Affordable Housing Finance

The Price of Inclusion: Evidence from Housing Developer Behavior

Published: 2020 | Evan Soltas


In many U.S. cities, incentives and regulations lead developers to build mixed-income housing. How cost-effective are these policies? I study take-up of a tax incentive in New York City using a model in which developers trade off between tax savings and pre-tax rental income. I estimate the model using policy variation and microdata on all development from 2003 to 2015. The citywide average marginal fiscal cost is $1.6 million per inclusionary unit. Differences in neighborhoods explain about half of the cost premium over other housing programs. External estimates of neighborhood effects help to detect “opportunity bargains” under the incentive.