Affordable housing and exclusionary and inclusionary zoning

AFFORDABLE HOUSING & THE USE OF EXCLUSIONARY AND INCLUSIONARY ZONING

In the past few decades, the lack of affordable housing in the United States has emerged as a crisis effecting low-income residents, government agencies and municipalities, and real estate developers alike. The lack of available affordable housing has increased in the past few years, as a result of zoning ordinances and governmental zoning powers that are supported and upheld by the courts. While there are no immediate solutions to this problem, a number of legal scholars have examined the relevant cases and have written extensively on the subject. Affordable housing is defined in the legal context as housing for which the mortgage or rental payments, related taxes, insurance and utilities, do not exceed thirty percent of gross annual income. This lack of affordable housing has driven property costs to record highs, making housing almost unaffordable for even moderate income families. However, low-income families are impacted the most by this crisis, which has created additional problems for poorer neighborhoods. Some of these additional problems involve lowered economic and educational opportunities, high crime and dangerous neighborhoods, and health problems related to overcrowding. As a result, a lack of affordable housing has contributed greatly to the economic and social problems prevalent in low-income communities around the United States.

The lack of affordable housing started out as a smaller problem that has gradually increased over the last thirty years. When land was first being developed in the United States, there was an abundance of it, and people made their homes where they wanted. Land during this period was readily available and was not subject to zoning ordinances or overcrowding issues. As cities began to grow, more people made their homes in the suburbs, where land development and construction costs were actually cheaper and families could purchase large parcels of land for very reasonable prices. In the 1980s, however, the United States experienced a decline in homeownership and homeownership opportunities as a result of an increase in the number of low-income families and a decrease in the amount of available affordable housing.

The issues surrounding the lack of affordable housing are attributed mostly to the high property costs as a result of zoning ordinances that attempt to preserve the status quo. There are hidden agenda's behind this rationale of "preserving the status quo" of certain neighborhoods. Many governments and municipalities do not want to deal with lower-income residents and the problems that they bring to the affluent areas, such as lowering property values, increasing crime rates, and driving out more affluent families. As a result of segregated neighborhoods, most of the lower-income residents are not given the same opportunities as residents living in the suburbs, such as better employment opportunities and higher quality education. As a result, these low-income residents are forced to stay in the inner cities, and their chances do not improve, resulting in a cycle of poverty. This paper will discuss affordable housing, and why it is needed, and will determine the legal bounds of the zoning power given to governments and municipalities. It will also provide an explanation of the law behind exclusionary and inclusionary practices and the legal issues raised by these zoning ordinances. It will also discuss the state of the current law as it applies to affordable housing, and will conclude with a discussion regarding the social and economic impacts raised by exclusionary and inclusionary zoning.

History of "Affordable Housing"

Affordable housing has an early conception that is much related to the history of racial segregation in the United States. In the United States, segregation and the Civil Rights movement laid the foundation for what is termed "affordable housing" and the background of current zoning laws. The concept of affordable housing developed over a lengthy period of time; prior to 1900, African-Americans were scattered throughout white neighborhoods. After World War I and II, African-Americans began to move north into industrial areas and redevelopment projects and public housing programs were implemented to create segregated towns. The first segregated towns and small cities were created by zoning ordinances that divided streets by race, legalized by the use of racially restrictive covenants between private individuals. Even after racial segregation was invalidated, segregation by neighborhoods and housing still existed.

Several government agencies attributed to segregated neighborhoods, by means of discriminatory loan processes and improper implementation of other housing laws. The Federal Housing Administration (FHA) used a rating system called "red-lining," to evaluate the risks associated with loans made to homeowners in certain neighborhoods. The rating system consisted of four categories, the first category being good areas that were in high demand and the fourth rating consisting of poorer neighborhoods where rent was cheaper. The FHA had the sole discretion of whether or not to provide housing loans for applicants, and used this power in such a manner that FHA officials thought would maintain the exclusivity and high rank of upper class neighborhoods. The majority of the loans made to homeowners by the FHA were to upper class whites moving into an upper class neighborhood. Between 1930 and 1950, three out of five homes purchased in the United States were financed by the FHA, yet less than two percent of the FHA homes were made to non-white home buyers. As a result of this discriminatory loan process by the FHA, minorities and African-Americans were prevented from moving into white upper class neighborhoods and had no choice but to remain in the poorer neighborhoods. The consequences of this type of segregation by the FHA led to a lack of capital in inner city communities, segregated minority neighborhoods, and a lack of affordable housing.

