There’s a growing chorus among policymakers in Kansas City, St. Louis, and around the country demanding that new housing developments “do their part” to solve inequality—most often through inclusionary zoning policies. These require or incentivize developers to include low-income units in otherwise market-rate buildings, usually in exchange for tax abatements or density bonuses (permission to build additional height, floor area, or dwelling units beyond what standard zoning allows). Sounds noble. But when you start to do the math, as MIT economist Evan Soltas did in a recent study, you realize the cost of these programs can be staggering—and they can be wildly inefficient.
Soltas takes a close look at New York City’s 421-a tax incentive, a voluntary program meant to coax developers into adding affordable units to new construction. His conclusion? The marginal cost of delivering just one of those “affordable” units is about $1.6 million. Not per building—per unit.
To put that in perspective, housing vouchers or programs like the Low-Income Housing Tax Credit (LIHTC) can often serve a family for a fraction of that price. In fact, Soltas finds that the 421-a program is about six times more expensive than either LIHTC or Section 8 on a per-unit basis.
Supporters of these policies often say the premium is worth it because it moves low-income households into higher-income neighborhoods, opening up long-term opportunities. But even that goal comes with trade-offs. We can’t pretend money is infinite. When we choose to spend $1.6 million to house one family in a high-rent ZIP code, we are choosing not to house five or ten families elsewhere. Every dollar we overpay in one neighborhood is a dollar not spent reducing waitlists, repairing existing housing stock, or investing in other services.
The more we subsidize these costly outcomes, the more we distort the market—and not in subtle ways. Developers are rational. When inclusionary mandates make a project unprofitable, they don’t build. When they can get tax breaks for minimal public benefit, they take the deal. Soltas’s paper even shows that developer “windfalls” aren’t the biggest issue—it’s the simple fact that it costs far more to make units “affordable” in already expensive neighborhoods.
What this all points to is a deeper issue in housing policy: the unwillingness of lawmakers to prioritize. Inclusionary housing tries to solve everything at once—cost, segregation, opportunity—but ends up creating a system where we pay top dollar for minimal benefit. It’s the public policy equivalent of spending a fortune on a single winning lottery ticket while others go hungry.
We don’t have to take that path. There are more cost-effective ways to support housing affordability that don’t rely on distorting incentives or showering subsidies on high-income developments. Targeted vouchers, flexible zoning reforms, and letting supply meet demand are all better places to start.
Policymakers should stop asking, “How can we mandate more affordable housing?” and start asking, “What’s the most effective way to help the most people with the dollars we have?”
