Local Policy | April 14, 2022

Missed Opportunities: Assessing and Leveraging Requirements, Incentives & Tradeoffs in Affordable Housing Development

Written by Mike Kingsella

Reading time: 3 minutes

The United States is experiencing a housing crisis driven in part by a shortage of millions of homes. This housing shortage has created barriers for many Americans to achieve the dream of homeownership. Cities and states have been attempting to improve the housing market by developing incentives or programs to encourage developers to build affordable or inclusionary housing. Some of these incentives and rules, like set aside requirements (which require a certain number of units to be rented at affordable or below-market-rates), length of affordability (which requires that the unit be affordable for a specific length of time), and other policy levers, have varied impacts on the overall housing supply.

Up for Growth’s recently published policy brief, Missed Opportunities: Assessing and Leveraging Requirements, Incentives & Tradeoffs in Affordable Housing Development, takes a detailed and nuanced look at various inclusionary housing programs’ impacts on the overall supply of affordable housing using proforma economic data. We have found that affordable housing policies are more effective when the program is grounded in local economic realities and when those incentives are carefully designed to ensure the greatest number of affordable homes and lasting affordability.

Poorly crafted policies or policies that do not thoughtfully consider local realities can risk harming housing production. We were able to identify a better mix of requirements and offsets other communities could use as a model to effectively leverage private sector investment and produce the greatest number of affordable homes.

Other key findings include:

  • Effectiveness of tax exemptions: Local jurisdictions can prioritize targeted outcomes – around the depth of affordability and the percentage of units set aside in mixed-income developments – by leveraging more extended tax exemption periods.
  • Maximizing number of units: Nearly 60% of Up for Growth members prioritize maximizing the number of affordable units created over creating deeper affordability (defined as the affordability level based on household income thresholds, typically 60 percent or 80 percent of an area’s median family income.
  • Calibrating trade-offs: Policymakers must carefully calibrate tradeoffs between short-term forgone property tax revenue and long-term public benefit to maximize housing production and ensure long-term affordability.

Support from groups like Grounded Solutions, a group dedicated to improving inclusive housing, the Mortgage Bankers Association, and academics like Emily Hamilton at the Mercatus Center at George Mason University suggest that there is common ground around policies that leverage tax policy to increase affordable housing production in market-rate buildings and achieve lasting affordability.

To read the rest of the report, please click here.