The Housing Act of 1937 established a public housing program that clustered many low-income residents together. Public housing programs provide housing that would otherwise not be available for low-income residents, but display the same kinds of segregation problems that the FHA caused. For example, public housing programs placed many low-income residents in the same area, allowing for segregation on a racial level. In addition, these poorer areas become high crime areas with a negative public image. The majority of these programs offer public housing in areas of the inner city, where the schools and jobs are worse than in other locations. The combination of these issues resulted in a group of people, usually minorities that became segregated as a result of where they live, go to school and work. The actions of the Department of Housing and Urban Development (HUD) also historically attributed to segregation, demonstrated by a New York class action brought against a local Section Eight program and federal and state programs. In this case, the court ruled in favor of the tenants, holding that they were not properly informed that they could use their subsidies in other neighborhoods and the availability of rent exceptions. Thus, the history of the zoning ordinances was shaped in large part by the early actions of governmental housing agencies.

Background of Zoning Laws and Zoning Power

The background of the zoning laws in the United States goes back to 1926, where the Supreme Court first approved the use of zoning, designating certain areas of land for residential, commercial and industrial uses. Zoning is defined as the division of land into zones and the regulations of the character of the land usage within these zones. Before the advent of zoning, land use was restricted through private contracts between parties regarding how certain land and overlapping land would be used. The use of private contracts was efficient for some types of land use that were easily negotiable, but did not work for other uses, such as where a nuisance was viewed as a land use restraint. As a result, laws were formed regarding the use of private contracts, and the sentiment emerged that land restrictions use restrictions were a public responsibility. The early zoning laws were formed with the goals of regulating harmful land uses in residential areas, protecting property values, and controlling development so that property could be adequately and efficiently served by governmental facilities.

The local power to regulate land use has also been limited by statute. Beginning in the 1960's, Congress and state legislatures started to recognize the disastrous effects that unfettered local discretion can have on racial integration, the environment and the provision of affordable housing. Federal and state laws, especially state mandated local planning laws and fair housing laws, placed significant limitations on local power to exclude housing, balancing the need for affordable housing and equal opportunity with the need for local decision making. Generally, these laws not only restrict exclusionary or discriminatory land use policies, but also require communities to affirmatively plan for inclusion of affordable housing. After the 1960s, zoning ordinances and laws became more common, and the impacts felt by them slowly emerged accordingly.

The powers granted by zoning are problematic due to the depth and elasticity of the police power that provides local governments with broad discretion to determine use and development of the finite supply of land within their borders. For example, any controls or regulations that are not unreasonable and bear some relationship to the general welfare of the community are permissible unless proscribed by preemptive state or federal laws or by the federal or state constitutions. Legal scholars have stated that inherent in the police power, is the power to exclude or condition development along with the power to mandate inclusion of development with particular characteristics that further the general welfare of the community. This is problematic because just about any zoning ordinance can be validated under the police power.

Current zoning regulations have long been cited as the cause of increases in housing and land costs, because most current zoning ordinances seek to exclude affordable housing by driving up property values in more affluent neighborhoods. Current zoning ordinances are used as the primary means that governments use to control the physical development of land and the kinds of uses to which each individual property may be put. Zoning laws typically specify the areas in which residential, industrial, recreational or commercial activities may take place. Besides restricting the uses that can be made of land and buildings, current zoning laws also may regulate the dimensional requirements for lots and for buildings on property located within the town, the density of development, and animals allowed to be raised on the property. Some current zoning ordinances also regulate the extraction of natural resources from land within the zoned area, others provide space for hospitals, parks, schools, and open space and still others protect places of historical significance within the community.

