The Supreme Court’s decision on February 29, 2016 to deny the petition for the writ of certiorari in challenge to the validity of San Jose, California’s mandatory inclusionary zoning ordinance was an unheralded but significant victory for affordable housing and racial justice. Mandatory inclusionary zoning broadly refers to a set of policies whereby residential developers are required to make a certain percentage of the units they build affordable to low-income households. When it is done well, mandatory inclusionary zoning can also play a pivotal role in fostering residential racial integration in addition to increasing the supply of affordable housing.
In denying certiorari, the Supreme Court left undisturbed the California Supreme Court’s decision in California Building Industry Association v. City of San Jose, which held that the city’s ordinance was subject to a low level of judicial scrutiny. The California court’s decision sets a strong precedent that should provide communities in California with reassurance about the path they are taking in implementing mandatory inclusionary zoning and serve as persuasive authority on this issue for courts in other states and in the federal system.
As the U.S. Department of Housing and Urban Development (HUD) recognized when it singled out mandatory inclusionary zoning as an effective strategy in its landmark Affirmatively Furthering Fair Housing regulation, mandatory inclusionary zoning is a valuable tool for fostering residential racial integration because it ensures that at least some new affordable housing units will be located in the same place as new market rate units. Although income is not an exact proxy for race or ethnicity, there are well-documented correlations between race, ethnicity, and socioeconomic status in the United States.
Critics of mandatory inclusionary zoning often advance two parallel arguments. First, they argue that such policies infringe upon the liberty of private property owners, an argument the California Supreme Court forcefully rejected. The second critique is that mandatory inclusionary zoning actually increases the cost of housing by causing property owners to increase prices for market rate occupants of inclusionary developments and by depressing the supply of housing overall. In limited circumstances, these factors can materialize and result in some negative effects; however, with respect to the former point, it is important to keep in mind that new inclusionary developments are competing for occupants with a range of developments that may have similar amenities and to which inclusionary requirements may not apply. The ability of new inclusionary developments to raise market rents in that context is limited. Additionally, as was documented in the 2015 report Inclusionary Housing: Creating and Maintaining Equitable Communities by Rick Jacobus, the purported dampening effect of mandatory inclusionary zoning is effectively mitigated over time by reductions in the price of land. Purported economic critiques of mandatory inclusionary zoning tend to be of limited value because of their failure to account for that crucial variable.
Even so, there is one key lesson that communities can apply to the design of their programs in light of overarching concerns about the effect of land use regulations on the supply of housing. Even if mandatory inclusionary zoning does not disincentivize new development over time, it is possible for the suite of policies accompanying mandatory inclusionary zoning to incentivize development. Adding tools like upzoning, density bonuses, reduced parking requirements, and expedited permitting should result in a greater supply of both market rate and affordable housing units. Constraints on housing density have been a target of fair housing and civil rights advocates dating back to the time of the passage of the Fair Housing Act, and a reduction in such barriers along with greater mandatory inclusionary zoning is a win-win.
Through a racial justice lens, however, designing mandatory inclusionary zoning in a manner that avoids those unintended consequences is not enough. Communities should keep three other critical lessons in mind. First, many ordinances, including that of San Jose, offer developers the option of paying a fee in lieu of providing affordable units in their developments. The proceeds of such fees are used to fund affordable housing development. In-lieu fees sever the connection between the location of market rate and affordable housing that makes mandatory inclusionary zoning such a powerful tool for promoting integration. Communities should either withhold the in-lieu fee option or place very strict limits on the location of housing developed with funds from in-lieu fees.
Second, mandatory inclusionary zoning ordinances vary widely in the income strata of low-income households that they target for affordable housing. In most places, the correlation between race, ethnicity, and socioeconomic status is most pronounced at the lowest income levels. Accordingly, reserving inclusionary units for low-income households earning 80% of the Area Median Income will predictably do less to foster integration than setting aside units for extremely low-income households earning 30 percent of the Area Median Income. The countervailing point is that it is much more difficult to produce units for extremely low-income households without the provision of subsidies than it is to develop units for low-income households. Communities can harmonize these two considerations by adopting an approach whereby affordable units are available at different income bands, including, at a minimum, very low-income households who earn up to 50 percent of the Area Median Income in addition low-income households; by increasing incentives in concert with deeper affordability; or, as Montgomery County, Maryland does, having the local housing authority purchase units in inclusionary developments for use as scattered site public housing.
Lastly, it is critical that affirmative marketing requirements apply to inclusionary developments. Correlations between race, ethnicity, and socioeconomic status are only predictive of the potential occupancy of any given development if low-income people of color have access to information about the availability of units. Unfortunately, this is not a common program feature in mandatory inclusionary zoning programs, and, in fact, some ordinances expressly include discriminatory residency preferences that limit occupancy to people who live or work in a particular municipality. Such provisions, which are especially common in the suburbs of New York City, hinder residential integration and cut in the exact opposite direction of requiring affirmative marketing.
The time is right for advocates and local officials to push for mandatory inclusionary zoning in their communities. In light of HUD’s Affirmatively Furthering Fair Housing rule and the California Supreme Court’s undisturbed decision in California Building Industry Association v. City of San Jose, the legal climate has never been more encouraging for promoting such ordinances. Guidance about how to structure mandatory inclusionary zoning to avoid unintended consequences and foster residential racial integration is available more today than ever before. Working together, diverse stakeholders should work toward realizing the full potential of this valuable tool.
