"Why Don't They Just..." Part 2

Understanding the Real Economics Behind Affordable Housing Mandates

"Why don't they just include affordable housing in every new development?"

It's a question that echoes through city council meetings, planning commission hearings, and community forums across the country. The frustration behind it is understandable and justified—housing costs are crushing families, essential workers are being priced out of the communities they serve, and young people can't afford to live where they grew up.

But like many complex policy questions, the phrase "why don't they just..." often signals a gap between good intentions and economic reality. When well-meaning community members demand that developers include affordable housing without understanding the underlying math, they may inadvertently be making the housing crisis worse.

The Numbers Don't Lie (But They're Not Obvious)

Here's what many people don't realize: many housing developments today are barely profitable, if they're profitable at all. Construction costs have skyrocketed—labor, materials, land, and regulatory compliance all cost significantly more than they did even five years ago. Interest rates have climbed dramatically, making financing more expensive. Meanwhile, what people can afford to pay for housing hasn't kept pace with these rising costs.

When a developer runs the numbers on a typical project, they're looking at thin margins in the best-case scenario. Now imagine telling that developer they must set aside 10%, 15%, or 20% of their units to rent or sell at below-market rates, with no financial assistance to cover the difference. It's not just that their profit shrinks—in many cases, the entire project becomes financially impossible.

The Unintended Consequences

What happens when an affordable housing mandate or inclusionary zoning requirement undermines the viability of a new development? The developer walks away. The land sits vacant or underutilized. No housing gets built—not the affordable units the community wanted, and not the market-rate units either.

This creates a vicious cycle. With less new housing supply entering the market, competition for existing homes intensifies. Higher-income buyers and renters, armed with more purchasing power, inevitably outbid middle and lower-income families for the limited housing that's available. Prices continue to climb, pushing affordability further out of reach.

In essence, requiring affordable housing without providing the financial tools to make it viable can reduce both market-rate and affordable housing production. It's a policy that sounds compassionate but delivers the opposite of its intended effect.

There Are Better Ways Forward

This isn't to say communities should abandon their affordable housing goals—quite the opposite. But sustainable solutions require acknowledging economic reality and working within it, not against it.

Successful affordable housing programs typically include:

Public subsidies and tax incentives that help close the financial gap between market rates and affordable rents. Programs like housing trust funds and tax increment financing can make the math work. The recently created Housing TIF program in Michigan is a great example. The Atlanta Beltline is another solid example of a local community leveraging market rate investments to support affordable housing.

Zoning reforms that allow more housing types and higher density, spreading the cost of affordability requirements across more units and making projects more viable. In many cases, flexible zoning alone doesn’t get a project all the way to an affordable price point, but it almost always helps to reduce the amount of subsidy necessary while increasing the amount of housing available to the community.

Partnerships between public, private, and nonprofit sectors that leverage everyone's strengths and resources. An example might be a local builder has an approval to build 25 single family homes on 1/4 acre lots. But the community will allow an additional 10 homes on smaller lots if half of the additional homes are affordable at 80% AMI. The developer can’t build those affordable homes at a profit, so they bring in a nonprofit partner like Habitat for Humanity to build the five affordable houses. The developer benefits from securing an additional five market rate homes, the nonprofit is given the land with access to utilities for free, and the community gains five affordable homes as well as 30 additional homes for market-rate buyers.

Moving Beyond "Why Don't They Just..."

The housing crisis demands urgency, but it also demands sophistication. When community members understand the real economics of development, they can become more effective advocates for policies that actually work.

Instead of asking "why don't they just include affordable housing," we might ask: "How can we structure financing, zoning, and incentives so that developers can build the mixed-income communities we need?"

It's a harder question to answer, but it's the right one to ask. Because in the end, housing that doesn't get built helps no one—not the families seeking affordable homes, not the community members who need market-rate options, and not the broader goal of creating inclusive, thriving neighborhoods.

The path forward requires moving beyond simple solutions to complex problems. It means building coalitions that include developers, affordable housing advocates, local officials, and community members. It means crafting policies that acknowledge both the urgency of the housing crisis and the realities of housing finance.

Most importantly, it means recognizing that good intentions, while necessary, aren't sufficient. If we want affordable housing, we need to make it financially possible to build. That's not just good policy—it's the only way to turn "why don't they just..." into "here's how we can."

This is the second post in a series. To read part 1, click here. You can also click back to the previous five part series titled How to Make Housing Affordable.