While the above uses of zoning are positive, there are also negative aspects of zoning power as related to affordable housing. The current zoning practices that lead the exclusion of affordable housing are based on legal uses of police power. For example, it is lawful for the government to regulate housing in order to protect property values and overcrowding, however, the availability of affordable housing suffers, as most land owners, governments and municipalities would rather maintain an affluent suburb than offer affordable housing. In addition to the use of zoning to promote conflict avoidance, prospectivity and predictability and to protect aesthetics and property values, jurisdictions have exercised the police power to engage in fiscal zoning. Fiscal zoning is land use regulation which seeks to exclude development that may create a financial burden on the community and to encourage development which may create financial gain. Thus, fiscal zoning excludes affordable housing while supporting exclusionary zoning as a result of the increased property values.

Exclusionary Housing

Exclusionary housing has long been described as a method of zoning where the interests of the public are advanced, through the prevention of conflicting land uses, protecting property values, and minimizing problems associated with over crowding. This kind of zoning is legal because the power to zone is a valid exercise of the police power when used to serve the public welfare. Traditional zoning and land use regulations, by restricting the supply of land available for housing development and increasing the costs of construction, has driven housing costs to very high levels. As a result, these zoning ordinances diminish the amount of affordable housing in that area, and housing in that location becomes very expensive. Exclusionary housing can be described as an effect of zoning that has operated to prevent the availability of affordable housing. Furthermore, exclusionary housing separates the poor from the non-poor, leading to problems such as under funded public institutions, economically depressed communities, and increased racial segregation.

Exclusionary housing has caused a shortage of affordable housing near low-income resident's work and non-work destinations. This is a result of exclusionary zoning practices of municipalities that favor suburban single-family housing, which is the basis for policy reform to foster more compact development and increased density. Some economic planners have suggested a reform of real estate development laws and applicable zoning ordinances to educate local citizens and decision-makers to the importance of accommodating a broader range of housing neighborhood types. These economists argue not on the basis of proven benefits of compact development forms, but because they provide amenable environments for a broad range of housing types, foster safe neighborhoods, and promote vibrant downtowns. In addition, incentive-based policies can help municipalities toward reduced regulatory exclusion, in the form of transit service improvements and incentives to build housing near transit stops. Stronger than incentives, are systems in which land use authority is shared between local governments and regional or state government to overcome local resistance to compact development. Another example of shared powers is mandating that local zoning conform to a comprehensive plan that is consistent with statewide planning goals.

Inclusionary Housing

As a result of the issues regarding exclusionary housing, a movement towards inclusionary housing began in the 1960s and 1970s. This movement began as a combination of housing advocates fighting exclusionary zoning, a decrease in federal subsidies for affordable housing, and an increase in local governments' use of extractions. Inclusionary housing has often been described as a solution to the lack of affordable housing, by requiring that a land developer designate a specified percentage of new housing units as very low to moderate income housing. Scholars have indicated that inclusionary housing operates to counter-act the negative aspects of exclusionary housing, such as it provides the poor with higher quality educational opportunities and the ability to live in a middle class community with lower crime rates, and that it promotes socioeconomic integration. Some states, such as California, New Hampshire and New York, have enacted inclusionary zoning ordinances in an effort to combat the lack of affordable housing.

California has taken the lead as an example of one state that has enacted several inclusionary housing laws. However, while the enactment of these laws is very proactive in nature, there are no penalties for failure to adhere to these laws, and there is no control mechanism in place to make sure that a city or county is providing affordable housing. The state of California requires that each local government must establish a housing plan that includes the following: 1) an assessment of housing needs and an inventory of resources and constraints relevant to the meeting of these needs; 2) a statement of goals, quantified objectives and policies relative to the maintenance, preservation, improvement and development of housing; and 3) a program that sets forth a five-year schedule of actions that the local government plans to undertake the implement the goals, objectives and policies.

