By Matt Dederer | Staff Editor

April 26, 2024

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The U.S. is in a housing crisis. Between the end of 2019 and 2022, the median home sale price in the U.S. increased by an average of 25%.[1] Rental prices also increased by 18% over the last five years. In 2020, 46% of renters in the U.S. spent more than 30% of their income on rent[2], which meets the Department of Housing and Urban Development’s definition of being cost-burdened.[3] In response, jurisdictions have taken many routes to promote affordable housing.

Cities have adopted mandatory inclusionary zoning as one of the many policy tools to address the affordable housing crisis.[4] Mandatory inclusionary zoning generally mandates developers set aside a portion of units at a below-market rate or contribute to a city-run affordable housing fund.[5] Major cities like New York, Seattle, San Francisco, Los Angeles, and Boston have implemented mandatory inclusionary zoning.[6] However, builders, economists, and housing advocates have criticized these policies as being inefficient and actually decreasing the housing supply.[7]

Proponents argue that mandatory inclusionary zoning increases affordable housing and fosters economic integration throughout cities.[8] Moreover, mandatory inclusionary zoning achieves these goals without adding to the municipal budget, making it an attractive option for local politicians.[9]

Opponents, however, state mandatory inclusionary zoning acts as a tax on development.[10] Developers then pass on this increased cost via market-rate housing prices, eventually leading to fewer new housing units due to the increased development costs.[11]

The key question remains: Which side is correct, or are they both right? Empirical studies generally favor opponents when examining the effect of mandatory inclusionary zoning on cities.[12] For instance, a study examining the effects in Boston found that inclusionary zoning resulted in “greater growth in housing prices and reduced construction.”[13]

Two possible courses of action exist to address these policies: the political process and the legal system. Since city councils implement mandatory inclusionary zoning, these policies can be changed or overturned through local legislative actions. As such, it’s crucial for residents to understand local zoning regulations, participate in local elections, and voice their opinions to the city council whenever possible.

In addition to the political process, the legal system offers another avenue to challenge these policies. Some legal scholars have pointed to recent Supreme Court precedent presenting an opportunity to challenge these mandatory inclusionary zoning ordinances under the Takings Clause of the Fifth Amendment.[14] The legal argument against mandatory inclusionary zoning gained support from the Supreme Court’s recent decision in Sheetz v. County of El Dorado. Sheetz clarified whether legislatively imposed exactions[15] face the same scrutiny as administrative exactions.[16] The Court held that the Takings Clause makes no distinction between administrative and legislative decisions and, as such, each type of exaction faces the same scrutiny.[17]

The constitutional test for exactions is governed by the Nollan/Dolan framework.[18] The Nollan/Dolan framework states that exactions must have a nexus and be roughly proportional to what the development is causing.[19] In the case of mandatory inclusionary zoning, cities will now likely have to show (1) there is a nexus between new developments and affordable housing and (2) the amount of affordable units required is roughly proportional to the effect the development would have on affordable housing.[20]

The Nollan/Dolan framework poses a significant issue for many mandatory inclusionary policies. In general, adding additional housing does not usually lead to a decrease in affordable housing.[21] In fact, adding additional supply to a market without a concurrent increase in demand should decrease the overall prices, which increases affordability.[22] There are some instances where a new development could lead to a decrease in affordable housing.[23] For example, a newer, more expensive development could replace an older, cheaper apartment complex–in turn decreasing the supply of affordable housing. However, affordability would likely not decrease in instances where these developments are built on vacant land or add significantly more units than the older development.[24]

However, a legal challenge against mandatory inclusionary zoning hinges on several key questions. First, would mandatory inclusionary zoning be considered a taking outside the permit process – a current requirement to apply the Nollan/Dolan framework?[25] Second, does the Nollan/Dolan framework operate differently when applied to a class of properties instead of a specific property?[26] And does a legislatively imposed exaction need to meet the same level of tailoring as an administrative exaction imposed on a single property?[27]

Regardless of the legal outcome there are more economically and legally sound policy options to increase affordable housing.[28] Better policy options include increasing density, incentivizing inclusionary zoning, removing parking space requirements, increasing the speed of the permit process, and eliminating single-family zoning.[29] All these options are designed to decrease development costs and increase the total housing supply.[30] In conclusion, while the affordable housing crisis demands urgent attention, taxing developers may not offer the most effective solution from a policy or legal perspective.

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[1] Katherine Schaeffer, Key Facts About Housing Affordability in the U.S., Pew Research Center (Mar. 23, 2022) https://www.pewresearch.org/short-reads/2022/03/23/key-facts-about-housing-affordability-in-the-u-s/.

