Before the ground breaks: Is inclusionary zoning a shield or a signal of gentrification?

Inclusionary Zoning (IZ) is a tool in land use planning for leveraging new market-rate housing to produce affordable housing, typically in exchange for increased density. While growing in popularity, IZ receives criticisms for the possibility that its market-rate housing component would lead to gentrification by altering local housing markets. Using New York City’s Mandatory Inclusionary Housing (MIH) program, a relatively ambitious IZ effort, we test if IZ increases home sales prices and rents in areas that are designated as MIH zones. Based on a comparison of MIH zones to surrounding “control” areas, we find evidence of MIH increased both home sales prices and rents, but the most consistent and statistically significant growth occurred in areas immediately surrounding MIH zones. We find little evidence of price escalation in MIH zones. Our findings suggest that for IZs that are geographically limited like MIH, the costs to residents such as gentrification and increased housing prices may be externalized onto nearby neighborhoods. This points to a policy need for more spatially integrated planning approaches to affordable housing, where affordability protections extend beyond narrowly drawn IZ boundaries.