While the affordable housing requirement helps reduce economic segregation and accommodate low-to-middle income class in traditionally wealthy neighborhoods, it might have indirectly influenced the housing market behavior in London. In order to avoid on-site affordable housing provision, developers could divide land into smaller parcels or build fewer units, or shift large developments from the city center to the suburbs, where land costs are lower. After boroughs lowered their affordable housing mandate threshold from 15 or 20 to 10 dwelling units, developers are much more likely to propose 9-unit than 10-unit developments, suggesting an indirect effect of the policy change. On the other hand, planners might also use certain incentives to secure the supply of market rate and affordable housing, such as by allowing higher density or relaxing other planning regulations.

This study evaluates the direct and indirect effects of the affordable housing requirement in London. Development data come from the London Development Database, which contains more than 35,000 applications for residential developments with over 365,000 dwelling units in Greater London Area between 2004 and 2010. We exploit the threshold change that took place around the year 2007, using a regression discontinuity design to examine how the policy change directly (i.e., increase the supply of affordable housing) and indirectly (i.e., affect the developers’ decision in terms of the size or location of new developments) influence housing development. The aim is to evaluate the net effect of affordable housing mandates and to help design more effective land use regulations for socially integrative communities.