This👇 is why we have a housing crisis. Yes, new luxury condos don't directly help the typical person. But they do help indirectly: (1) by preventing the rich from competing for existing housing. (2) by making homes available when people move in and vacate their previous unit.

Read my new article on IZ: https://t.co/F237P5dvLW 3/3

In mansion district Shaughnessy, land values increased 5x, just due to rising demand to live in Vancouver. There are no upzonings, since the neighborhood is heritage protected. IZ does nothing to capture this land value. LVT works, because it's unconditional. 2/

Important fact about inclusionary zoning: it's a *partial* value capture mechanism, because it applies only conditional on development. Landowners can avoid IZ value capture by doing nothing, and still watch their land value increase. Land value tax solves this. 1/

Smart thread and piece on inclusionary zoning:

Land values increased 5x in a mansion district. IZ cannot capture this. https://t.co/DaJbsJ2fCj

Keep in mind: IZ only captures land value when redevelopment occurs. A land value tax captures land value unconditionally.

Discuss: is it better to under-capture land value, guaranteeing that market-rate housing is built while missing out on some subsidized homes; or over-capture and get the subsidized homes, but at the cost of higher market rents? Ie. costs of false positives vs false negatives.

New post on inclusionary zoning, for my housing literature review. IZ requires developers to provide subsidized homes in their new apartment buildings. Without providing compensation to developers, this unfunded IZ is just a tax on new housing. 1/

Check it out: https://t.co/F237P5dvLW 7/7

In the post, I discuss the new structural papers by @vincent_rollet and @MaxenceValentin, who run counterfactual exercises to see how IZ works in NYC. Preview: we have to give up more market-rate housing than we gain in subsidized homes. 6/

Density-bonus IZ is a *transitionary* policy. We want optimal zoning, that doesn't constrain housing supply. As we move to that goal, we can capture surplus land value and fund subsidized housing along the way. If politicians cannot commit, it may be better to swear off IZ. 5/

When zoning is suboptimal and constrains development, new density increases the option value of a parcel, creating surplus land value. Density-bonus IZ is funded out of this surplus. Important: IZ is funded by landowners, not developers. 4/

IZ has to be *calibrated*: the 'payment' to developers is at least equal to the cost of subsidized homes. Each parcel needs to be calibrated separately, and updated as market conditions change. Ideally, IZ would be automatically calibrated to market conditions. 3/

We could fund IZ through a property tax exemption, but this means giving up tax revenue. Better is a density bonus: allow developers to build more homes. With higher market-rate supply, rents fall, so fewer people need subsidized housing in the first place. Win-win! 2/

New post on inclusionary zoning, for my housing literature review. IZ requires developers to provide subsidized homes in their new apartment buildings. Without providing compensation to developers, this unfunded IZ is just a tax on new housing. 1/

If we wanted to reward people for building housing, we could start by taxing land that isn't being developed, and only then turn to value capture from new housing.

For NYC, was the Gowanus value capture properly calibrated? What is the land lift under the new upzoning? 6/

Eg. as demand for houses rises, the price of single-family-zoned land increases, so the land lift from upzoning to multiplexes shrinks. To maintain the same land lift, we instead need to upzone from single-family to 6-storey apartments. 5/5

The 'land lift' that we capture depends on the size of the upzoning and the baseline price of land. As demand to live in the city increases, land values rise, and the land lift from a given upzoning shrinks. We need a bigger upzoning to capture the same amount. 4/

Value capture has to be carefully calibrated to avoid over-extracting. If we capture more than the surplus land value, then we're imposing a tax on new housing, which increases rents. 3/