Draft (11-11-01)



Draft (11-11-01)

Regulatory Barriers to Housing Development in the United States

Michael H. Schill

Professor of Law and Urban Planning

New York University

Over the past two decades those concerned with housing policy have increasingly turned their attention from issues of quality to those of affordability. This increased attention to whether households can afford housing is a natural consequence of the substitution of market mechanisms in place of the old command-and-control systems of government production. As affordability concerns take center stage, several different sets of legal and policy issues have risen to the fore. One concerns the appropriate way to subsidize households who cannot pay for housing. Another relates to the need to create or augment systems of housing finance that will enable developers to build housing and consumers to purchase it. A third set of issues revolves around the need to bring down the cost of housing construction.

In this paper, I will examine one contributor to the cost of housing construction– government regulations on land development. A focus on the relationship between development regulations and housing costs is particularly timely. First, as aluded to earlier, issues of affordability have become ever more important in debates over the future of American housing policy. Second, over the past two decades, partly due to the competitive pressures of a global economy, the United States, as well as other nations throughout the world, have adopted policies that seek to promote market exchange and remove regulatory barriers from their economies. Third, efforts are underway in many states and cities to rein in unplanned development and sprawl. New regulations on development, sometimes justified under the rubric of “smart growth,” threaten to make development of housing in some areas even more expensive than it already is.

In Part 1 of this paper, I will describe the problem of housing affordability in the United States. I will examine in Part 2 some of the reasons for the high cost of housing construction, focusing on the impact of government regulations. In Part 3, I will discuss efforts to combat regulatory barriers through legal challenges and legislative action.

Part 1:

The Evolution of Affordability As The Major Housing Problem

in the United States

In the United States, problems of housing affordability have eclipsed issues of quality. At the turn of the twentieth century, most lawyers and policymakers concerned with issues of housing focused on its poor quality. In cities, run-down housing, typically occupied by immigrants and racial minorities, was blamed for disease and social disorder.[1] A variety of tools were used to combat decrepit housing. New York City’s Tenement Housing Act of 1901,[2] which celebrates its centenary this year, was, by far, the most extensive legislative initiative at the time of its passage to promote “safe and sanitary” housing conditions. It was only a matter of time before other cities throughout the nation adopted housing codes, modeled after the Tenement Housing Act, that set forth minimum requirements governing ventilation, fire escapes, plumbing and heat.[3] Following World War II, government attacked, even more directly, poor quality housing under the Urban Renewal Program, a slum clearance initiative that cleared urban areas of “blighted” properties and, in some instances, replaced them with public housing.[4]

Regardless of whether the improvement in housing conditions was caused by government action, the increasing affluence of Americans or high levels of new private sector construction, progress has been dramatic.[5] In 1940, 45.3% of all housing units in the U.S. lacked complete plumbing; by 1990 this proportion had evaporated to only 1.1%. Severe overcrowding (more than 1.5 persons per room) likewise fell from 9.0% of all housing units in 1940 to only 2.1% in 1990.[6] More recent data suggest improvements continue to be made. From 1975 to 1997, the proportion of housing units rated as severely inadequate by the Census Bureau declined from 5% to 2%. Perhaps even more impressive, the incidence of severely inadequate housing conditions among households in the lowest income quintile were little different from those of the highest.[7]

It appears, though, that progress in housing conditions may have been achieved at the cost of higher housing cost burdens among many American households, particularly those who earn low incomes. Although a precise definition of affordability is elusive, many commentators and government agencies have adopted a standard indicating that households that pay over 30% of their income for housing have an affordability problem. Housing cost-to-income ratios in excess of 50% are considered severe.[8] Although the average burden for all Americans rose from 20% in 1975 to 30% in the early 1980s before falling again to 20% in 1997, among households in the lowest quintile of income, the burden rose from 40% to 60% and remained at that level throughout the 1990s.[9]

Affordability constraints are reflected in disparities in homeownership rates between low income households and those with greater resources. In 2000, the homeownership rate among all households in the United States was 67.4%; among low income households only 52% of all households owned their own homes.[10] Similarly, despite improvements in recent years, the black homeownership rate (47.6%) was more than twenty-five percentage points below that of white households (73.8%).[11]

Part 2:

The Relationship Between Land Development Regulations

and Housing Affordability Problems

High housing cost burdens have many causes. Declining or stagnant incomes among low income households, have contributed to affordability problems. In addition, rising prices for housing have exacerbated the problem.

