Cities, Inclusion and Exactions

• Author: Audrey G. McFarlane & Randall K. Johnson
• Position: Dean Julius Isaacson Professor of Law, University of Baltimore School of Law/Associate Professor of Law, Mississippi College School of Law
• Pages: 2145-2185

Cities, Inclusion and Exactions Audrey G. McFarlane * & Randall K. Johnson ** ABSTRACT: Cities across the country are adopting mandatory inclusionary zoning. Yet, consensus about the appropriate constitutional standard to measure the propriety of mandatory inclusionary zoning has not been fully reached. Under one doctrinal lens, inclusionary zoning is a valid land use regulation adopted to ensure a proper balance of housing within the jurisdiction. Under another doctrinal lens, challengers seek to characterize inclusionary zoning as an exaction, a discretionary condition subject to a heightened standard of review addressing the specific negative impact caused by an individual project on the supply of affordable housing in a jurisdiction. Drawing from the experience of Baltimore, Maryland’s inclusionary zoning ordinance, this Article considers the impact that the uncertainty in the law may have had on the type of inclusionary zoning ordinance adopted by the city. This Article argues that the conversation about inclusionary zoning, land use regulation, and exactions has been formulated in the context of imagery about development that leaves places like Baltimore out. The imagery in these narratives is of an individual landowner powerless in the face of government overreach. The reality is different in those places where land developers are not powerless and instead are often politically influential repeat players. Thus, the real problem presented may be not how to craft doctrine to prevent cities from asking too much of developers, but instead to craft doctrine that ensures cities do not give away too much. I. INTRODUCTION ........................................................................... 2146 II. INCLUSIONARY ZONING ............................................................... 2151 A. H OW Z ONING S HAPED THE N EED FOR I NCLUSIONARY Z ONING ................................................................................ 2151 B. T HE M ECHANICS OF I NCLUSIONARY Z ONING ........................... 2155 1. Mandatory or Voluntary ............................................. 2155 * Dean Julius Isaacson Professor of Law, University of Baltimore School of Law. Thanks to the participants at the Association for Law Property and Society conference held at Queens University, Belfast, Northern Ireland where an initial version of this article was presented and thanks to fellow panelists and discussants at the Lutie Lytle Workshop, Carole Brown, Patience Crowder and Serena Williams. Expert research assistance was provided by Syesa Middleton. ** Associate Professorof Law, Mississippi College School of Law. Special thanks to Dean Patricia W. Bennett, the 2017 Mississippi College Publications Grant Program and the editors of this law review. 2146 IOWA LAW REVIEW [Vol. 102:2145 2. Which Projects are Subject to Inclusionary Zoning? ........................................................................ 2156 3. The Financial Costs of Inclusionary Zoning— Incentives for Developers ........................................... 2157 4. Social Preferences and Opt-Outs from Inclusionary Zoning .................................................... 2158 5. Set-Asides and the Tipping Point ............................... 2159 6. How Long Will Inclusionary Housing Remain Affordable? .................................................................. 2159 7. Critical Assessments of Inclusionary Zoning ............. 2160 C. B ALTIMORE ’ S M ANDATORY I NCLUSIONARY Z ONING O RDINANCE .......................................................................... 2162 III. THE DOCTRINAL PARAMETERS OF INCLUSIONARY ZONING ........ 2168 A. I NCLUSIONARY Z ONING AS AN O RDINARY L AND U SE R EGULATION ......................................................................... 2168 B. I NCLUSIONARY Z ONING AS AN E XACTION ................................ 2173 IV. WHY INCLUSIONARY ZONING SHOULD SURVIVE EXACTIONS ANALYSIS ..................................................................................... 2180 V. CONCLUSION .............................................................................. 2184 I. INTRODUCTION The project of addressing the need for affordable housing in the United States presents an ongoing dilemma for local government: how to pay for the construction of affordable housing units; and how to find geographic locations to build such units without local opposition thwarting the projects, reconcentrating poverty, or perpetuating racial segregation. These endeavors are a work in progress, and inclusionary zoning has become an increasingly popular, but partial, solution. 1 Under an inclusionary zoning approach, a local government zoning or related housing law will either encourage or require a developer who proposes a new residential construction project to “set aside” a certain number of units for income-restricted sale or lease. 