities has resulted in less income mobility over the past 40 years. Ganong and Shoag explain that during the high-mobility period of 1940 to 1960, people moved from low-income to high-income states. In the process, the labor forces in high-income states grew, putting downward pressure on their wages relative to low-income states. As income increased across all states during this time period, it grew fastest in the lowest-income states.
Ganong and Shoag show that the negative relationship between income growth rates and average income across states has broken down since 1980 with the rise of land-use regulations that have severely limited housing supply growth in the country’s most productive cities. Specifically, they find that if income convergence had continued at its 1940-1960 rate through 2010, hourly wage inequality would be eight percent lower today.
While homevoters are responsible for the lion’s share of anti-development NIMBYism across the country, in high-cost cities, anti-displacement NIMBYs are playing an increasingly visible role in opposing YIMBY support for new housing.
In a series called Getting to Yes with YIMBY, urban planning professor Lisa Schweitzer has interviewed anti-displacement advocates in Los Angeles to learn about the concerns they have with new development. As one resident told her:
Rent control is bad for everybody but the current renters, say all the professors. Well, genius, we are the current renters, and we would actually to like to benefit. How about that? How about we benefit?
Another interviewee said:
If what they want to do with these new developments is so damn great, then do it over there on the westside first. And, uh, no, that is not happening, is it?
In addition to building support for new housing and reducing gentrification pressure on the supply side, TILTs could also provide a revenue source for housing vouchers. A TILT for affordable housing could be structured in several different ways. The funds could be used to provide housing vouchers to city residents who meet established income requirements. Or the funds could be dedicated specifically to residents who lose rent-controlled apartments to new construction.
TILTs have the potential to be a significant revenue source. While tax increment financing (TIF) is a distinct concept from TILTs (and TIFs raise fiscal and equity concerns), TIFs provide some indication for the revenue-raising potential of TILTs. In Chicago, TIFs generate $500 million annually. The more constrained a city’s housing supply is, the more potential it has for substantial tax increments as a revenue source. In “City Unplanning,” Schleicher suggests that 25 percent of the tax increment of new development could be share with property owners who live near new development. Another 25 percent could be dedicated to housing vouchers. If TILTs lead to approval for projects that would have otherwise been blocked by homevoters and/or anti-displacement activists, they would still provide an increase in cities’ general property tax revenues.
Anti-displacement activists’ current favored subsidy policies — inclusionary zoning and rent control — have the unintended consequence of reducing their cities’ housing supply. Rent control is the policy issue that most unites economists; more than 90-percent of economists agree that it reduces housing supply and quality. There has been surprisingly little research on the relationship between rent control and housing starts, but studies of Boston and Los Angeles find the rent control has the expected negative effect on housing supply.
Rent control and inclusionary zoning benefit cities’ current low-income tenants at the expense of low-income residents in other parts of the country. This is generally an unseen cost. The person who can’t move to a job opportunity in Los Angeles because they can’t afford LA rents isn’t visible at planning commission meetings. But both the homeowners and the current beneficiaries of non-market-rate-affordable housing policies are currently incentivized to favor policies that reduce income mobility. Given that the stated goals of rent control and inclusionary zoning are to increase housing affordability, it’s a key failing of these policies that they make new housing development less profitable.
Similarly, by increasing the cost of building new housing, inclusionary zoning reduces the supply and increases prices of market-rate housing. Anti-displacement activism has become such a political force that Roderick Hills argues that inclusionary zoning actually increases housing supply by building political support for new construction. While this could theoretically be true, the available empirical evidence generally shows that the fiscal effects of inclusionary zoning beat out the political effects. Inclusionary zoning results in less construction and higher prices that what we would see without it.
The costs of new development for existing neighborhoods are clear and compelling, but the unseen cost of not building housing is a country that provides fewer opportunities for economic growth and mobility. The current policy tools for helping low-income people afford housing in expensive cities blocks outsiders from accessing the jobs in these cities at all. TILTs could be used both to generate support for new housing among homevoters in high-income neighborhoods and to provide affordable housing funds without taxing housing supply.