The high cost of ownership and rental housing is caused by the interplay of supply and demand. Although a number of supply-side factors can influence housing prices, the cost of newly built homes and apartments is certainly of central importance. Each year, tens of thousands of housing units are lost as a result of conversion or demolition.[12] New construction must replace these losses as well as accommodate population and household growth.

The price of new housing has increased substantially in recent years. Part of this increase in price is attributable to the higher quality standards, greater amenities and larger size of newly constructed homes. However, even controlling for quality, prices have increased for new homes. According to a constant quality index of new housing prices computed by the National Association of Homebuilders, the price of new housing almost doubled between 1980 and 2000.[13] Part of the rise in the price of new housing is attributable to increases in construction costs. Indeed between 1996 and 2001, alone, the cost of building a single family home increased by over 29%.[14]

Government Regulation and the Land Development Process

Construction costs are affected by a number of factors such as the price of inputs (e.g. labor, lumber, land) and debt. Another contributor to the cost of new housing are laws that regulate what can be built as well as the quality of the ultimate product. In the United States, most development regulations are enacted by local governments either pursuant to their home rule powers or under express authorization from state governments. In addition, particularly in the area of environmental protection, the federal government in recent years has become an active player in promulgating rules that contribute to the cost of housing production. Among the most frequent types of regulation are the following:

1. Land Use and Zoning. Land use regulations can affect development costs in a number of ways. Most municipalities limit the quantity of land that may be devoted to residential uses by creating zones where only manufacturing or commercial establishments may be located. In some instances, residential uses will be permitted in an area, but require special permits to ensure that they are appropriate or otherwise meet local criteria. Within zones in which residential uses are permissible, additional regulations contribute to the expense of development by requiring minimum set-backs, parking spaces, floor areas, etc. Maximum height and bulk restrictions may also affect cost, by circumscribing the size of a development.

2. Subdivision Regulations and Exactions. When owners of vacant land wish to create lots to sell for individually owned housing units they must typically apply to their municipal government for subdivison approval. The typical subdivision ordinance will set forth the requirements necessary to have the subdivision recorded. Local governments may require that the owner deed over to the city land for roads and public utilities. In addition, some subdivision regulations will require that the owner either grant land for, or in some instances, provide schools and amenities such as parks.

3. Impact Fees. Increasingly, municipalities require developers to pay fees to the city if they wish to develop their land. Theoretically, these fees are calculated to pay for the marginal impact the housing development will have on the demand for public infrastructure such as schools and roads.

4. Growth Controls and Urban Growth Boundaries. Many municipalities have sought to slow or stop the growth of housing, sometimes on the ground that local infrastructure is insufficient to meet the needs of new residents. Some have enacted ordinances that impose a moratorium on new development or that allow new development only as additional infrastructure (e.g. sewer lines, water connections) are built. More recently, urban growth boundaries have been used both to promote compact development and to preserve rural land and open space. An urban growth boundary is a line that separates urban from rural areas. Land that falls within the boundary may be developed; land outside the boundary is subject to significant development restrictions.

5. Historic Landmark Laws. Since the mid-1970s, many municipalities have enacted laws to protect buildings of historic value. Typically, these ordinances prohibit owners of buildings from demolishing or altering the structures without receiving approval from a commission. In some instances, approvals are granted if the owner of the building agrees to take actions to minimize the effect of the alteration.

