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loss in project value, the actual developer was allowed to make a measly $4,500,000 contribution to the City's low income housing fund, thus saving the developer about $9,074,160 in lost project value ($13,574,160 - $4,500,000). Without that special deal, the $9,074,160 additional burden of 15% inclusionary probably would have made that project infeasible. Those are the project level impacts of the inclusionary zoning b. Direct Impact on Local Housing Prices Housing supply occurs within a larger housing market. In all markets, including housing markets, when the marginal cost of producing a unit of production, like a house, is higher than the price level, production stops until the price level exceeds the marginal cost of producing the next unit. So, adding a cost to housing production, like the cost of inclusionary subsidies, means housing production stops until price levels rise high enough to cover that additional cost. With any increase in housing demand, the cost of any inclusionary subsidies passes through into the price level of all new and used market rate housing. This results in tremendous negative leverage —the inclusionary analysis I did in the year 2000 showed that for every $1 of rent subsidy generated by inclusionary rent controls, market rate housing consumers will pay $13 in increased housing cost (Exhibit D at Bates p. 13). That is an awful cost-benefit ratio. c. Effect on Housing Supply- Secondary Impact But, the impact of inclusionary rent controls is far worse than just a dollar for dollar pass through into the housing price level. If that were the only effect of 15% inclusionary rent controls, local market prices would have lifted by about 7.15% and reached a new equilibrium. The bigger problem is that the inclusionary cost burden makes some or most new housing projects infeasible. When rising demand grinds against restricted supply, housing prices spin out, and up disproportionately — as they have in California. The housing made infeasible by that cost burden, if built, would enforce current price levels by pouring new housing units into the market. Much or most of the huge 26% excess in California housing inflation over U.S. housing inflation during the 2014-2022 RHNA Cycle is likely the result of the price and rent controls on new housing construction, with their devastating impacts upon housing supply. New construction is always more expensive than existing housing, but typically higher quality. Adding inclusionary costs on top makes new construction that much more expensive than existing building — and non-competitive. Existing property owners and landlords get to free ride on the rising price level of housing. Existing housing is protected on the downside (somewhat) because of lower initial costs, and existing mortgage payments stay constant. When the overall price level starts to rise to cover the inclusionary cost, e.g. 7.15%, the inclusionary burdened new housing supply does not materialize in sufficient quantity. The resulting scarcity causes the price levels to rise by more than the actual amount of rent subsidies, by far. Meanwhile, the new housing project has to show a profit 6