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Is Inclusionary Zoning Illegal?

By: Nick Zaiac - @NickZaiac - Sep 23, 2015, 9:51 am
https://upload.wikimedia.org/wikipedia/commons/thumb/f/fe/South_San_Jose_(crop).jpg/1024px-South_San_Jose_(crop).jpg
Inclusionary zoning requires developers to set aside a percentage of units for city-run affordable-housing programs. (Wikimedia Commons)

Urban planners regularly refer to themselves with workmen-like terms. They seek to “build” communities, and to “make” places. They refer to their arsenal of regulatory mechanisms and rules as a “toolbox” and each rule is a “tool.” And now one of these regulatory tools, the blunt hammer known as “inclusionary zoning,” is being challenged at the Supreme Court.

Last week, the Pacific Legal Foundation (PLF) announced that it would appeal a California Supreme Court ruling in California Building Industry Association v. City of San Jose, which found San Jose’s inclusionary-housing role legal. The PLF press release succinctly explains the regulation:

“San Jose’s ordinance requires developers of 20 homes or more to dedicate 15 percent for city-designated buyers at below-market prices. Alternatively, a builder must pay a fee, estimated by the city itself as [US]$122,000 for each unit that would otherwise have to be dedicated for the inclusionary-housing program.”

They argue that this rule is an unconstitutional taking of private property to pay for a public affordable-housing program which should be funded through tax dollars, rather than exactions from developers. PLF has famously fought and won other cases in this vein, Nollan v. California Coastal Commission and Koontz v. St. Johns River Water Management District. But while Nollan and Koontz were important, these cases have to do with regulations that have far less economic impact than inclusionary-zoning rules.

First is the simple fact that the specific law in question has a real impact on economic growth nationwide. Research from earlier this year found that lowering land-use rules to the national median in San Jose, San Francisco, and New York would increase economic growth nationwide by 9.7 percent.

Because inclusionary zoning is one of the most important land-use regulations in San Jose, ending the inclusionary-zoning program there alone could reasonably add a few tenths of a percent to growth nationwide. That says nothing about the effect of ending inclusionary-zoning laws elsewhere, as there are about 170 other cities with similar laws that might be affected if the regulations are found to be illegal.

Moreover, inclusionary zoning has more impact in major cities than Nollan and Koontz. The former applied to coastal building codes, which are a larger part of the land-use regulatory regime in places like small coastal vacation towns. They matter in cities, but are a far smaller part of the overall equation.

Koontz involved wetland preservation, a prominent issue in regions where new areas are being built-out, rather than the typical infill development that sees costs rise due to inclusionary zoning. Large cities have generally higher wages, productivity, and — as a new paper from Glaeser, Ponzetto, and Zou notes — attract more skilled workers.

Nollan and Koontz both helped rationalize land-use regulation, but the end of inclusionary zoning would have far more impact.

The damage from inclusionary zoning is fairly transparent. Developers are forced to set aside a percentage of their units for city-run affordable-housing programs. In Washington, DC, the wait can last for decades to get access to a below market-rate unit. While planners hold the programs up as a way to create affordable housing, they do not reliably create enough units to make a difference to housing affordability overall.

If anything, the policies raise the cost to the general development of new market-rate housing, reducing building, and with it the long-term housing supply. If the goal is to make cities more affordable, it is disingenuous to say that any program that makes people wait decades for help is successful at its goal.

The fact is, command and control mandates cannot make it cheaper to live in cities in the aggregate or in the long run. They can create some housing more affordable to those willing or able to wait in long lines. This is an uncontroversial point. Inclusionary zoning is simply a complicated, opaque version of rent control, which economists understand to make housing less affordable in the aggregate and over the long run.

Inclusionary zoning is a complicated attempt to address the even more complex problem of housing affordability in US cities. Cities would be far better off scrapping these micro-managing programs and instead issue a simple rent subsidy or voucher if they wish to subsidize rents.

This is a choice they could make on their own, and smart city politicians would be wise to do so. And they should hurry. If California Building Industry Association v. City of San Jose ends inclusionary zoning in the next few years, they just might not have a choice.

Nick Zaiac Nick Zaiac

Nick Zaiac is a public-policy researcher in Washington, DC. He also serves as a policy analyst at the Maryland Public Policy Institute. His column, The DC Leviathan focuses on the often-ignored bureaucratic agencies, from the Department of the Interior to the General Services Administration. He has been published in the Baltimore Sun, City AM, CapX, and other outlets. Follow @NickZaiac.