As communities across the country grapple with rising housing costs, local leaders are looking for ways to expand the supply of housing that is affordable to lower- and moderate-income households. Inclusionary housing or inclusionary zoning is often discussed as a key tool for expanding housing options.

At a high level, inclusionary housing policies link the production of affordable homes to new market-rate residential development. A local community requires or incentivizes a developer to make a share of the homes in a new development affordable to households at specified income levels. In return, developers may receive benefits such as additional density, reduced development requirements, or a streamlined approval process.

The basic concept is straightforward. But the details get complicated quickly.

Inclusionary housing programs can vary considerably from place to place depending on market conditions, housing needs, and state enabling authority. Some inclusionary housing policies are mandatory, while others are voluntary and incentive-based. Communities also make different choices about how many affordable units should be provided, what income levels should be served, how long homes should remain affordable, and whether developers can meet their obligations through alternatives such as off-site units or contributions to an affordable housing fund.

Inclusionary housing programs have been implemented in a remarkably diverse set of communities, from major cities and high-cost resort areas to suburbs and smaller communities. But the most important lesson from best practices around the country is that the specific policy adopted by a local community needs to reflect local market conditions and needs.

A requirement that works in a strong, high-cost market will not work in a community where rents or home prices cannot support the additional development cost. Likewise, a program that produces housing for moderate-income households may not address a community’s greatest needs if homelessness is its most significant housing concern.

Inclusionary housing is therefore best viewed as one part of a broader local housing strategy and not a silver bullet. When designed around local market conditions and combined with other housing tools, however, it can help communities capture some of the value created by new development and translate it into expanded housing opportunities.

Home values have surged over the past decade, but appreciation varies significantly across markets. In general, economic theory would suggest that metro areas with stronger housing demand experience faster home price growth than metro areas with lower demand. However, this analysis finds that regional income inequality is an important driver of home price growth and has accelerated housing affordability challenges in high-demand markets.

To evaluate the role income inequality plays in housing affordability (specifically homeownership affordability), I analyzed population growth and home values in the largest 100 metropolitan areas in the U.S. (representing nearly 80% of the U.S. population). Using Census data from 2016 and 2024, I examined the change in median home values based on two indicators:

• Strength of Housing Demand: Measured as the percentage change in population between 2016 and 2024. Metro areas with “high” demand are defined as those where population growth was higher than the median for the top 100 metros (+6.7%). “Low” demand metros are those with population growth at or below that median.
• Level of Income Inequality: Measured by the baseline 2016 Gini coefficient. Metros with “high” income inequality are defined as those with a Gini coefficient above the top 100 median (0.4647), while “low” income inequality metros sit below that threshold.

The primary outcome variable was the percentage change in median home value over the 2016 to 2024 period.

This relatively simple analysis suggests that income inequality has a profound impact on real estate, effectively bifurcating market outcomes based on the velocity of local housing demand.

Income inequality serves as an accelerant in high-demand markets.

When there is strong demand for housing in a highly unequal metro (e.g., Tampa, Charlotte, Dallas), income concentration acts as an accelerant to home price appreciation. Because housing supply is inelastic in the short term, affluent in-migrants and high-income local buyers can aggressively outbid the rest of the market. In these markets, the median home value increased by 98.6% between 2016 and 2024, compared to a 92.5% increase in other high-demand markets with less income inequality (e.g. Boise, Salt Lake City, Raleigh).

Income inequality serves as a brake in low-demand markets.

Conversely, when there is relatively low demand, high income inequality acts to slow home price appreciation. Without an influx of outside capital, transactions depend entirely on local residents. In places with high income inequality, wealth is trapped at the extreme top, and these wealthy households will only account for a very small part of potential home sales transactions. Local buyers generally lack the financial capacity to bid up home prices. In low-demand, high-inequality metros (e.g., Boston, Memphis, Miami), the median home value increased by 60.6% between 2016 and 2024. By contrast, in slow-growth, low-inequality markets (e.g., Minneapolis, Syracuse, Albuquerque), where a distributed middle class provides a more robust and self-sustaining homebuying population, home values increased faster, by 68.5%, over the same period.

