What if the City decides to listen to us and invites us to talk about the Mayor’s proposed Mandatory Inclusionary Zoning (MIZ) proposal? What principles should we take if we’re asked to negotiate or compromise on the proposal? How do we ensure that whatever emerges from the political process doesn’t do long lasting damage to the production of housing and the wider housing economy? And how can a compromise avoid something that would just push up housing prices and lead to more aggressive intervention in housing production that would lead to a spiral effect of more legislation, higher prices, and more legislation? So far the phone isn’t ringing, but here are some of my (and they’re only mine!) basic starting points for our side.

To begin with, as I pointed out in a previous post, we need a solid intellectual footing in any negotiation. It’s easy to get lost in the minutiae when dealing with the City; it can be fatally distracting. It’s also easy to look at this cycle or the next six months and forget that a policy change is very hard to undo once it is in the code. I wrote:

Our intellectual operating system should be programmed to always start up with these points:

• If it is argued that housing prices are too high we need to ask, “by what measure?”
• If prices are high by an acceptable metric, then we know that scarcity is the reason and therefore we need more housing.
• That new housing will sell or rent for more than older existing housing.
• That’s ok, because that means newer housing can absorb demand from people with more money to spend and they won’t compete with existing tenants of older housing or new arrivals to the city with less money.
• That new housing, built at private risk and expense, is a public benefit to the whole community.
• Anything, even things that are vital and necessary like health and safety requirements, that add costs and limit capacity always increases the price.
• So any regulations or added costs should more than offset the loss of housing and that lost capacity should be replaced.
• Any value capture scheme to take advantage of increasing or improving housing shouldn’t add time or costs to the production of new housing
• Numerical targets for housing are by their nature arbitrary and should be revisited in favor of careful tracking of how the market is responding to demand
• At whatever point the market fails to meet demand, interventions to support people too poor to pay rents to support the cost of land, construction, financing, and operations should be broad based and expect contributions from those most inefficiently using limited land in the city (i.e. Single-family homeowners)

Now when it comes to the details it’s important to remember, remember, the MIZ proposal would require that all new housing include a set aside or rent restricted housing or pay a fee if inclusion is not possible. In exchange for this performance requirement, the City would adjust the code and give developers more square footage by adjusting Floor Area Ratio (FAR) requirements up. The idea is supposed to be that this is a fair trade of value; more FAR means more revenue from space that can be sold or rented, and this would, supposedly, offset the financial impact of additional construction expense and lost rents. Fundamentally, we know this won’t work in every case. We should reject this idea out of hand.

Instead we ought to ask the City, “What are your goals with this program?”

I learned a long time ago not to negotiate for the other side, so I’ll just start with their stated goal of 1500 units of rent restricted housing and some fees paid to the City to send to non-profit developers.

These are my suggested talking points. We can:

• Commit to working with the City to produce 150 units of rent restricted housing each year over 10 years beginning in 2018;
• Agree to some temporary and limited assessment of fees for the express purpose of creating housing subsidies;
• Agree to contract rezones that would be negotiated over the 10-year period between the City and developers to produce housing set asides in exchange for additional FAR;
• Support rezones that are true exchanges of value and negotiated based on the conditions of a particular project;
• An outside assessment and audit of whether the goal is being met and the fees and value exchange are consistent with any agreement.
• Support possible changes to the Multifamily Tax Exemption (MFTE) program that would help accomplish the City’s unit count objective.

We can’t agree to:

• A permanent, one size fits all change to the land use code that is tied to increases in FAR, performance, and fees;
• A new entitlement program that generates a permanent exaction of fees in exchange for mandated increases in FAR;
• Zone-wide upzones that come with the condition of a permanent, one size fits all, fee schedule and performance requirements;

Other key issues:

• Consider removing for-sale housing product from the assessment of in lieu fees since there isn’t any scenario likely that would allow performance;
• Make no final agreement that excludes one typology, zone, product, or form (i.e. Small Efficiency Dwelling Units etc) at the expense of another.

I find the City’s housing goals set by the Mayor, 50,000 units over decades, to be completely arbitrary. And the inclusionary goals are completely unrelated to any data that I have seen that establish housing need by any definition, even the terrible housing cost income ratio that sets the normative standard of housing expenses at 30 percent of gross monthly income.

Notwithstanding the great leap in logic that we “need” 1500 inclusionary units, it’s fine to work with that goal; it’s likely not that hard to meet.

What I have suggested is a starting point. The worst outcome of MIZ is adding costs that boost overall housing prices in the name of “affordability” and then enshrining those in code forever. This would be a disaster, ensuring that for years and decades to come future Mayors and City Councils could simply dial up inclusion rates and fees to “solve” whatever housing or other “crisis” was political hot in the headlines. And each time they would do this simply adding to the momentum of prices that in turn leads to more headlines and bad policy.

I don’t build housing. My personal financial future and that of my family is not tied up in the next 12 to 18 months of the cycle (except indirectly), and so I wouldn’t try to negotiate on behalf of builders or developers. However, these are my thoughts and advice. So far no negotiation like this is going on. If and when it happens, we all ought to keep our eye on avoiding the trap of policy that is self defeating and leads, in the long run, to a perpetual motion machine creating higher prices fueled by politics and bad policy.