Land developers that offer affordable housing are rewarded with certain benefits such as density bonuses. Density bonuses are bonuses for the developer in which he is allowed to exceed density limits in exchange for the provision of affordable housing to low-income residents. Other incentives include the fact that these types are units are usually smaller and offer less amenities than regular priced housing would, such as standard sized parking spaces in covered garages. In California, the majority of inclusionary housing programs contain resale or rental restrictions. An example of a resale restriction is a restriction the property that requires that upon sale, the property must be sold to another low-income resident. There are other restrictions used to keep the property in the hands of a low-income resident, such as contracts that do not allow the seller to transfer title to the buyer until the buyer has owned the residence and lived there for ten years. California has taken the lead as the state to offer the most amounts of inclusionary housing, the success of which depends on whether the production of affordable housing can be balanced with proper incentives for developers.

A policy reason for California supporting inclusionary housing is that it produces low-income housing that is badly needed. Another reason is that most new development is in the suburbs, which gives low-income residents access to housing areas located in better neighborhoods that formerly were not available. Research indicates that the suburbs also provide residents with better opportunities than they had as compared to living in the inner city. For example, in the suburbs, unemployed residents have an increased chance of finding employment, the public schools located in the suburbs are better than schools in the inner city, and the suburbs are areas of much less crime, removing some of the stigmatizism surrounded by living in an inner city public housing complex. However, these policy reasons are not always enough to support interest by real estate developers and government municipalities.

While there appear to be many benefits presented by inclusionary housing, there are also negative aspects. One of the strongest arguments against inclusionary housing is that it functions to redistribute wealth. This is because while low-income residents benefit from affordable housing, developers are given incentives, and the costs are passed backwards to landowners by paying less for this land. Another argument cited against inclusionary housing is that only a small segment of people pay for it, such as the developers. It has been speculated by opponents that a fairer strategy would be to have affordable housing paid through the administration of a general tax throughout the entire population. Scholars have noted however, that such a general tax would most likely be opposed by the entire community. Another detriment of inclusionary housing is that very low income individuals are not able to make the required down payment and may have difficulty making monthly payments. Individuals that earn just above the cut-off limit for inclusionary housing are considered to have a too high income to qualify. The problem in this case is that these individuals do not qualify, but may make so much less than the middle class, and as a result, are caught in the middle and cannot afford housing. This result in a negative viewpoint held by candidates of affordable housing - why should they work harder to improve their living situation, when such hard work is only serves to place them right outside of the cut-off for affordable housing? With this in mind, the majority of these people would just rather maintain their current employment at their current rate to be able to barely survive.

Resale restrictions are also criticized as being unfair restraints on real property; for example, in the normal case, a homeowner purchases a home for a certain amount of money, and is able to maintain the house, and add a few improvements, and is able to sell the house a few years later at a significant profit, depending on the improvements and upkeep. A resale restriction would prevent the homeowner from selling off this property at a profit, because the restriction states that the property must be sold at an equal value to a low-income resident. However, some research states that for most inclusionary housing owners, the present opportunity to buy a home that they could not otherwise afford far outweighs the future potential loss of windfall benefits. Other complaints regarding inclusionary housing are that there are other more cost effective ways to make housing affordable to low-income residents, such as rent subsidies and rehabilitating old or damaged homes.

Complaints such as these regarding the use of inclusionary housing could be reversed through mandated, instead of voluntary, inclusionary housing requirements for real estate developers. Mandatory inclusionary programs require that any developer constructing a project over a certain size reserve a portion of the units as affordable, referred to as a "set-aside." Mandatory inclusionary zoning requires that there most be some available units that are labeled "affordable housing" with any new development. This differs from voluntary inclusionary housing, where developers decide to include this type of housing only if there are enough benefits given to them. Unfortunately, these developer incentives can also produce affordable housing that does not meet the same requirements of market value housing. This is because a lot of developer incentives include smaller units, cheaper materials, and poorer municipal services. Since developers are hesitant to take on incentives, the incentives being offered become more and more dramatic, changing the quality of the affordable housing that is required by the mandatory inclusionary housing ordinance.