(Note: Because this analysis examines the nation’s 100 largest metro areas, these findings reflect trends in major urban centers. This interaction between demand and inequality may not play out as consistently in smaller, secondary real estate markets.)

 

Policy Implications

In high-demand, high-inequality metro areas, blanket policies designed to increase supply will be insufficient on their own to help ease housing affordability challenges. When wealth and income are concentrated, these high-income buyers can easily absorb new inventory and continue to push home prices higher. In these places, policymakers cannot simply pump more fuel into the supply engine; they need to deploy a dual set of interventions that combine both supply-side incentives (e.g. blanket upzoning) and income-targeting (e.g. inclusionary zoning) to help improve affordability and help protect local residents from displacement.

Alternatively, in low-demand, high-inequality metro areas, the policy priorities should not be increasing density but rather investing directly in the local economic base. Slower price growth in these markets is not a sign of healthy affordability, but rather a symptom of an economy operating below potential. Policymakers in these low-demand, high-inequality regions should focus on the demand side, including initiatives that expand local middle-class employment and offer targeted down-payment assistance.

In recent years, particularly since the Great Recession, multigenerational living has been on the rise across the country. Economic and demographic factors are the primary reasons why more people are living in multigenerational settings. These factors will continue to shape the market for homes that can accommodate multiple generations, whether homes with separate living areas or homes with accessory apartments (i.e. “granny flats” or “in-law suites”) on the property.

In 2001, about 15 percent of people in the U.S. lived in multigenerational households; in 2017, that share had risen to 20 percent.  In other words, more than one in residents of the U.S. lives in a multigenerational household, which is defined as:

• Three or more generations (e.g. grandparents, parents and children);
• Two adult generations consisting of adults and adult children (age 25+); OR
• Grandfamilies, which are households headed by grandparent living with a grandchild (under age 18).

There are several reasons why we have been experiencing an increase in multigenerational living, but they generally fall into two categories: economic factors and demographic factors.  The economic downturn and housing market crisis were key reasons for the recent increase in the number of multigenerational households, particularly households that include parents and their adult children. According to a 2011 survey, two-thirds of U.S. residents living in multigenerational homes said they were doing so for “economic reasons.”

In addition to the challenging economy, there are several key demographic trends that are driving the rise in multigenerational living:  

• The aging of the large Baby Boomer population has created more demand for multigenerational living as this population moves into their 60s and 70s. 
• Young adults are getting married later and having children later, and as housing costs continue to rise, more people in their 20s and even 30s are living with their parents in order to save money. 
• Immigration is another big driver of the increase in multigenerational households. In the past four decades, immigration to the U.S. has been largely driven by immigrants from Latin American and Asian countries., who tend to be more likely to live in a multigenerational household.

What does the rise in multigenerational living mean for the housing market?

• Gen X’ers are key buyers of homes for multiple generations. In the past, Baby Boomers were the most likely buyers of multigenerational homes, but Gen X’ers (age 39 to 53 years old) surpassed Boomers this year in being the most likely group to purchase a home designed for multigenerational living.  
• Financing homes for multiple generations can be challenge. In some cases, multiple generations are pooling resources to purchase a home together, which can make finding financing tricky Fannie Mae recently began offering a new loan program specifically designed for multigenerational families.
• Policies that promote multiple generations sharing a home are important. Accessory dwelling units (e.g. basement apartments, garage apartments, tiny homes) are one way in which families can accommodate multiple generations. However, rules regarding accessory units vary from place to place, and accessory units are outlawed in some places. In many communities where accessory units are allowed, it is expensive and complicated for homeowners to construct those units. 

In February, Oregon became the first state to enact statewide rent control. In September, California followed with its own statewide rent cap.  Only the District of Columbia and three other states—Maryland, New Jersey and New York—currently have localities with some type of rent control.  However, as housing affordability challenges continue unabated, advocates in many parts of the country see rent control as the solution to the rental housing crisis.  Washington, Colorado and Nevada are all considering some type of statewide rent control.

