Is a Community Benefits Table a “Neoliberal” Solution to Asheville’s Housing Shortage?

In case you missed it, I posted recently that some Asheville City councilors are discussing a “community benefits table” for multifamily residential development.

The idea, in part, is that the permitting process for large multifamily apartments and condos can be lengthy and subject to arbitrary demands from elected officials. A benefits table would require builders to earn “points,” by doing things like setting aside some homes as income-restricted, to be rented or sold at below-market prices. But in exchange, they would experience a faster and more predictable approval process.

At a glance, this sounds like a really good idea. But I want to discuss why this might not be an ideal path forward.

Don’t Pit Community Benefits Against Each Other

Here’s a metaphor for us to think about this: let’s assume that we like bookstores. We think they are good for neighborhoods. Communities benefit when there are bookstores.

We like little bookstores. We like nonprofit bookstores. We like used bookstores. We like new bookstores. We like big bookstores too—sometimes you have to go Barnes & Noble to find what you want. We even shop at Amazon sometimes! (But we don’t tell our friends.) You don’t have to love the idea of profit-maximizing in the abstract to acknowledge that all kinds of bookstores are nice to have around. Even when we have one bookstore in the area, we don’t mind a second one coming in.

We like libraries too. Libraries are important because some people can’t afford books. (Or we have kids!)

Library budgets are publicly funded, and inevitably we wish those budgets could be higher and that more people could be served by them.

Here’s what we don’t do. We don’t require new bookstores to subsidize libraries. Or, we don’t demand that new bookstores commit to selling twenty percent of their books at below market prices for ten years. Why not? Because that would make a few possibilities more likely:

1. Fewer new bookstores would pop up, because the risk of failure would be much greater. And more bookstores might fail after a short time in business. If having bookstores nearby is a benefit, this would be a loss.
2. New bookstores would still be created, but the prices at those bookstores would be higher. (Or perhaps back catalog would be smaller too.) The benefit would be less broadly shared.
3. A prospective bookstore owner would look to open their store somewhere else.

The point here is that if we see both libraries and bookstores as community benefits, then the last thing we want to do is to pit them against each other.

So it goes with housing. Infill market rate housing is a community benefit, as I’ve said. So too is below-market housing. But when we impose demands on the builders of one in order to subsidize the other, we are establishing a zero sum game where such a thing need not exist. We want public libraries and Morgan’s Comics and Bagatelle Books and Malaprop’s. And maybe even Barnes and Noble. In the same way, we want nonprofit homebuilders and market-rate builders too. We want small-time builders doing “middle housing” and we want the “Asheville Sanctuary” too. We want income-restricted homes and homes for all kinds of working families too. (Most working families live in market rate homes, and that won’t change soon.) Attempting to restrict one in favor of the other only drives up land costs and rents, makes subsidies less effective, and pits tenants against one another.

(This last point is important and it goes beyond the whole metaphor that I’ve established! Libraries may do perfectly fine without bookstores, but the cost of subsidizing below-market-rate homes will increase in the absence of market-rate ones, as will the myriad social costs that come with a housing shortage.)

In a recent discussion around increasing the “zoning thresholds” that send an otherwise conforming project to council, some councilors appeared to reject this common sense reform because it would mean more “by right” construction for market-rate homes, but perhaps diminish a lever for demanding below-market-rate homes. I think this is a specious argument that only pits beneficial things against one another.

Is a Housing Community Benefits Table a “Neoliberal” Solution?

A housing community benefits table for Asheville may be inspired by the city’s existing policy toward hotel development, but it resembles a host of other policy schemes in other states that go by different names. “Value capture,” “inclusionary zoning,” and even “community benefit ordinances” in various places all have unique characteristics but operate based on similar principles.

These ideas used to be understood as progressive. Bernie Sanders put “inclusionary zoning” alongside abolishing exclusionary zoning as one of the policies in his “Housing For All” platform, for example. Now, a growing number of progressive pro-housing activists are instead understanding these policies as the product of “neoliberalism.”