6. Environmental Approvals. Several different types of environmental regulation affect development activities both within cities as well as in less urbanized surroundings. Frequently when a developer wants to build in an environmentally sensitive area, he is required to get a permit from a federal or state regulatory authority.[15] Even in those instances where the developer receives permission to build, he frequently is required to undertake remedial activities. A second type of regulation does not forbid development, but instead requires that the developer prepare an environmental impact statement that analyzes the effect of the housing on the environment and proposes ways to mitigate any negative impacts. The cost of preparing an environmental impact statement for a large development can exceed several million dollars.

7. Building Codes. Most municipalities have local codes that set forth minimum standards for new construction or rehabilitation. These codes specify the types of materials that must be used in development, the types of construction practices that must be followed and minimum requirements for air, light, egress and space.

The Relationship Between Land Development Regulation and the Cost of Housing

A developer who wishes to build housing will often find that he needs to apply to the government either for approvals or to obtain exceptions from or changes to the requirements of local regulations. For example, an applicable zoning ordinance may not permit housing or may impose height or bulk restrictions that make a development either physically or financially infeasible. In such cases, the owner will need to apply to the appropriate municipality for a re-zoning or for a variance. In other cases, an owner may need a permit to fill in a wetland or alter the exterior of a landmarked building.

Development which is not “as-of-right” and that requires discretionary governmental approvals gives rise to a series of peculiar problems. In addition to the risk of being turned down for reasons that have more to do with politics than the underlying merits of the application, discretionary government actions may trigger other regulatory processes such as an environmental review.

Government regulations on land development directly and indirectly affect the cost of housing. For example, minimum lot area requirements or use restrictions may limit the amount of land in a municipality that may be used for housing thereby driving up the price of what is available. Together with minimum construction standards, the regulations may also cause a developer to consume more land or build to a higher standard than he would otherwise choose. In addition, government application and review processes require the hiring of expensive consultants and attorneys. In addition to the money expended in complying with government requirements, the time that elapses waiting for the approval can lead to high carrying costs for the land.

Discretionary government approvals generate a particularly burdensome set of costs. Governmental officials with leverage over whether a development can go forward are in a strong position to require developers to make alterations in plans that they would not otherwise have to agree to. Often these changes will require the developer to sacrifice permissible height or bulk thereby proportionately driving up the cost of what is eventually built. In many instances, the government will require the developer to add expensive amenities to the building or, alternatively, donate land or facilities to the municipality.

Discretionary government actions are also particularly subject to legal challenge by members of the community. In some instances, lawsuits will challenge the substance of the governmental body’s decision. Given the deference courts typically show administrative bodies, however, the challenge is more likely to be procedural, alleging that the requirements of the statute or ordinance have not been adhered to. For example, many developments which require discretionary approvals or zoning changes are challenged on environmental grounds. A typical lawsuit would allege that the developer and city should have required an environmental impact statement[16] or that the environmental impact statement that was prepared was not sufficiently thorough.[17] In many instances, the lawsuit may have little intrinsic merit. Nevertheless, because the pace of litigation is often slow, delays can run to years before the matter is resolved and the development is permitted to proceed. These litigation-related delays generate two direct costs for the developer: (1) legal fees and (2) carrying costs during litigation.

Certainly, the direct costs of litigation as well as the costs of complying with government land development regulations can be substantial. In some ways, the bigger problem is the uncertainty these regulations create. In real estate development, time is critical; delays could result in substantially higher interest and labor costs. They could also cause a development to be completed at a time when the market would be inhospitable to absorbing the space. Because developers, like most people, are at least somewhat risk averse, they may abandon some potentially profitable developments or not begin them in the first place because of this uncertainty.

A Review of the Literature on the Effect of Government Regulation on the Price and Supply of Housing[18]

Surprisingly little literature has empirically tested the impact of government regulation on the cost of new development. One of the reasons for this is the difficulty in separating out which costs are supply-driven and which are caused by an increase in demand. For example, stringent zoning ordinances may increase the price of housing. Part of that increase may be attributable to supply factors (scarcity created by the zoning), but the higher price may also reflect the fact that the zoning ordinance made the area more desirable and increased land values. Presumably, the impact of the ordinance related to scarcity would be seen as objectionable; the amenity impact much less so.

