To improve housing affordability, we need better alignment of zoning, taxes, and subsidies

Introduction

Housing affordability remains one of the most pressing challenges in cities worldwide. As demand outpaces supply, prices soar, pushing homeownership out of reach for many and straining renters’ budgets. The key thesis of this document is that solving this crisis requires a coordinated approach—specifically, better alignment between zoning laws, tax policies, and subsidy programs.

The Root of the Problem

The housing market is shaped by a complex interplay of regulations and incentives. When these elements work at cross-purposes, affordability suffers. For example:

• Restrictive zoning limits the supply of new homes, especially denser, more affordable types like townhouses or apartment buildings.

• Tax policies sometimes incentivize speculation or underuse of properties (e.g., vacant lots held as investments).

• Subsidies (like vouchers or public housing) often fail to reach enough people due to funding gaps or mismatches with local needs.

Without synchronization, these policies perpetuate shortages and inequities.

1. Reforming Zoning for Greater Supply

Zoning laws—originally designed to separate industrial and residential areas—now often stifle growth. Common barriers include:

• Single-family-only zoning, which excludes housing affordability multi-unit buildings.

• Lengthy approval processes that delay construction and inflate costs.

• Opposition from homeowners (“NIMBYism”) fearing neighborhood change.

Solutions proposed:

• Upzoning: Allow more housing types (e.g., duplexes, low-rise apartments) in transit-rich areas.

• Streamlined permitting: Fast-track approvals for affordable projects.

• State preemption: Override local restrictions that block housing growth (as seen in California’s SB 9).

2. Tax Policies That Encourage Affordability

Current tax systems often inadvertently worsen housing affordability inequality:

• Property tax limitations (e.g., California’s Prop 13) reduce turnover and discourage downsizing.

• Capital gains exemptions for home sales favor wealthy homeowners over renters.

• Vacancy taxes are underused; they could penalize speculative holding of empty homes.

Solutions proposed:

• Shift taxes toward land value (not structures) to encourage development.

• Expand “circuit-breaker” programs to cap property taxes for low-income residents.

• Tax vacant properties to push underused units into the market (e.g., Vancouver’s empty homes tax).

3. Smarter Subsidies for Equity

Subsidies are critical for low-income households but are often poorly targeted:

• Section 8 vouchers face funding shortfalls, leaving many on waitlists.

• Public housing suffers from chronic underinvestment.

• Inclusionary zoning (requiring affordable units in new developments) can deter building if mandates are too strict.

Solutions proposed:

• Expand direct assistance: Increase funding for vouchers and tie them to local rent ceilings.

• Public-private partnerships: Offer tax breaks for developers who include housing affordability units.

• Portable subsidies: Let recipients use aid in any neighborhood to avoid concentrating on poverty.

The Need for Alignment

The document emphasizes that these tools must work together:

• Upzoning alone won’t help if high taxes make building unprofitable.

• Subsidies alone can’t compensate for a shortage of homes.

• Tax reforms must avoid displacing long-term residents.

Examples of success include Minneapolis, which ended single-family zoning while expanding subsidies, and Vienna, where social housing is funded by progressive taxes and zoning for mixed-income areas.

Conclusion

Achieving housing affordability isn’t about one “silver bullet” but rebalancing the system. By aligning zoning (to boost supply), taxes (to deter speculation), and subsidies (to ensure access), policymakers can create a more equitable and sustainable market. The document calls for bold, coordinated action—because when housing becomes a privilege rather than a right, everyone pays the price.

Also Read: The Vienna Model of Social and Affordable Housing