(“Neoliberalism,” for the uninitiated, is a right-wing political project that took off after World War II. It sought to encourage citizens and their elected officials to vote against public programs, subsidies, and taxation. Sometimes it’s used to refer to the general political-economic conditions in the U.S., post-President Reagan; in this sense, the term might be interchangeable with “late capitalism.”)

That might sound strange, but here’s the gist. Central to the project of neoliberalism is the twin idea that markets are NOT by their nature “free” but that governments and other institutions can and should make them appear to be so. So even though “affordable housing” (which is a slippery and often confusing term) is the product of all sorts of outcomes—including land use policy, property tax policy, fiscal policy (think: lending rates), and direct government subsidies—a neoliberal approach would seek to obscure the government’s role in favoring wealthy real estate asset holders (via such policies as exclusionary zoning), while suggesting that private interests can, under the right circumstances, provide affordable housing without government largesse or intervention.

We should ask the question: If a company that wants to build homes has to pay out of their pockets to ensure that some of those homes are more affordable, who isn’t paying those costs? The answer is taxpayers, those that earn large incomes, and especially those with large capital gains.

To skeptical ears, this all might sound preposterous. After all, aren’t housing developers big bad corporations? How is laying a burden on them part of a “late-capitalist” scheme?

Maybe the answer lies in the ways that the housing shortage enriches landowners and speculators more so than real estate developers. Left political economists like Thomas Piketty and Melinda Cooper have written about how the greatest divides in the economy today are not between those who earn a large paycheck and those who earn a small one, but rather those who earn “rent-seeking”, or “passive,” income on assets like homes and the land on which they sit, and those who don’t.

(Blackstone, Inc. for example, which operates a very large real estate investment trust or REIT, has been quite frank about its preference for housing scarcity.)

But it seems to me that the current attitudes and material reality around housing look less like neoliberalism and more like the old world of feudalism, where the landed gentry that was in charge looked with suspicion and fear upon anyone who might threaten their power by actually doing something productive, whether those were the poor peasants or the nascent middle-class businesspeople. In either case, it’s an economic system defined by monopoly control.

Ultimately, the costs of unfunded mandates that further restrict the housing supply and push rents up are not borne by landowners or capital—which, like our prospective bookseller can simply invest elsewhere—but by renters and first-time homebuyers who are being pitted against each other in a market defined by scarcity.

More broadly, we all lose out because, as we’ve established, infill housing is a community benefit. And we know that when the burdens are high for infill housing developers, we are more likely to see development move outwards, away from any prospective “benefits” schemes and also away from the wealthy and well-connected neighborhoods that are more likely to hold up the permitting process for new multifamily homes, and towards the parts of the county where land is less costly, zoning rules are less onerous, and opposition will be less.

This just means more sprawl.

Unfunded demands may also mean that only the biggest, most deep-pocketed developers will be able to navigate the greater risks required, mitigating the possibilities for smaller and more varied kinds of builders.

Contra the neoliberals, we should absolutely tax high profits, and that includes the profits of real estate builders. Profit, after all, is income that is leftover when all costs are paid. But imposing a financial cost on doing the business of homebuilding itself is a levy on productive capital to the benefit of landlords and real estate investors. A tax on production here makes zero sense when the production is desired and necessary.

The evidence is strong that although “inclusionary zoning” or “value capture” schemes may produce a small number of income-restricted homes that may not have been otherwise produced in the short term, in the long term the greatest benefit accrues to those who profit from housing scarcity. There is little evidence that these schemes are effective in setting out what they claim to do. And pitting benefits against one another is a well tested strategy for destroying them. Maybe this is why they are so popular among a broad range of those in power.

What Should Asheville Do Instead?

Certainly, the status quo isn’t working for Asheville, and I want to stress that I think below-market-rate housing matters. So too does how we get below-market-rate housing. The evidence suggests that putting the burden on builders—whom we need to build all kinds of housing, and quickly—rather than troubling those taxpayers who’ve experienced windfalls from asset ownership, simply doesn’t produce desired results.

There may be other problems with instituting a community benefits table. For example, if we create a situation where the community clearly and consistently gains “benefits” (even if such benefits come along with fewer market-rate homes and more sprawl) when multifamily home developments above a certain size threshold are forced to pay up, might that not incentivize the city to delay or forgo updating the zoning code to allow more by-right development?

