Libertarians' self-defeating attacks on inclusionary zoning

Over at Market Urbanism, Emily Hamilton lays out the argument that inclusionary zoning violates SCOTUS's Nollan/Dolan standards for exactions. Hamilton has helped write an amicus brief submitted in 616 Croft Avenue v. City of West Hollywood, a case with a cert petition pending before SCOTUS. After the jump, I will explain why I believe that this brief has got the law wrong. But I am much less interested in legal doctrine and much more interested in how these sorts of attacks on inclusionary zoning can, as a matter of politics and economics, be a self-defeating policy if the ultimate goal is to loosen zoning restrictions.

Inclusionary zoning is the practice of demanding that developers rent some percentage of their housing units at below-markets rates as a condition for permitting the developer to build market-rate units. As Bob Ellickson noted thirty-five years ago, such demands can effectively reduce the supply of affordable housing, because those inclusionary requirements may cause developers to build fewer units of market-rate housing, thereby accelerating the upward "filtering" of existing housing (aka "gentrification"). Put simply, if developers do not build new luxury condos in New York City, then buyers who would otherwise bid on those condos will instead bid on existing brownstones, causing the latter's rents to rise even faster.

Using Nollan/Dolan to restrict inclusionary zoning, however, limits the bribes with which state and local governments can induce the neighbors to agree to loosen up zoning restrictions. Neighbors do not give up the limits of their zoning laws lightly. Inclusionary requirements give those local politicians a bit of political cover by making the link between market-rate and affordable housing more apparent. If Emily Hamilton's and her colleagues' brief succeeds in persuading the SCOTUS to apply a higher level of scrutiny to inclusionary requirements, the result will be that local governments will simply impose unconditionally restrictive zoning rules: Federal constitutional doctrine will have obstructed deals that actually made everyone better off relative to a baseline that federal takings doctrine does not affect -- the baseline of unconditionally restrictive zoning.

Why cannot libertarians see that these Nollan/Dolan attacks on inclusionary requirements undermine libertarian goals?

One reason may be an ideological commitment to challenging faulty economic reasoning. It may simply irk libertarians to read "nexus" studies purporting to show that the construction of market-rate housing will deplete the supply of affordable housing, because the former will attract wealthier people to the city. Such studies, typically thrown together by consulting firms like Keyser Marston, are treated with contempt by academic economists, and with good reason: They are rooted in a crude planning model that ignores new market-rate housing's "filtering effect" -- that is, the possibility that existing residents will move into new market-rate units, thereby opening up existing housing that otherwise would be occupied by newcomers. Even the California Legislative Analysts' Office, hardly a libertarian think-tank, has accepted the obvious point that new market-rate housing retards rather than accelerates gentrification. The contrary notion that market-rate development causes gentrification indeed seems just as silly as the idea that umbrellas cause rainstorms.

As a matter of land-use politics, however, this quest for judicial validation of sound economics is self-defeating. If cities must choose between unconditionally permitting new market-rate housing or unconditionally excluding it, then they are likely to choose the latter. Since Nollan/Dolan does nothing to restrict unconditional prohibitions on new housing, the effect of these lawsuits is simply to encourage such unconditional restrictions. Cities like Berkeley, San Francisco, Walnut Creek, and other hyper-restrictive jurisdictions will be delighted to shut down housing markets altogether with their absurdly restrictive limits on multi-family housing. Inclusionary requirements provide a bit of political cover for local politicians seeking to loosen the zoning envelope, Bar those conditions, and you likely leave housing markets even more regulated.For the sake of deregulation, then, I hope that the SCOTUS denies cert in 616 Croft Ave.

Putting aside practical politics, what about legal doctrine? The difficulty with applying Nollan/Dolan to $500k in fees imposed on Croft Ave's 11-unit condo development is that none of those fees looks like an unconstitutional condition. The California Supreme Court was likely correct California Building Industry Association v. San Jose to argue that Nollan/Dolan applies only to those conditions on construction that are plausibly unconstitutional takings if imposed unconditionally. Demands that developers rent units at below-market rates (or donate firetrucks, plop part, playground equipment, or even cold cash to the zoning authority) are not unconstitutional if imposed unconditionally, so making compliance with such demands a condition for getting a building permit likely falls outside of Nollan/Dolan's "rough proportionality" test. Of course, Koontz complicates the analysis, but Koontz's limit on monetary exactions is best read as limiting only fees that are the equivalent of a forced dedication of specific real estate. As I have argued elsewhere, any other reading would draw the federal courts into an intractable quagmire of policing land-use conditions that are the routine prices for new construction in the United States today.

As I say, however, my focus is politics and economics, not law. These attacks on inclusionary requirements will likely put at risk the very goal that the attackers seek to advance -- a less regulated housing market.