1. Zoning and Land Use Regulation

With respect to land use regulations, several studies suggest that restrictive zoning ordinances can drive up the price of land. For example, Ellickson observes that existing owners can utilize land use regulations to obtain monopoly profits in suburbs with unique geographic or cultural features.[19] The existence of monopoly zoning is supported by empirical research. Studies show that metropolitan areas with few competing jurisdictions have higher housing prices than more decentralized regions.[20] For example, a recent article by Thorson[21] examines the variation in house prices among municipalities in ten urbanized areas in the northeast. He finds that the proportion of suburban land controlled by the four largest suburban governments in each area was positively related to higher housing prices in both 1980 and 1990.

An additional study supporting the proposition that suburban zoning restrictions can drive up the cost of housing through artificial supply restrictions is provided by studies authored by Pollakowski, Wachter and Cho.[22] These studies examine house prices in two Washington, D.C. suburbs and demonstrate that zoning increases the price of housing not only in the community promulgating the ordinance, but in adjacent communities as well.

A recent article by Green[23] examines which types of land use restrictions are most likely to have an impact on the price of housing. He analyzes house prices and rents for the 37 municipalities in rapidly growing Waukesha County, Wisconsin in 1990. Of the six regulatory variables examined,[24] he found that two were significantly related to increased house sales prices– whether mobile homes were permitted and the minimum number of frontage feet that were required. Forbidding mobile homes increased prices by between 7.1% and 8.5%. In addition, an additional ten feet of minimum frontage drove up prices by between 6.1% and 7.8%. Green also estimates the relationship between these government regulations and the share of “affordable” owner-occupied homes.[25] According to his results, forbidding mobile homes reduced the share of houses that were affordable by between 6 and 8 percentage points. Each ten feet of street width and frontage required reduced the share of affordable housing by between 3 and 4 percentage points.[26]

2. Impact Fees

Research on the effect of subdivision requirements and impact fees also tends to show that these regulations drive up the cost of housing. Theoretically, the effect of impact fees on housing prices is ambiguous. If alternative jurisdictions offering appropriate substitute housing exist nearby (implying a high elasticity of demand), the impact fee should be passed back (or borne by) the owners of vacant land. However, if appropriate substitutes do not exist either because of the uniqueness or large size of a jurisdiction or because of high search costs, then the fee may be passed forward to the purchasers of the homes. Furthermore, if the fee is not anticipated by a housing developer, it is likely that it will not be passed back and may be borne either by the developer or by the purchaser of housing.

The weight of the empirical literature on impact fees suggests that a significant portion of the fees is indeed passed forward to purchasers in the form of higher housing costs. For example, Singell and Lillydahl[27] study house sales in Loveland, Colorado between 1983 and 1985 and conclude that the fees increased the sales prices of both new and existing homes. Two more recent studies also find that impact fees tend to raise the cost of homes. Dresch and Sheffrin[28] examine impact fees levied against new homes sold in California’s Contra Costa County between 1992 and 1996. They find that fees typically ranged from $20,000 to $30,000 per dwelling. They estimate that developers in the southern part of the county passed on the full cost of the fees to home purchasers while those in the eastern part were only able to pass on one-quarter of the fees. The authors hypothesize that the reason why developers were less successful in passing fees forward to buyers in the eastern part of the county was because that area experienced falling prices during the period. Finally, Baden and Coursey[29] examine the relationship between impact fees and house prices in eight of Chicago’s suburbs between 1995 and 1997. They find that the fees increased the price of new housing by between 70% and 210% of the actual fee imposed, which ranged from $2,224 to $8,942 for an average four bedroom home. One of the reasons for the large price increases, according to the authors, was the uncertainty created by rapidly changing fees. Finally, the authors also find that the impact fees were related to higher prices for existing housing.[30]

