New paper from me, on NYC's 421-a tax exemption:

1) How costly is inclusionary housing?
2) What factors explain the apparent per-unit cost premium over LIHTC / Section 8?
3) Do longer-run benefits for children offset the cost premium, and if so, where?
I'll be presenting this early-stage project at @YESPenn2020. You can virtually attend if you sign up on their website! More from me soon...once the power comes back on and I am done cleaning up fallen tree branches.
1. What's the appeal of inclusionary housing? Simply put, it gets low-income housing into neighborhoods that are atypical for Section 8, LIHTC, and public housing. (Policy tweaks to S8 could improve on this, but there are real political problems for LIHTC / public housing.)
2. The downside is that inclusionary housing is more expensive than these programs on a per-unit basis. I estimate that 421-a, NYC's inclusionary housing program, costs the city about 15% of its entire multifamily housing property tax base.
3. Through painstaking data work, I calculated the value of the 421-a exemption for all eligible developments from 2003-2015, whether or not they accepted. Buildings that, due to policy variation, were offered a bigger exemption were more likely to provide inclusionary housing.
4. Using two specific reforms (the expansion of the Geographic Exclusion Area and the end of "as-of-right" 421-a in the Neighborhood Preservation Program Areas), I show visual quasi-experimental evidence of supply responses by developers.
5. Combining my data with a simple model of developer profit maximization, I can estimate the distribution of breakeven thresholds at which developers are indifferent between building and not building inclusionary housing on-site. Participants are selected on lower breakevens.
6. The same model lets me obtain the supply response to increases in the value of 421-a, and the marginal fiscal cost of inclusionary housing, both citywide and by neighborhood. Citywide, I find an average marginal fiscal cost of $1.6 million. But my maps document much variation.
7. How should we think about a per-unit cost of $1.6M? That's much higher than Section 8 or LIHTC. But 421-a is adding units in costlier neighborhoods. To get an apples-to-apples comparison, I reweight so the neighborhood distributions look similar. This closes much of the gap.
8. Some have speculated that the reason voluntary inclusionary housing programs are so costly is b/c they overcompensate developers. However, I find 421-a's incidence on developer profits isn't larger than estimates for Section 8, suggesting differential incidence can't be impt.
9. Going beyond incidence analysis and comparative cost-effectiveness, I also try to weigh the potential benefits of inclusionary housing against my estimated costs. Using @OppInsights estimates, I find that some, but not all, neighborhoods look like "opportunity bargains."
10. Wrapping up, I see 421-a as a *mistargeted* program, rather than an inefficient one. Developers respond to incentives, and they do so without undue profits. But NYC's prop tax code makes 421-a most attractive in locations where inclusionary housing is least socially valuable.
You can follow @esoltas.
Tip: mention @twtextapp on a Twitter thread with the keyword “unroll” to get a link to it.

Latest Threads Unrolled: