Free GMAT Reading Comprehension Practice Question

When a city adopts inclusionary zoning, it requires developers of new market-rate housing to set aside a fraction of units, often 10 to 20%, for households below a defined income threshold. Advocates credit such mandates with the below-market units they directly create, and on that measure the policy succeeds: in cities that adopt it, the count of newly built affordable units rises. Because the requirement attaches to construction that would have occurred anyway, supporters describe it as affordability secured at no cost to the public budget.

The economist Hargrove argues that this accounting flatters the policy by ignoring its effect on the total housing supply. A set-aside functions as a tax on each project, since the developer recovers the loss on below-market units by raising rents on the remainder or, where that is not possible, by building less or not at all. Comparing fourteen metropolitan areas, Hargrove found that the cities imposing the steepest set-asides issued markedly fewer building permits per capita over the following decade than otherwise similar cities without mandates. On this reading, the policy does not enlarge the stock of housing so much as redistribute access to it, transferring affordability to the households who win the unit lottery while leaving marginal renters, who never reach that lottery, facing tighter and costlier markets.

Hargrove is careful not to overstate the case. The permit gap he documents could reflect differences in land availability or local demand that his fourteen-city sample does not fully separate from the mandates themselves, and he concedes that modest set-asides in high-demand cities may suppress little construction. His claim is therefore the narrower one that inclusionary zoning should be judged by its effect on the whole market, not by the affordable units it visibly produces. Whether that effect is large enough to outweigh the policy's direct benefits, he leaves to the evidence each city can gather.