3. Growth Controls and Urban Growth Boundaries

Growth controls can also have an impact on housing production and the price of housing. Katz and Rosen[31] analyze 1,600 single family home sales in 64 municipalities in the San Francisco Bay area in 1979. They find that houses that sold in communities which had growth control ordinances (e.g. building permit moratoria or rationing schemes) were 17% to 38% more expensive than those that were located elsewhere. A more recent study by Levine,[32] examines the relationship between housing supply and a variety of growth control measures in California municipalities between 1980 and 1990. His results suggest that some growth control measures– specifically those that remove land from development or that require less intense development– reduce the quantity of housing produced. In particular, the impact was greatest for rental housing. The author observes that it is likely that the restrictions particularly affected households that were composed of low income individuals or racial and ethnic minorities .[33]

As concerns with surburban sprawl have grown in recent years, increased attention has been paid to urban growth boundaries, in general, and those imposed in Portland, Oregon, in particular. Since the imposition of the urban growth boundary in Portland, housing prices have increased significantly. Some have attributed this price inflation to the boundary.[34] In one of the few careful empirical studies completed to date, Phillips and Goodstein[35] find that the urban growth boundary has probably increased median housing prices in the Portland metropolitan area, but that the increase was less than $10,000.

4. Building Codes

Despite their ubiquity, research on the impact of building codes on the price of housing is extremely scarce. The only multivariate study that has been found was published in 1983 by Noam.[36] Based upon an analysis of the effect of housing codes in 1,100 municipalities in 1970, Noam estimates that strict codes increased the cost of a house by approximately $1,000.

5. Cumulative Development Regulations

Several attempts have been made to examine the cumulative impact of different types of local development regulations on the cost of housing. For example, the National Association of Homebuilders (NAHB) surveyed builders in 42 metropolitan areas in the United States in 1998 and asked them to provide a detailed breakdown of the cost of constructing a 2,150 square foot house on a 7,500 to 10,000 square foot lot.[37] The average sales price of such a home was estimated to be $226,668. Of this total, the builders estimated that approximately 10% could be shaved “if unnecessary government regulations, delays and fees were eliminated.”[38] Among the greatest sources of regulatory cost according to the developers were delays in receiving building permits and impact fees.[39]

Luger and Temkin[40] also use survey data from developers, engineers and planners to estimate the impact of “discretionary” or “excessive” costs imposed by regulation in New Jersey municipalities. They find these costs to be sizable, albeit somewhat more modest than those reported in the NAHB study, ranging from $10,000 to $20,000 per unit on a home with a median sales price of $236,000.[41] Due to the relatively inelastic demand for housing, they also estimate that a dollar of regulatory cost ends up costing the consumer between two and six dollars. Because developers are more likely to be able to successfully pass forward the cost of regulation to the purchasers of higher cost housing, Luger and Temkin conclude that the impact of regulations will be to reduce demand (and, over time, supply) particularly at the lower end of the market.[42]

Two recent studies use indices of regulatory restrictiveness to estimate the impact across metropolitan areas of varying levels of land development regulation. According to estimates by Green and Malpezzi,[43] moving from a lightly regulated environment to a heavily regulated environment would raise rents by 17%, increase house values by 51% and lower homeownership rates by 10 percentage points. According to Mayer and Somerville,[44] a metropolitan area with a 4.5 month delay in approval and two different types of growth control restrictions would have an estimated 45% less construction than a metropolitan area with a 1.5 month delay and no growth management policy.[45]

Part 3:

Efforts to Reduce Regulatory Barriers to Development

Despite the increasing focus on housing affordability in the United States as well as the emerging empirical evidence suggesting that government regulations are partly to blame for the high cost of housing, efforts to reduce regulatory barriers to new construction have met with extremely limited success. Indeed, as the “smart growth” movement gains steam, states and municipalities are coming under pressure to pass laws that would further inhibit new development. In this part of the paper, I will examine efforts over the past two decades to reduce regulatory barriers in the United States. The first section will focus on litigation-related strategies; the second will examine legislative approaches.

