The Price of Inclusion: Evidence from Housing Developer Behavior
117 Pages Posted: 22 Sep 2020 Last revised: 2 Nov 2021
Date Written: October 30, 2021
In many cities, incentives and regulations lead developers to integrate low-income housing into market-rate buildings. How cost-effective are these policies? I study take-up of a tax incentive in New York City using a model in which developers trade off between tax savings and pre-tax income. I estimate the model using policy variation and microdata on all development from 2003 to 2015. I estimate a citywide marginal fiscal cost of $1.6 million per low-income unit. Differences in neighborhoods, not developer incidence, explain the cost premium over other housing programs. Weighing costs against external estimates of neighborhood effects, I conclude middle-class neighborhoods offer "opportunity bargains."
Keywords: inclusionary housing, low-income housing, housing supply, affordable housing, property taxation
JEL Classification: H21, H22, H32, H71, R28, R31, R38
Suggested Citation: Suggested Citation