You remember that Facebook relationship status, “It’s Complicated?” That’s the status supporters and opponents of Mandatory Inclusionary Zoning (MIZ) would have to select when it comes to how they’d explain their relationship to requirements to include rent restricted housing in exchange for modest upzones. Explaining why MIZ works or doesn’t work isn’t easy. It’s complicated! We think it’s very likely infeasible in Seattle. I’d like to point to an article that is glowing about MIZ and argues why, like the subtitle of Dr. Strangelove, that we should learn to stop worrying and love MIZ. But it has a glowing weakness in its argument too.

The article, “The Impact of Inclusionary Zoning on Development,” points out lots of great reasons why MIZ works and places it has worked or been working, producing new affordable housing along with market rate housing. The study argues that there is no adverse impact from MIZ on new development and, in fact, most developers end up loving it — or at least shrugging and working with it. I’m not going to argue with the data presented in he article. Instead, let’s take it as a winning argument for MIZ.

But here’s the flaw and the danger lurking in the supportive case for why MIZ “works:”

Hot Markets and Desirable Development Locales Offset the Cost of Development

In some cities, only minimal cost offsets are provided, and sometimes, none at all. Nevertheless, the best available evidence indicates that development has not slowed in these communities such as Boston,ChapelHill,NorthCarolina,SanDiego,andSanFrancisco.

It’s right there: Boston, Chapel Hill, San Diego, and San Francisco.

Of the four cities mentioned, three, Boston, San Diego, and San Francisco, always make lists of the highest priced rental markets in the country. Seattle is also always on those lists. Always. One top 20 list has San Francisco at #1 ($3,500 per month for a one bedroom!), Boston at #3, and San Diego at #11. Seattle is just ahead of San Diego at #10, and San Jose, which has a MIZ scheme that just survived legal challenge is at #4. New York, considering a MIZ scheme now much like Seattle’s Grand Bargain, is at #2.

Why does MIZ work and why do people love it? As I’ve pointed out before, there is no revenue in a new housing project outside of rent. That is, rents pay for that new building you see. Yep, the cranes, the workers, the trucks, the big excavators, all of it. The monthly rent checks payed by John and Jane Six Pack cover the costs and create the return for investors. The higher the rents, the easier it is to pay to offset the additional construction costs and lost rents created by MIZ. But wasn’t the point to create affordability, not raise rents?

So of course MIZ works when rents are high and, as the Seattle Times repeats in Pavlovian fashion, “skyrocketing.” Add additional construction costs, suppress rent revenues on a percentage of new units created and, voila! Magic! The MIZ scheme works! Of course, those costs and those lost rents are made up for by surging demand for scarce housing which means whatever units aren’t subsidized pay for the ones that are. No problem! Average rents keep going up, paying for local politicians pork barrel entitlement program, and developers make enough money to pay back investors who loaned them the money to build. A win, win, win thanks to a “hot” market.

Hardly. Fueling subsidized housing with a program that raises average housing prices is exactly like a food bank stocked with produce and goods paid for by a policy that adds costs to food that make eating more expensive for people who end up at the food bank. Sure, it “works,” by making the problem worse, then taxing the problem to offset the problem.

Let’s face it, MIZ is folly. The best way to help people with less money to spend on housing is to make more of it — lots more of it, of all kinds, in every corner of the city including housing subsidized by fairly distributed taxes or tax exemptions like the housing levy or the Multifamily Tax Exemption (MFTE) respectively. Creating more scarcity with a policy that raises average prices with additional costs, then taxing that to offset the impact of the scarcity doesn’t make sense. And maybe, like that relationship, it’s smart, sexy and complicated, which is great for politics and romance but terrible for housing policy.