Efforts to Reduce Development Regulations Through Litigation

In recent years, the “property rights” movement has grown in the United States. Supporters of strengthened protection of property rights frequently argue that a reduction in regulation will promote economic efficiency as well as personal liberty and autonomy. The United States Constitution as well as the constitutions of virtually every state contain numerous protections of private property rights. The most important of these has proven to be the Takings Clause of the Fifth Amendment to the United States Constitution which requires the federal government to compensate private property owners when it “takes” their property.[46] The protections of the Fifth Amendment Takings Clause have been made applicable to state and local governments as a matter of federal law. In addition, some states have constitutional protections against takings that go even further in prohibiting government from “damaging” private property.[47]

Under current taking doctrine, most regulations affecting land development are immune to attack under the Takings Clause. If the only challenge to the regulation is that it deprives the owner of the economic value of his property, a court will typically require compensation only if (1) the owner has no viable use left,[48] (2) the property value has declined to zero[49] or (3) if the owner’s reasonable investment-backed expectations have been interfered with.[50] Since most zoning regulations reduce value, but do not make properties valueless, they are typically deemed permissible by the judiciary.

Nevertheless, in recent years as the Supreme Court has grown more protective of property rights, one type of land use regulation-- the exaction-- has been subject to particular scrutiny. An exaction typically requires that an owner grant to a municipality land or an easement over land in return for the permission to build. In Nollan v. California Coastal Commission,[51] the State of California enacted a law that required owners of property in certain waterfront areas to obtain coastal development permits from the California Coastal Commission before they could demolish and rebuild homes. The Nollans purchased a small bungalow on beachfront property between two large parks which they intended to tear down and replace with a larger development. The Coastal Commission granted the Nollans a permit, but conditioned it on the Nollans granting the public an easement to pass along their beach property. In effect, this lateral easement would make it easier for people to get from one park to the other.

The Nollans filed suit and claimed that the easement condition constituted a taking in violation of the Fifth Amendment. The state argued that since it had the power to deny the permit altogether, it should certainly also have the right to do something less drastic such as grant it subject to an easement condition. The Court, in a sharply divided opinion authored by Justice Scalia, sided with the property owner. Citing Loretto v. Teleprompter CATV Corp.,[52] the majority opinion observed that the government could not normally require a private property owner to grant an easement across its property because that would constitute a permanent physical invasion. To use the lever of a coastal development permit to, in effect, “extort” something it would not have been able to obtain directly, would be a violation of the Constitution.[53] According to the Court, “unless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use....”[54]

The Nollan case was followed seven years later by another Supreme Court decision that held a local permit requirement to constitute a taking of property. In Dolan v. City of Tigard,[55] an Oregon municipality enacted an ordinance that required property owners to comply with certain open space and landscaping requirements and required that owners who engaged in new development dedicate land for pedestrian and bicycle pathways. The petitioner in the case applied for a permit to nearly double the size of her plumbing and electrical supply store. The City approved the permit subject to a requirement that she dedicate land for a greenway adjoining the nearby floodplain and that she construct a bicycle path within the floodplain. The City argued that the increase in run-off from the expanded building and parking lot would justify the greenway requirement and that the increased traffic caused by the expanded store would likewise support the requirement of the bicycle path.

The Supreme Court, again in a closely divided decision, invalidated the requirement on takings grounds. The court held that while there was a logical connection between the reason given for the permit condition and the activity to be authorized by the permit, the city also had the burden of showing that the condition bore a “reasonable relationship” to the impact of the proposed development. The Court found that the city failed to meet this reasonable relationship test because it had not introduced evidence to show that the required dedications were roughly proportional to the increased flooding potential or traffic generated by the petitioner’s development.

Despite the increased protection accorded to property rights by the Supreme Court over the past two decades, it is unlikely that the Takings Clause of the Fifth Amendment could be used successfully to combat most of the regulations that drive up the cost of new housing construction. The typical zoning ordinance or building code may reduce the value of property to an owner, but this reduction is unlikely to go so far as to constitute a violation of the Constitution. Indeed, even members of the Court who have led the fight to increase protection for property owners, have been careful to clarify that the typical zoning ordinance does not constitute a taking.[56] Nevertheless, regulations such as wetlands preservation ordinances that substantially take away all value of a property may be vulnerable to takings challenges.

