Can’t Legislate Reality: Lessons for Inclusionary Zoning

California required low fire insurance premiums, and major insurers stopped writing policies. New York mandated heavily discounted broadband, and a major internet provider pulled out of the state.

In Albany, city legislators demanded that new rental housing include affordable units, and developers stopped building.

These examples do not mean lawmakers should let businesses do whatever they want. But they show that businesses will not do whatever lawmakers want.

In other words, the government cannot legislate reality.

Replicating MIH

Mandatory inclusionary housing seems to have mostly succeeded in New York City. Starting in 2017, developers benefiting from rezonings had to make about 25 percent of units in new rental buildings cheaper than market-rate. And well before then, rental projects had to be 20 percent affordable to get the 421a property tax break. Developers almost always opted in.

When Albany ramped up its own version in 2023, however, builders pulled back.

The upstate city previously required projects with 50 or more units to make 5 percent of them affordable to renters earning 100 percent or less of the city’s median income.

The new version — passed despite two mayoral vetoes — required 7 percent to 13 percent of units (depending on the size of the project) to be affordable to renters making 60 percent of the area median income. So, more units at much lower rents.

Requiring too many money-losing apartments kills development. If market-rate units aren’t profitable enough to subsidize them, the project doesn’t make financial sense and never gets built.

That’s what happened in Albany, according to Mayor Kathy Sheehan. Developers proposed 943 market-rate units from 2022 until the affordability ordinance passed in April 2023. Since then, they have proposed 192.

Albany’s city council last week passed an ordinance to make affordable housing easier to build, but Sheehan vetoed it, having promised to oppose any zoning changes that fail to amend the 2023 affordability requirement.

Trial by fire

The examples of California fire insurance and New York broadband are instructive.

Several major insurers said California regulators didn’t allow high enough premiums, given the huge payouts that wildfires could trigger, so they withdrew over the past two years. That was a smart business decision, but left some owners without coverage on homes that have now burned down.

Can’t Legislate Reality: Lessons for Inclusionary Zoning — Assembly member Amy Paulin (NYS Assembly)

In New York, Assembly member Amy Paulin said she introduced the Affordable Broadband Act because “affordable internet access is an essential service and must be available to all New Yorkers.”

The bill, which took effect Jan. 15, compelled internet service providers to offer qualifying consumers broadband at $15 per month. Providers challenged the law in court, warning that they would be unable to make money in rural areas, but lost the case.

AT&T was offering wireless home internet for $60 per month, or $47 when bundled with an unlimited wireless plan. Because of the new law, it will stop offering that statewide. Even customers who happily paid those prices may be left with no broadband at all.

Like market-rate broadband and fire insurance, market-rate housing is better than no housing. When people move into new housing, they make cheaper housing available to others. It’s called filtering.

Critics, such as the council member behind Albany’s affordability mandate, call it “trickle-down.” Disparaging labels can build political support. But they cannot build housing.