The answer to our housing shortage must be two-fold: zoning and permitting reform, on one hand; and a commitment to public subsidies and incentives on the other.

If we understand housing to be in itself a community benefit, and if we understand our zoning code as the mechanism by which those benefits are better formed and realized—by directing greater density towards core neighborhoods and/or transit-supportive travel corridors, for example; or by requiring a certain tree canopy or fee-in-lieu of plantings—than it seems to me that a community benefits table is possibly superfluous and potentially punitive. Why don’t we simply update our zoning rules to get what we want in terms of land use?

Finally, we need to talk about property taxes. Public community benefits are terribly important, but my primary point here is that such public benefits should be publicly funded, that is, provided by taxpayers, or, asset holders. Opposition to property taxes is reactionary, full-stop. (Just check out the latest wave of property “tax revolts”.) Putting the onus on housing developers allows our city’s petit rentiers—that is property owners—to distract from this.

And remember that increasing the market-rate housing supply will have a positive effect on subsidy programs and diminish the need for them to some extent; additionally, increasing the tax base means that costs are more distributed.

(As I’ve suggested elsewhere, I do think that there may be ways that the city could be smarter in approaching how public funds are spent on land and housing, for example, by leasing public land, rather than selling it at a discount, to developers that build income-restricted homes. I’m by no means an expert on this, however, and I look forward to seeing the city’s new Affordable Housing Plan when it gets released.)

Postscript: On Incentives vs. Unfunded Mandates

A quick note to say that while the current research is pretty dismissive of the idea that these various “inclusionary zoning” or “value capture” schemes are effective overall for ameliorating the housing crisis, there is some nuance to the studies.

In short, what they reveal is that the more minimal the demands, the higher the probability that the scheme in question may work to increase the income-restricted home supply without hampering an increase in the supply of homes overall. But in terms of the big picture, they confirm that what we need are incentives and subsidies, rather than unfunded mandates.

And yet, sometimes the line between incentives and mandates is blurry: consider “density bonuses,” which Asheville includes in its residential zoning districts.

Under a density bonus, zoning districts effectively have two development caps: a baseline one, and then one that developers may use by-right if they meet certain affordability requirements for a percentage of the homes being proposed. So one can imagine that an especially onerous density bonus policy would hamper residential development—imagine if all buildings downtown, where land costs are high, needed to include 50% income restricted homes in order get more than a handful of homes per acre. On the other hand, one can also imagine that a generous density bonus could also exist—let’s say a developer could effectively build to five or six stories instead of four in a place like the River Arts District if they included a handful of below-market-rate homes—and we might see that as an OK deal.

Personally, I find the concept of density bonuses strange, but only when I think too hard about it—the city is effectively saying that it simultaneously has two different ideas about what an acceptable land use would be for a given location. It may be a helpful policy for meeting certain goals, and one that’s not worth arguing against in the abstract.

Finally, one may interject that the whole idea of a community benefits table is an incentive rather than a mandate. After all, the proposal seems to suggest that a developer could simply ignore the very idea of offering community benefits, and instead simply choose to face City Council instead. I’m skeptical of this line of thought. It seems to me that once a community benefits table were firmly in place, it would effectively be a green-light to allow councilors to become far more discerning when it comes to conditional zoning cases that appear before them.

Some Further Reading

I tried to provide useful links as I went, but I want to highlight some things that I think are especially helpful:

• California YIMBY has an exhaustive article about what housing “affordability” means, and how unfunded mandates like the ones discussed here fit in, for good or bad.
• Similarly, Darrell Owens, a housing analyst and activist, writes excellent blog posts touching on the subjects of “affordability” and “neoliberalism” here and here.
• Pro-Housing Pittsburgh has a good explainer that summarizes some of the research around “inclusionary zoning.”
• This paper by a UCLA professor does an excellent job, I think, in explaining the concept of “value” in land and housing, and making a case for why taxing homeowners rather than builders is a more “redistributive” policy.

(Note that these are mostly California-centric articles, but I think they’re still useful. California tends to be where the most research and the most activism is around the housing shortage because the problem there is so acute, and also because of the state’s history in property tax dysfunction.)