A review of the literature indicates that mandatory programs have been more successful because they create more available units than voluntary housing creates. Additionally, mandatory programs can alleviate social problems such as crime and unemployment by mandating integration of the community. A mandated inclusionary program has the economic benefit of creating mixed income neighborhoods and decentralizing poverty by providing affordable housing in other wise gentrified areas. One problem with mandatory inclusionary housing is that local governments must be able to enforce them, however, currently there are no sanctions or penalties in place for a government that does not comply with mandatory inclusionary housing. This has been cited as an issue repeatedly by legal scholars, however, there is no regulatory measure currently in effect to ensure compliance.

Legal Issues Raised by Zoning

Inclusionary and exclusionary zoning raise several legal issues that have helped shape the current law in regard to zoning. A review of the related literature and cases in this area indicates that zoning ordinances are usually upheld, and are presumed to be constitutional unless they are demonstrated to be clearly arbitrary and unreasonable. This is problematic for those fighting a zoning ordinance because the burden of proof is so high for plaintiffs to meet. The legal issues surrounding these zoning practices most often include takings, due process and equal protection violations, and the imposition of invalid restraints on alienation. The United States Supreme Court has imposed strict standing requirements on plaintiffs challenging the validity of zoning ordinances in federal court. As a result, a majority of plaintiff fighting zoning regulations have lost. As far as takings are concerned, if property is physically appropriated, there is clearly a taking and the government will usually be required to compensate the private property owner. In comparison, regulatory takings are property takings justified by a law or statute that require developers to provide inclusionary housing.

In most regulatory taking cases, courts attempt to strike an equitable balance between the legitimate use of state public power for the health, safety, welfare and morals of its residents and a private party's property interest. An example of one of the earliest takings case in this area is a Supreme Court case that held that a stat act prohibiting subsidence coal mining constituted a compensable taking. In this case a coal company was prohibited from mining in accordance with a statute that made it commercially impracticable for the company to mine a certain kind of coal. The court balanced the state power and health of the community, and held that although the purpose of the statute was to protect homeowners from the harms caused by mining, such as the foundations of their houses from being destroyed, the diminution of value in the coal company required compensation. This provides a clear example of how the court has traditionally handled takings cases and has attempted to strike an equitable balance between the parties involved.

Other challenges to inclusionary housing include due process and equal protection claims that inclusionary housing is either unreasonable or causes a disparate impact on select groups of individuals. For example, the Fourteenth Amendment of the U.S. constitution provides that no state shall deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. Under a Fourteenth Amendment claim, parties could contest the validity of a regulation as unconstitutional, or a regulation's constitutionality as applied to a parcel of land. Most of the claims under this amendment argue that the right to housing is just as important as the right to a free public education. Under the Fourteenth Amendment, an individual could argue that a right to housing is a fundamental right, thus under the strict scrutiny standard, the government must demonstrate that both the challenged regulation has been narrowly drawn and that it furthers a compelling interest. Even though the government has to demonstrate such a significant burden, this argument has seldom proved to be a successful one. Under the rationality standard, a challenged regulation will be upheld if there is any rational basis for a regulation which affects non-suspect classes more than the general population.

Other legal issues surrounding affordable housing involve rent restrictions and resale restrictions. Rent restrictions are a legal issue because they could be challenged on the ground that they violate due process. In these cases, the court typically has held that price control is unconstitutional, although it has recognized that the government does have a right to alleviate between a supply and a demand in the market for a certain price. Resale restrictions affect property values, although these claims are not as common or widespread as due process claims or claims under the equal protection clause. Other legal issues have been raised, but such arguments have failed on a basis regarding a lack of standing, or that the contested regulation simply furthers a legitimate state interest.

Economic and Social Implications of Exclusionary and Inclusionary Housing

Much has been written about the economic and social issues surrounding exclusionary and inclusionary housing. A lack of affordable housing causes many problems for low and moderate income residents. One of the most significant economic and social effects of available affordable housing is that it becomes quickly overcrowded, and results in second-rate municipal services, disadvantaged educational opportunities, and is subjected to adverse police practices. In addition, exclusionary housing increases the average housing costs by making suburban construction more expensive. This kind of zoning segregates the tax base into wealthy suburban and poor urban components, creating a greater disparity between property tax rates and the return in public services per tax dollar paid.