California's Housing Ordinance Has A Counter-Productive Result

The U.S. Supreme Court this January will decide whether to hear or trash a challenge against the debatable inclusionary San Jose housing ordinance. According to LA Times, the said ordinance or zoning law, specifically, provides that 20 or more units must be sold by their developers at 15 percent lower than market values, otherwise, they pay a hefty six-figure fee.

The questionable mandate, enacted in 2010, is being slammed because it is said to be unconstitutional. The government is unjustly seizing private property without fair compensation or reasonable cost. Many believe that this does not solve the housing affordability problem in San Jose which is why the case must be given attention by the U.S. Supreme Court.

Further to the LA Times report, the questionable law is in a way detrimental to the housing market. Based on the Reason Public Policy Institute study, economists Benjamin Powell and Edward Stringham reported that the new law has caused the volume of new home construction to plunge to an average 30 percent while prices soared by 8 percent.

The survey has also led Power and Stringham to find out that in seven years before the zoning law was passed, over 28,000 new homes were erected, while seven years after the law took effect only 11,000 were constructed. As a result, there is a housing supply shortage that consequently is driving prices upwards.

More than 170 communities in California observe the same mandates and set-asides but as studies have shown, the mandate does not effectively push affordable housing, rather it constricts the construction of new homes and low supply results in higher prices. Thus many are hopeful that the Supreme Court will hear the challenge against San Jose's housing ordinance and eventually eradicate such kind of law. It is not a solution to housing crisis and a big burden to developers.