How are your neighbors affected by new housing construction?

If you want to buy a new house or condo, chances are good that the neighborhood’s existing neighbors approve of your decision. In a thriving, well-to-do suburb, that approval rate may be a third…

How are your neighbors affected by new housing construction?

If you want to buy a new house or condo, chances are good that the neighborhood’s existing neighbors approve of your decision. In a thriving, well-to-do suburb, that approval rate may be a third or more.

Income and race aren’t the only things that affect how people respond to housing supply — geographical location can have a big influence too.

Related content If housing is where your heart is, these cities may be for you

In a recent study published in the Journal of Urban Economics, a team of researchers analyzed two recent studies examining zoning regulations in the U.S. and concluded that cities with “inclusionary zoning” — a restrictive policy that limits or even bars new construction — are likely to see more vacant and distressed properties.

If you’re interested in building more housing in your own city, your chances of approval are probably higher if you adopt inclusionary zoning.

An acknowledgement of inequality

Why is it that one-third of single-family homes and almost two-thirds of condominiums are owned by a white family? In other words, when housing is built, it is overwhelmingly destined for people who already own homes.

In city after city, small, affluent and white communities that adopt inclusionary zoning seem to see more new construction, even though there is a dearth of housing stock in those places.

Related content 10 cities where building affordable homes is easier than ever

Although the developers who add homes to the market are often lower-income and minority families, analysis of new housing units in 12 cities found that the mix of race and income is actually consistent across neighborhoods that enacted inclusionary zoning.

Could it be that the policy is helping close the gap between homeownership rates and wages?

Some perspective

In any analysis of the property market, one should take into account the relative health of the housing market at any given time.

Related content The US has lots of falling apartments, but Canada has none

By limiting housing supply, at least temporarily, in the area, inclusionary zoning becomes less efficient in reducing prices. In neighborhoods with fewer homeowners, for example, some developers may wait out the market, leaving homes underutilized until demand can take over.

That outcome can have far-reaching effects on local residential real estate. When vacant and distressed homes are marketed for sale, other homes become less likely to sell.

That’s a dire situation that some may argue is the best way to bring a neighborhood out of the depths of economic distress.

Find your direction

Regardless of your assumptions, this research can’t be disregarded. Zoning codes may inadvertently serve to perpetuate inequality.

For every one new home constructed or two burned out, one currently uninhabitable home may be put on the market. Because most purchase transactions in metropolitan areas involve fewer than five units, like these properties will not only be initially out of the reach of lower-income families, they will also slowly creep into the crosshairs of all buyers.

Related content America’s 10 most expensive cities for renters

As some buyers across metropolitan regions compete for vacant and distressed homes, prices will rise as there will be fewer sellers and available housing.

The more you see the “inclusionary zoning” that is about to be implemented in your community, the more likely it is to simply bring more of the same outcome and perpetuate a cycle of economic depravity and racial segregation.

– Danielle Paquette is an associate lecturer at New York University Stern School of Business and an associate economist with the Real Estate and Development Research Group at the London School of Economics.

©2016 The Financial Times Limited. All rights reserved.

Leave a Comment