A policy that's supposed to create more affordable housing often backfires, leaving cities with higher home prices and rents. There's a way to fix that.

• Inclusionary zoning policies can backfire, leading to fewer homes and higher housing costs.
• A new study suggests ways to optimize inclusionary zoning for affordable housing.
• But direct housing subsidies, like vouchers, can be more effective and flexible.

A key policy designed to create affordable housing for low-income people has long been scrutinized for being generally ineffective.

Inclusionary zoning, which originated in the 1970s, is designed to boost the production of affordable housing by requiring or incentivizing developers to set aside a certain share of below-market-rate units when building new apartments or homes.

The idea is to leverage land-use regulations to have the private sector offer some homes for lower-income people. The term is a response to "exclusionary zoning" — laws like single-family zoning that make it illegal to build cheaper units in multi-family buildings — which still dominates American cities and cements racial and socioeconomic segregation.

But critics have long pointed out that inclusionary zoning policies often backfire by raising costs so much for developers that they cancel or significantly scale back new housing projects. At a certain point, more inclusionary zoning requirements mean less affordable and market-rate housing is constructed than otherwise would be.

Some advocates of land-use policies like inclusionary zoning argue that any additional affordable housing is a net benefit, even if it means less housing overall or higher rents. But lots of research has found that restricting the supply of housing — including market-rate homes — means higher rents and home prices. So a policy designed to create more affordable housing can actually result in fewer homes and higher housing costs.

A new study by UCLA housing researcher Shane Phillips found that while inclusionary zoning is deeply flawed, there are ways to design the policy to maximize its benefits. Phillips used a simulator developed by UC Berkeley's Terner Center for Housing Innovation to predict how much both market-rate and low-income housing inclusionary zoning would produce. He looked specifically at Los Angeles' Transit Oriented Communities program, which incentivizes developers on a voluntary basis to build housing around bus and train stations.

Phillips wanted to determine whether there's an optimal inclusionary zoning policy and if not, what the policy's tradeoffs look like. This involves finding a balance between creating more deed-restricted affordable housing and boosting the overall supply of housing.

He concluded that the value of the government subsidy for building affordable housing needs to outweigh its costs. If taxes are too high on new construction, the new housing just won't go up. And because it's hard to strike that balance correctly in every case, Phillips also found the policy should be voluntary, rather than mandated. That way, "if you calibrate wrong, if you require too much and offer too little, you're not going to kill projects because they have no choice but to go down that pathway," Phillips said.

While it's possible to improve inclusionary zoning, Phillips found the costs of the policy "are very likely greater than the benefits." But he recognizes that it can be politically impossible for policymakers to abandon the policy.

"That's not to say that we should just get rid of these programs," Phillips said. "Partly for political reasons, I think it's just a necessity in many cases, and maybe at least a bridge to something better."

Studying the impacts of inclusionary zoning is increasingly important because a growing number of states and localities are looking to boost all kinds of infill construction in existing neighborhoods, including so-called "missing middle housing" — everything between a detached single-family home and an apartment building. While larger apartment buildings are generally better able to absorb the costs of inclusionary zoning, it often doesn't pencil out to build below-market units in smaller developments.

"It's a lot easier to make inclusionary zoning work when most of your projects in your city are 50 units, 100 units," Phillips said. To encourage the construction of missing middle housing, "you really need a simple process and minimal requirements," he added.

Many policy experts, including Phillips, would rather see governments provide much more in direct housing subsidies, both for low-income people and homebuilders.

Direct subsidies, like housing vouchers, give low-income residents more flexibility: they can choose where they want to live. And every dollar spent on direct housing support, like housing vouchers, tends to go farther than a dollar used to subsidize the construction of an affordable unit, Phillips said.

"We really, over time, need to move away from trying to have land use reforms serve multiple purposes, let them do what they're good for, which is producing more housing of different types," Phillips said. "And we really need to find resources and commit resources to subsidizing housing for people who can't afford it on their own, whether through vouchers or subsidies for construction, really both."