Brandon Fuller: To lower the cost, cities must build more housing

Salt Lake City faces two housing affordability challenges: The first, housing people with insufficient income to house themselves, is common to many U.S. cities. The second, ensuring that market-rate housing remains affordable to middle-income residents, is restricted to cities where desirable amenities and plentiful job opportunities drive strong growth in housing demand. Though these different challenges require different policy solutions, they share a common starting point: building more housing.

Housing is most affordable where housing is abundant, and right now Salt Lake simply isn’t adding enough of it. To their credit, most of the candidates competing in Tuesday’s mayoral primary support modest efforts to change that. Most candidates favor allowing less expensive housing options such as accessory dwelling units (ADUs) and single room occupancy (SRO). Removing barriers to ADUs and SROs will help, particularly among low- and moderate-income renters. But to halt the decline in affordability altogether, the city will need to be much more aggressive.

Before exploring policies that work, it will be helpful to tackle one that doesn’t. Since 2017, the city has been considering inclusionary zoning — a family of policies that require developers to add affordable housing units to their projects in exchange for cost offsets from the city (such as tax holidays and expedited permitting). For example, Portland recently adopted a policy that requires all new buildings with more than 20 units to include a share of affordable housing units — a requirement that effectively taxes new development by limiting builder returns.

Unfortunately, even with offsets from the city that are meant to reduce the cost of compliance, developers are now finding larger projects to be cost-prohibitive. Proposals for projects that avoid the requirements, those with fewer than 20 units, are on the rise, but Portland’s pipeline of large multi-family projects is drying up. The drop-off in new construction will not be good for affordability.

To entice developers, inclusionary zoning programs have to offer attractive and potentially expensive offsets. This naturally limits the scale of affordable units that any such program can hope to achieve. A survey of inclusionary zoning policies in California, New York and the Washington, D.C., and Boston-area metros suggests that, despite their popularity, they make minimal contributions to affordable housing: “Expressed as a share of the existing housing stock, affordable housing produced under inclusionary zoning is less than 0.1 percent of existing housing in all regions.”

When it comes to inclusionary zoning, the juice is very unlikely to be worth the squeeze.

Instead, Salt Lake City should take a two-pronged approach: Legalize multi-family housing and use tax-increment financing to fund low-income housing.

On multi-family housing, Salt Lake should look to Minneapolis. Last year, in addition to allowing more high-density housing near transit, Minneapolis legalized triplexes in neighborhoods previously zoned for single-family homes. Because the zoning requirements regarding building height, setbacks and yard size remain the same as they were under single-family zoning, the physical character of the neighborhoods will remain largely intact. The reforms simply allow a single-family homeowner to convert her property to a duplex or triplex if she deems it financially feasible and otherwise desirable to do so. While only some homeowners will choose to exercise their new freedom, the policy will allow the supply of housing in Minneapolis to be much more responsive to growth in demand.

To fund affordable housing without discouraging market-rate development, Salt Lake should look to Portland — this time for policy the city gets right. Portland now uses 40% of the property tax increment from new development in its urban renewal districts to fund the preservation, maintenance and construction of affordable housing.

For example, redevelopment of the city’s Pearl District added approximately 7,000 units of market-rate housing in past decade, generating a tax increment of $83 million that helped to fund 2,200 units of low-income housing. Because developers face the same property taxes regardless of whether the funds are earmarked for affordable housing, tax-increment financing feeds on a positive cycle: Higher housing demand begets more market-rate development begets more funding for affordable units.

Affordability is a valley-wide problem. And while Salt Lake City can’t be expected to solve it entirely on its own, the policies advanced by the next mayor of Utah’s largest city will ripple well beyond the municipal boundary. Here’s hoping that the residents of Salt Lake City choose someone with the resolve to keep their city rich with jobs, amenities and housing options for residents of all income levels.

Brandon Fuller

Brandon Fuller is deputy director of the Marron Institute of Urban Management, an applied research group based at New York University. He lives with his family in Draper, Utah.