Economic Development and Public Finance Working Paper Series
REP 09-02, Inclusionary Zoning and the Development of
Urban Land, by Alastair McFarlane.
Inclusionary zoning is a set of controls and incentives designed to encourage the production of affordable housing. In this paper, I present a dynamic model of developer behavior, and examine how a developer would respond to the variety incentives provided by inclusionary zoning. By aggregating the profit-maximizing actions of developers, I am able to predict how inclusionary zoning could affect market-level variables such as the housing supply and average rent. I am also able to predict how inclusionary zoning could affect urban aggregates such as the urban-rural boundary and density. This work complements recent empirical studies, which provide intriguing evidence concerning the effects from inclusionary zoning.
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