In addition, one set of regulations that have grown in popularity over the past two decades-- those that impose land use exactions on new development-- are subject to invalidation under Nollan and Dolan. Ordinances that require amenities out of proportion to the impacts projected by the housing to be developed may entitle the owner to an injunction and damages.[57] Furthermore, although the lower courts have not been clear on the matter, impact fees may also be subject to challenge on the same grounds.

A second avenue to challenge burdensome regulations on housing, particularly land use regulations that either limit development or that require expensive amenities, is through state courts. Under the United States federal system, the rights guaranteed by the U.S. Constitution are only a floor; state courts may interpret their own constitutions so as to provide broader protections. One area where this has frequently occurred concerns land use regulations that have the effect of excluding affordable housing. Perhaps the most famous (some might say infamous) case is Southern Burlington County NAACP v. Township of Mount Laurel.[58]

In the early 1970s, Mount Laurel was a small, rapidly growing suburban town outside of the cities of Philadelphia and Camden. Like many other suburbs in the United States, through its zoning ordinances, Mount Laurel had restricted housing development for low and moderate income residents. Virtually no provision was made for multifamily housing and in those few parts of the city where it could be built, the land was either inappropriate or the zoning ordinance required amenities that would lead to high prices or rents. In the face of United States Supreme Court precedents that showed tremendous deference to the power of municipalities to zone in this way, the National Association for the Advancement of Colored People (NAACP) brought suit against the town under the New Jersey State Constitution.

In 1975, the Supreme Court of New Jersey handed down a ruling that would rock the state for decades to follow. In Mount Laurel, the court challenged the strong ethic of local autonomy that underlies the American system of government by holding that in exercising its police powers a municipality must take into account the impact it has on the welfare of the state’s citizens who live beyond its borders. The court ruled that “every such [developing] municipality must, by its land use regulations, presumptively make realistically possible an appropriate variety and choice of housing. More specifically, presumptively it cannot foreclose the opportunity of the classes of people mentioned for low and moderate income housing and in its regulations must affirmatively afford that opportunity, at least to the extent of the municipality’s fair share of the present and prospective regional need therefor.”[59] As a remedy, the court remanded the matter to the town to revise its zoning ordinance in accordance with the decision.

Nine years later, the New Jersey Supreme Court revisited the Mount Laurel case. In the intervening years, the town had done little to make possible the construction of low and moderate income housing. In Mount Laurel II, the court expressed its frustration that Mount Laurel and other municipalities in the state had not relaxed their land use regulations. The court strengthened its earlier holding by extending the obligation to provide housing to all municipalities in the state and made it clear that reducing barriers would not be enough. In the future municipalities would have to take affirmative efforts to create such housing, including assisting developers in obtaining public subsidies and adopting inclusionary zoning ordinances. Perhaps most importantly, the court established the concept of the builder’s remedy: If a developer proposing to build housing that included a substantial number of units affordable to lower income households could show that a municipality had not met its fair share obligation, a court should ordinarily order the municipality to permit construction of both the market- and below market- rate housing.[60]

Mount Laurel II set off an explosion of controversy in New Jersey communities. The builder’s remedy, in particular, threatened the ability of communities to control their growth since a successful developer would not only be able to construct low cost units, but would also be able to construct up to four times as many market-rate homes. Given the booming housing market in the mid-1980s, litigation swelled as developers proposed housing developments and increased housing for moderate income households appeared close to becoming a reality. In response to this controversy, the New Jersey legislature enacted the Fair Housing Act of 1985,[61] upheld by the Supreme Court in Hills Development Co. v. Township of Bernards (Mount Laurel III).[62] The Act established the Council on Affordable Housing (COAH) whose purpose it is to develop fair share requirements for individual municipalities and to certify whether a locality’s plan makes “the achievement of the municipality’s fair share of low and moderate income housing realistically possible....”[63] The Act also established a moratorium on the controversial builder’s remedy and transferred all pending Mount Laurel litigation to COAH. The Act further permits a municipality to transfer to another city up to one half of its Mount Laurel housing obligation provided that the two municipalities consummate a “regional contribution agreement” establishing an appropriate amount of compensation for the receiving jurisdiction.