[2] Id.

[3] Id.; Rental Burdens: Rethinking Affordability Measures, OFFICE OF POLICY DEVELOPMENT AND RESEARCH, https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html#:~:text=HUD %20defines%20cost%2Dburdened%20families,of%20one’s%20income%20on%20rent (last visited Apr. 23, 2024) (stating an individual is “cost-burdened “they “pay more than 30 percent of their income for housing”).

[4] Benjamin Schneider, CityLab University: Inclusionary Zoning, Bloomberg (Jul. 17, 2018) https://www.bloomberg.com/news/articles/2018-07-17/inclusionary-zoning-everything-you-need-to-know?embedded-checkout=true.

[5] Id.

[6] Nick Brunick, et. al., Large Cities and Inclusionary Zoning, Wellesley Inst. (Nov. 2003) https://www.wellesleyinstitute.com/wp-content/uploads/2013/01/ResourceUS_BPI_IZLargeCities.pdf.

[7] Roger Valdez, Series: Challenging Mandatory Inclusionary Zoning, Forbes (Jan. 11, 2023) https://www.forbes.com/sites/rogervaldez/2023/01/11/series-challenging-mandatory-inclusionary-zoning/?sh=50252eab4b5c; Benjamin Schneider, CityLab University: Inclusionary Zoning, Bloomberg, Jul. 17, 2018 https://www.bloomberg.com/news/articles/2018-07-17/inclusionary-zoning-everything-you-need-to-know?embedded-checkout=true.

[8] Oscar Chan, The Failures of New York’s Mandatory Inclusionary Housing Program, NYU Am. Pub. Policy Rev., (Nov. 14, 2023) https://nyuappr.pubpub.org/pub/wd818qeb/release/3.

[9] Id.

[10] Id.

[11] See id.

[12] See id.; Connor Harris, The Exclusionary Effects of Inclusionary Zoning: Economic Theory and Empirical Research, Manhattan Inst. (Aug. 10, 2021) https://manhattan.institute/article/the-exclusionary-effects-of-inclusionary-zoning-economic-theory-and-empirical-research.

[13] See Harris, supra note 12 (highlighting that inclusionary zoning “seems likely to have contributed to housing shortfalls.”)

[14] See Kristoffer James S. Jacob, California Building Industry Association v. City of San Jose: The Constitutional Price for Affordable Housing, 7 Cal. L. Rev. Circuit 20 (2016); James S. Burling & Graham Owen, The Implications of Lingle on Inclusionary Zoning and Other Legislative and Monetary Exactions, 28 Stan. Envtl. L.J. 397, 417–27 (2009).

[15] An exaction is a condition imposed by a jurisdiction that a landowner must meet to obtain permit approval. See Dolan v. City of Tigard, 512 U.S. 374, 390; Nollan v. California Coastal Commn., 483 U.S. 825, 837.

[16] No. 22-1074, 2024 WL 1588707 (2024).

[17] Id. at 7

[18] See Dolan, 512 U.S. at 390; Nollan, 483 U.S. at 837; 10 A.L.R. Fed. 2d 231 (Originally published in 2006)

[19] Id.

[20] See id.

[21] See Harris, supra note 12.

[22] See id.

[23] See Chui On Ki & Jayantha Wadu Mesthrige, The Effects of Urban Redevelopment on Neighbourhood Housing Prices, 14 International Journal of Urban Sciences 276 (2011); Craig T. Schlatter, The Impact of Downtown Revitalization on Residential Home Prices: Evidence from Normal, Illinois. Illinois State University (Jul. 11, 2006) https://ir.library.illinoisstate.edu/cpe/1.

[24] See id.

[25] Sheetz v. Cnty. of El Dorado, California, No. 22-1074, 2024 WL 1588707, at 7 (2024) (Sotomayor, J., concurring). Proving mandatory inclusionary zoning is a taking outside the permit process remains a major hurdle, with the best argument being that the policies infringe on a landlord’s right to exclude. See Cedar Point Nursery v. Hassid, 594 U.S. 139, 140 (2021) (expanding the per se taking standard of Loretto by holding government-authorized physical occupations are per se takings regardless of duration).

[26] Id. at 8 (Gorsuch, J., concurring).

[27] Id. at 9 (Kavanaugh, J., concurring).

[28] Jenny Schuetz, To Improve Housing Affordability, We Need Better Alignment of Zoning, Taxes, and Subsidies, Brookings Inst. (Jan. 7, 2020) https://www.brookings.edu/articles/to-improve-housing-affordability-we-need-better-alignment-of-zoning-taxes-and-subsidies/.

[29] Id.

[30] See id.