The new state laws cap annual rent increases to 7 percent in Oregon and 5 percent in California (plus an adjustment for inflation in both states). In both states, rent control only applies to buildings that are more than 15 years old.

Economists, it is oft-repeated, agree on very few things, but rent control is the exception. Pretty much every economist agrees that setting rent ceilings is bad. In a recent research summary LSA did for the National Multifamily Housing Council, we found that the empirical research on rent control and rent stabilization is more nuanced, with near universal findings that rent control/stabilization poorly targets individuals and families most in need, and more mixed findings on the relationship between rent control/stabilization and overall rental supply and market rents.

An important distinction that does not always get touched on is that most “rent control” policies are not hard rent ceilings, but rather place a limit on the amounts rents can increase and apply those limits only on a subset of buildings (e.g. not new construction). Some California lawmakers have been stressing that their new law is a type of anti-gouging law rather than a rent control law. 

The effect of the new law in California is yet to be seen but there is some evidence that a very small share of buildings will be impacted.  Zillow has estimated (albeit using incomplete data) that only 7 percent of renters in California experienced a rent increase more than the new cap (i.e. more than 5% plus inflation) in 2018.  A UC Berkeley study of 10 gentrifying California communities found that over a 5-year period, the average yearly rent increase exceeded 10 percent about once every three years.  

One key risk of the new law is that owners of rental buildings will convert those buildings to condominiums to meet the growing demand for homeownership and to avoid having to deal with any regulations on rent increases.   

Rent control or rent stabilization laws can also have other unintended consequences, like creating a mismatch between tenants and units types/sizes, leading to a lack of investment in rental properties, and making it easier to charge higher rents in the unregulated market.

Finally, rent stabilization or rent control is not a solution without being accompanied by a serious strategy for encouraging more housing production overall and subsidies for the lowest-income individuals and families who are hardest hit by the housing affordability challenge.

Americans currently owe a collective $1.5 trillion in student loan debt. More than two-thirds of people who attended college have student loan debt. In 2017, the average student had about $40,000 in debt, more than double the average amount in 2000. 

There are countless articles in the popular media about the impact that growing student debt is having on young adults forming households, starting families and buying homes.  

On that last point, a survey conducted by the National Association of REALTORS showed that 83% of non-homeowners with student loan debt say that debt is keeping them from buying a home. According to the REALTORS, young people are pushing homeownership back an average of 7 years as a result of debt loads.

There are certainly other factors that drive homeownership trends but it seems as though student debt is important.

Recent research by the Federal Reserve Bank has quantified the relationship between student debt and homeownership.  According to this new study, about 20 percent of the decline in homeownership among young adults can be attributed to the increase in student loan debt. Student debt, therefore, is not the only factor associated with lower homeownership rates. But Fed researchers find that about 400,000 more young adults in the U.S. would own homes if it wasn’t for the rising student debt burdens. 

Furthermore, other research has found that the negative impact of student debt on homeownership disproportionately impacts people of color, which is contributing to the widening wealth gap in the country.

Is the lesson from this research that young people should not take on student debt to attend college?  Not exactly. We know that compared to people who have a high school degree, college graduates are more likely to be employed, less likely to live in poverty and have higher average incomes.  College graduates are also significantly more likely to be homeowners than are high school graduates. One key is for young adults—and all of us!—to be cautious when taking on debt, including student debt. The value of a four-year degree is not typically related to the price tag of the tuition. A second big takeaway is that people who take on student debt but who don’t finish college programs are at a significant disadvantage.  

Finally, for people interested in housing policy and housing market conditions, it is worthwhile to keep track of trends in student debt, college attendance and college tuition to understand how these dynamics will shape future housing demand.

The idea of a “pop-up” is not new, but has been rapidly trending the past decade. As a young adult living in a metropolitan area, pop-up stores, bars, and events, seem to be a common occurrence. I have even visited a few myself. In the planning field we have seen this flexible concept, transform into a strategic type of planning.