2 This 1 . See Jenny Schuetz et al., 31 Flavors of Inclusionary Zoning: Comparing Policies from San Francisco, Washington, D.C. and Suburban Boston 1 (Furman Ctr. for Real Estate & Urban Policy, Working Paper No. 08–02, 2008), http://furmancenter.org/files/publications/31flavorsofIZ9-9-08.pdf (“As housing costs have risen in the U.S. and federal subsidies for affordable housing programs have declined, inclusionary zoning . . . has become an increasingly popular local policy for producing low-income housing without direct public subsidy.”). 2 . See generally Robert Hickey et al., Achieving Lasting Affordability Through Inclusionary Housing (Lincoln Inst. of Land Policy, Working Paper No. 14RH1, 2014), http://www.lincolninst.edu/ sites/default/files/pubfiles/achieving-lasting-affordability-through-inclusionary-housing-full.pdf (analyzing a set of twenty inclusionary housing programs). 2017] CITIES, INCLUSION AND EXACTIONS 2147 approach encourages the private production of new affordable housing that is geographically and economically integrated. 3 Although increasingly widespread, the propriety of inclusionary zoning under the U.S. constitutional doctrine that governs local land use and individual property rights is still somewhat unsettled; the way in which the rights and governmental exercise of authority are framed shapes different answers to whether an inclusionary zoning ordinance is valid. 4 This ambiguity presents two unresolved questions. The first question is whether private developers, by being asked to include units of low- to moderate-income housing in market-rate developments, are being asked to do something extraordinary that unfairly impinges on their property rights—especially when it is costly, either financially or in terms of the upscale image or message that a developer wants to sell. 5 The second question is whether developers are asked to do something both ordinary and consistent with land use regulation because inclusionary zoning promotes uses of land that improves the general welfare of the populace by ensuring housing types that meet the variety of residents’ needs. Tailoring housing types to differing abilities to pay is particularly appropriate considering land use regulation’s history of exclusionary zoning and its pernicious effect in facilitating segregation. 6 For the most part, there have been relatively few successful challenges to inclusionary zoning ordinances. 7 This is likely so because developers have still found it lucrative to fulfill inclusionary zoning requirements and build profitable residential developments. 8 Some developers even consider it the right thing to do. 9 Also, local governments have mostly been careful in 3 . Id. at 1. 4. Tim Iglesias, Framing Inclusionary Zoning: Exploring the Legality of Local Inclusionary Zoning and Its Potential to Meet Affordable Housing Needs , ZONING & PLAN. L. REP., Apr. 2013, at 1, 4 (arguing that the way the ordinance is framed, as an ordinary land use regulation or a permit with conditions, affects state courts’ receptiveness to either uphold or strike down inclusionary zoning ordinances). 5 . See Is Inclusionary Housing the New Normal for High-Cost Places? , HOW HOUSING MATTERS (Mar. 5, 2015), http://howhousingmatters.org/articles/is-inclusionary-housing-new-normal-high-cost-places (“Courts have overturned inclusionary zoning ordinances in some communities, ruling that they are illegal forms of rent control.”). 6 . See John Mangin, The New Exclusionary Zoning , 25 STAN. L. & POL’Y REV. 91, 91 (2014) (“Decades of scholarship—legal and sociological—outline how [zoning] policies left low-income families stranded in faltering cities whose abandonment by suburban homeowners-to-be at least left behind a large supply of low-cost housing.”). 7 . See Iglesias, supra note 4, at 7–9 (describing the various types of legal challenges to inclusionary zoning ordinances, few of which have been successful). 8 . See Nicholas J. Brunick, Inclusionary Housing: Proven Success in Large Cities , ZONING PRAC., Oct. 2004, at 1, 3 (finding, in one city, that “[n]ew housing development continues to boom . . . and development projects remain lucrative, even with the affordable unit set-aside requirement”). 9 . See URBAN INST., EXPANDING HOUSING OPPORTUNITIES THROUGH INCLUSIONARY ZONING: LESSONS FROM TWO COUNTIES 18 (2012) (“Because [Moderately Priced Dwelling Units (“MPDU”)] are required in nearly all developments and subdivisions in Montgomery County, developers think it is fair.” (footnote omitted)); see also id. at 24 (“Some developers have even expressed pride in their involvement with the MPDU program. They agree that MPDUs are 2148 IOWA LAW REVIEW [Vol. 102:2145 designing these ordinances to avoid political upset, or worse—legal challenges. 10 As a result, either market-rate housing with inclusionary units has been profitably produced notwithstanding the inclusionary zoning requirements, or developers have been insulated from foregone rent or sale income by a combination of strong real estate markets and packages of cost offsets, such...