Few housing policies have attracted as much attention, or controversy, in recent years as inclusionary housing. While advocates view inclusionary zoning as a way to increase the stock of economically integrated affordable homes at little cost to the public, critics charge that inclusionary zoning policies amount to a “tax” on new development that unduly burdens developers and adversely impacts the cost and availability of market-rate homes.
Legal objections to inclusionary policies may also be raised, challenging their constitutionality or the local statutory authority to enact an inclusionary zoning ordinance. As many communities have found, however, opposition to inclusionary zoning can be reduced by adopting a well-designed policy that incorporates input from a broad group of stakeholders and balances the priorities of both advocates and developers.
Common Objections to Inclusionary Housing Policies
Common opposition arguments include:
- Inclusionary zoning ordinances increase the cost of new development, which may then be passed on to market-rate buyers through increased home prices.
- Inclusionary zoning ordinances cause developers to build fewer units — either because developers choose to build in jurisdictions without inclusionary policies and/or because the inclusionary policies change the economics of development such that other land uses (e.g., retail) are more profitable.
- By reducing the supply of new homes, inclusionary policies increase the cost of market-rate housing in the community implementing the policy and in neighboring areas (as reductions in supply in one jurisdiction may increase home prices for the whole metropolitan area by reducing the supply of housing available to satisfy the area’s demand).
- Inclusionary zoning policies unfairly place the burden of economic integration on housing developers.
- The possibility that units produced by an inclusionary housing program might have a negative impact on nearby home values.
Many of these critiques can be resolved through a well-structured ordinance that enables developers participating in an inclusionary program to earn returns that are equivalent to or greater than what would otherwise be possible. When developers are able to build as profitably with an inclusionary zoning policy as without one, an inclusionary zoning ordinance will not reduce construction activity. Because market conditions can change rapidly, it is important to periodically revisit inclusionary requirements and offsets to ensure they are in line with the market.
It is also important to educate homeowners and the public about how inclusionary housing programs work and the benefits that a diverse housing stock offers to communities. Affordable housing does not typically negatively impact home values. Research also indicates that well designed and maintained affordable housing does not generally impact nearby property values.
Legal challenges to inclusionary zoning can be based on several arguments. It is important to anticipate potential legal challenges because even when they are unsuccessful, these challenges can take years to resolve, using up valuable public resources. As noted earlier, through outreach, consultation and negotiation, communities can build support for inclusionary zoning policies among a broad range of stakeholders, reducing the likelihood of litigation.
Enabling authority – In some states, state-enabling legislation may be needed before local jurisdictions can adopt inclusionary zoning ordinances. This prerequisite is particularly important in states that actively enforce the Dillon Rule, where failure to adopt enabling legislation may result in challenges to local inclusionary zoning policies. Dillon Rule states assume that municipalities are allowed only the powers that are explicitly granted to them by the state legislature, in addition to those considered essential for the municipality to function (as opposed to Home Rule states, which give municipalities the authority to govern their own internal affairs). Failure to obtain explicit authority to adopt an inclusionary zoning ordinance may lead to accusations that the locality exceeded its statutory authority, rendering the ordinance invalid.
One example of challenge to a local authority’s institution of an inclusionary housing program is the 2009 case of Palmer/Sixth Street Properties L.P. v. City of Los Angeles (generally known as Palmer). In this case, developer Geoff Palmer challenged the City of Los Angeles’ requirement to either replace any low-income units that were demolished in the course of his development or to pay a per-unit in-lieu fee of $96,200. The argument against this requirement was that it violated the Costa-Hawkins Act, a state law which limits the ability of local governments to control the initial rental rates of new construction. The California Court of appeal found in favor of Palmer, and ruled that the requirements placed on Palmer did indeed violate his right to set the initial rents on the units he built. The case has had repercussions for local jurisdictions throughout the state, and led to many of them suspending their inclusionary zoning rental programs. Legislation that would have superseded the Palmer decision and allow inclusionary housing policies was passed by the legislature in 2013 but was vetoed by Governor Jerry Brown.
Takings challenges – The Fifth Amendment of the U.S. Constitution declares “nor shall private property be taken for public use, without just compensation,” and is often used as the basis for so-called “takings” challenges. In the land-use world, a “taking” may occur when developers are not fairly compensated for land that has been “taken” from them — either literally or through regulations that result in excessive devaluation of property — for a public purpose.
To avoid takings challenges to mandatory inclusionary zoning ordinances, it is important to show that developers will be able to receive a reasonable economic return on residential development, even with an inclusionary policy in place. Most zoning laws and land-use regulations impose limitations that reduce the economic value of property in some way; however there is no single test or formula used to determine when devaluation has gone too far. Rather, challenges are considered on a case-by-case basis. Involving developers in the design of the policy can help to ensure that set-asides and incentives are properly calibrated so development can still be profitable.
Takings challenges to inclusionary zoning ordinances may also be based on failure to demonstrate a “rational nexus” between the local need for affordable homes and the role of an inclusionary set-aside and/or fees in-lieu in meeting that need and serving the public interest. Communities can undertake a nexus study, similar to the studies required before adopting impact fees, to establish the relationship between affordable homes and inclusionary zoning.
In addition, it is important to show that the affordability requirements imposed on developers are roughly proportionate to the affordable housing needs created by the new development. Data gathered while conducting the nexus study can be used to help demonstrate the impact of new market-rate development on economic integration and the availability of land for affordable homes.
Example of Successful Response to Legal Challenge
Fairfax County, Va., passed one of the country’s first inclusionary zoning ordinances in 1971. This mandatory ordinance required developers of multifamily projects with more than 50 units to set aside 15 percent of units for households earning between 60 and 80 percent of AMI. No cost offsets or incentives were provided to developers in exchange for participation.
Only two years later, the ordinance was overturned by the Virginia Supreme Court, which ruled that failure to provide just compensation resulted in a “taking.” The ordinance was further overturned on the grounds that Virginia is a Dillon Rule state and the county failed to receive state legislative authorization to adopt a local inclusionary zoning policy.
A 1989 amendment to the Virginia code explicitly permits local jurisdictions to enact inclusionary zoning ordinances. In 1990 Fairfax County adopted another inclusionary zoning ordinance that offers density bonuses on a sliding scale. Since making these revisions, Fairfax County has not been faced with further court challenges.
In 2010, the City of San Jose, Calif. imposed an inclusionary housing ordinance, which required developments of 20 or more residential units to set aside 15 percent as affordable, either on-site or off-site. Alternatively, developers could pay a $122,000 in-lieu fee per required unit. The California Building Industry Association argued that this violated state and federal law because it did not demonstrate a “reasonable” relationship between the demands of the ordinance and the negative impacts of the new developments.
While the trial court sided with the California Building Industry Association, the appellate court decided that the ordinance was an appropriate exercise of the city’s right to promote and maintain the health, safety, morals, and general welfare of the public. The California Supreme Court unanimously upheld this decision, concluding that no unconstitutional conditions were generated; the affordable unit set aside only limits the use of the property rather than requiring monetary payment to the city.
This decision and others like it have become important in demonstrating the importance of inclusionary housing. In places like New York City, it has become apparent that relying on public land for affordable housing limits economic diversity and promotes exclusivity within communities. Inclusionary practices lessen this by restricting unaffordable development.