Pop-up urbanism, also known as DIY or tactical urbanism, takes a low-cost and dynamic approach in repurposing public space. This approach is small scaled, low-risk, and short-termed. It can achieve community engagement and the enhancement of public space. While these projects create temporary actions or improvements, they can often make lasting changes to neighborhoods.

Pop-up urbanism could be described as a live lab, where different usage or solutions are tested and community interests are gauged. The projects range and vary for each community, but there are a few programs that are used worldwide.

PARK(ing) Day

Park(ing) Day was formed in 2005 by an art and design studio, Rebar. The idea is to take back a metered parking spot and use the “site for creative experimentation, political and cultural expression, and unscripted social interaction.” These spaces have held a large variety of events, ranging from a free bicycle repair shop to a public kiddie pool. This concept gives local businesses, non-profits, city departments, and citizens an opportunity to express their ideas and hopefully spark public interest in how their environment is transformed. International Park(ing) Day takes place the third Friday of September, which is just around the corner! Cities and counties around the National Capital Region, like the City of Alexandria, Arlington County, and the District of Columbia will be participating in Park(ing) Day this year.

Pavement to Plazas

Pavement being converted to plazas was made well known after New York City closed Time Square to vehicles, turning it into a pedestrian plaza. Many other communities have adopted similar pilot programs like the NYC Plaza Program. The NYC Plaza Program guidelines have three main types of plazas to choose from:  one-day plaza, interim materials plaza, and permanent materials plaza. A one-day plaza gives an opportunity to test a proposed plaza site and gain local support. This is a low-cost opportunity that with inexpensive materials can create new public space. With the right amount of support and planning these temporary plazas can become permanent sites.

Bigger Picture

Pop-up urbanism has a long list of programs. There’s chair bombing, better block initiatives, food trucks and vendors, guerilla gardening, open streets, and pop-up parks. While these programs have seen success, it is crucial that a community not relay on just one tool or strategy—like pop-up urbanism— when enhancing public space. LSA’s Cambridge Neighborhood Revitalization Plan was approved by City Council this summer where pop-up urbanism pilot projects was one out of five strategies for enhancing and activating public spaces. If you would like to learn about the other four, check out the plan!

When we work with local communities, we typically hear from elected officials, local government staff and affordable housing advocates  about how important it is to “engage the business community” on the issue of affordable housing.  Bringing employers to the table around meeting housing needs is critical for several reasons.  Perhaps most compelling for them is the fact that when a community has an insufficient supply of affordable and appropriate housing, quality of life suffers, workers face longer commutes, and businesses face more employee turnover and added cost of hiring and training new workers.

However, it is often difficult to determine the specific “ask” of the employer community. What do the elected officials, government staff and advocates want their local businesses to do, specifically?

Google is demonstrating a very clear set of actions that a local employer can play in making housing more affordable.  While Google is not a typical company, and its actions and investments likely cannot be duplicated by many other businesses across the country, the types of approaches that Google is taking could provide inspiration for other companies and their public-sector and nonprofit partners.

On June 18, Google announced that it would invest $1 billion in housing in the San Francisco Bay Area.  The company’s investment comes in three forms:

1. The company is repurposing $750 million worth of Google-owned land for housing. Currently, much of that land is zoned for commercial uses, so Google is committing to working through the process with local municipalities to get the necessary zoning changes to accommodate 15,000 new housing units, including housing affordable to low-income families.
2. Google is also establishing a $250 million investment fund to provide incentives to developers to build an additional 5,000 affordable housing units throughout the region.
3. Through Google.org, the company is making $50 million in grants available to regional nonprofits working to address homelessness and displacement.

The amount of money and the number of housing units Google is talking about is staggering but so, too, is the affordable housing crisis in the Bay Area.  But what can other communities facing housing challenges—but without a Google—learn from the company’s actions?

Google’s investments underscore the three “asks” that local communities can make as they engage with local employers.  Do local businesses have vacant or underutilized land that could be used for housing? Can local businesses contribute to a fund to support the development of affordable housing? Is there a way that the employer community can provide resources to local nonprofit organizations working on the hardest housing issues?

Employers in your community may want to be part of the housing solution but they may not know where to begin.  Or they may not have been asked!