This article is about the unintended consequences of affordable housing restrictions in the Netherlands but could easily be written about many US cities that have enacted similar rules. I had a front-row seat to this backfire when we analyzed the Santa Fe, New Mexico, multifamily market over a decade ago. Santa Fe rents were off the charts because virtually no multifamily had been developed for 10+ years.
There was good reason.
The returns didn't work because the City has implemented an affordable housing ordinance whereby 15% of all multifamily would have rent restrictions. The ordinance required landlords to set aside 15% of their multifamily for residents that were 60%-90% of the area's median income.
This was compounded because most new multifamily was oriented to Class A and targeting renters that made 150% of the area median income. The rough numbers would reduce your expected rent by half for 15% of your units. The pricing cap was not temporary, and the restrictions were enforced forever.
What happens when numbers don't pencil for developers?
No one takes the risk; nothing gets built, and prices go up. The city becomes more unaffordable. Santa Fe's population grew but the law of supply and demand is simple. The policy was so onerous for new construction that I wondered if it was implemented to prevent Santa Fe from growing—to keep people out.
Santa Fe did come to grips with the affordability crisis and implemented a fee in lieu of the rent restrictions. The fee was a small fraction of the impact of the rental restrictions and deals worked. Shovels turned dirt. If a city wants more housing, it should lower the costs, not increase them.