This week the Productivity Commission released its draft report on land supply in New Zealand’s biggest cities, showing how various regulatory and planning constraints have choked it to a trickle.

Many of the draft recommendations resonate with the Initiative’s own in this area. These include the need to reform the planning system, better cost-benefit analysis of land regulations, and the need to find new ways of funding the provision of infrastructure.

One recommendation we remain cautious of is inclusionary zoning, albeit a second-best consideration by the Commission. For those unfamiliar with the concept, it is where developers are required, or incentivised, to provide a tier of low-cost housing as part of any new development.

Proponents of the idea argue that it is a novel way to increase the supply of affordable housing in desirable areas, and has the potential to foster heterogeneous communities that straddle the socio-economic strata at no additional cost to local government.

If only it were that simple.

A major problem with inclusionary zoning is that it treats the symptom, not the cause. You need a housing affordability crisis in order for a policy such as this to stack up.

Attention on inclusionary zoning is also likely to be distracting. Councils, like any organisation, have a limited amount of bandwidth, and negotiating the terms of an inclusive zoning deal is likely to detract from planning and land regulation reform. Indeed, evidence from the UK shows that the more involved local councils are in determining the criteria for what qualifies as an inclusive development, the slower and less transparent the process is.

These policies also give rise to a host of other unintended consequences, which require further regulation to fix. An example is the so-called “poor door”, the practice of creating a separate entrance for the affordable housing residents in a development. To some, such as New York Mayor Bill de Blasio, this violates the spirit of inclusionary zoning, necessitating even more red tape. And yet red tape, as the report makes clear, has been a major contributing factor to tight land supply in New Zealand.

Councils, and indeed central government, would be better served to focus their attention on the first order problem, namely land supply, instead of tinkering with second-best affordability band aids. Thankfully the Productivity Commission’s report makes it abundantly clear where the focus needs to be: the policies and decision-making structures that that prevent our cities from growing up and out.