About Those Inclusionary Housing Policies

Inclusionary housing policies are proliferating throughout the country amid a worsening housing affordability crisis — but how effective are they?

It depends, according to Moody’s analysts David Caputo and Matt Reidy.

“The data is mixed on both voluntary and mandatory inclusionary policy impacts. Affordable housing supply grew significantly in some localities, but not others,” the pair write in a new analysis. “Incentives offered and local market conditions seemingly dictate the success of such measures, rather than whether the policies are mandatory or voluntary.”

For example, they say incentives like density bonuses and tax breaks provide the strongest incentive, while factors like market size, strength, and development costs also play a role in the relative success of a program.

They also note that Denver, one of the latest cities to impose mandatory inclusionary housing requirements effective July 1, will require developers to build and maintain between 8-15% of units at rents at 60-70% of the HUD Area Median Income. And in return, developers get reduced permitting fees, relaxed parking requirements, and increases in density if enough affordable units are included.

But ultimately, ”more research is desperately needed to better understand the key drivers of success,” Caputo and Reidy say. “There is a wide body of research showing the long-term social benefits of mixed income developments, especially for lower income families, highlighting the importance of inclusionary programs. However, programs must have incentives that ensure that developers are no worse off economically by including affordable units. If participation remains voluntary, it risks some developers opting out, even if it were more lucrative to participate.”