The Mount Laurel case provides a cautionary tale concerning the limitations of relying upon a litigation strategy to break down regulatory barriers to housing development. Despite decades of controversy and an extraordinarily activist court, the Mount Laurel litigation has resulted in a relatively modest increase in affordable housing in New Jersey. According to COAH, as of 2000, 26,800 units of housing had been built or were under construction.[64] One hundred regional contribution agreements had been approved covering 6,941 units of housing to be built or rehabilitated in central cities.

Perhaps in recognition of the years and years of litigation inspired by the Mount Laurel rulings, no state has gone as far as New Jersey in seeking to rein in the restrictive practices of suburban muncipalities. Some state courts, such as the New York State Court of Appeals, have adopted the principle that a municipality must consider the regional need for housing in the administration of its zoning rules.[65] The court, however, did not establish the type of broad remedial framework that the New Jersey Supreme Court created in Mount Laurel. Instead, each restrictive ordinance would be judged according to its own facts and circumstances.

Legislative Proposals and Efforts to Reduce Regulatory Barriers to Housing Development

Other states have opted for legislative strategies to combat restrictive municipal land use ordinances. For example in Connecticut, developers of affordable housing can bring expedited lawsuits against municipalities that block affordable housing developments. In the law suit the municipality has the burden of establishing that the denial of an application to build affordable housing is “necessary to protect substantial public interests in health, safety, or other matters, and that those interests clearly outweigh the need for affordable housing and that those interests cannot be protected by reasonable changes to the affordable housing development.”[66] In Massachusetts, the legislature passed the “Anti-Snob Zoning Act,” a law that empowers a state agency to override local land use decisions that impede low and moderate income housing where the decisions are not “reasonable in view of the regional need for low and moderate income housing....”[67] The law is quite modest though; it authorizes zoning overrides only if the developer is a nonprofit sponsor or state agency and shields a municipality from suit if ten percent of the housing in the jurisdiction is already affordable to low and moderate income households.

Federal efforts to reduce development barriers have largely been limited and unsuccessful. The most far-reaching proposal in recent years was put forward by the Advisory Commission on Regulatory Barriers to Affordable Housing in 1991. The Commission was appointed by former Secretary Jack Kemp of the U.S. Department of Housing and Urban Development to determine “the degree to which [federal, state, and local] regulations increase housing costs” and to recommend actions that “should be taken to remove or modify excessive, duplicative, or unnecessary regulations and requirements.”[68] Its report entitled, “Not In My Backyard”: Removing Barriers to Affordable Housing, set forth a comprehensive program for deregulation with state governments playing pivotal roles. The approach of using states as a fulcrum was justified because local governments derive their regulatory powers from the states. In addition, states were in a better position than the federal government to take into account inter-regional variations, while at the same time being sufficiently centralized to take into account the extra-municipal effects of local actions.[69]

The federal government would “inspire” state and local governments to reform their regulations using a “carrot and stick” approach.[70] All states and localities that received federal assistance would be required to include in annual reports to the government a description of what they were doing to reduce regulatory barriers. HUD would have the power under the Commission’s proposals to condition assistance on satisfactory barrier removal strategies. A state that failed to adequately remove regulatory barriers to housing development would lose its ability to issue tax-exempt bonds for housing and its authority to allocate tax credits to developers of low and moderate income housing. Despite praise from some quarters,[71] the Commission’s proposals were never adopted by Congress. Instead, a minor piece of legislation, passed in 1992, authorized HUD to make grants to states and localities to develop removal strategies for regulatory barriers, including drafting model legislation and simplifying and consolidating administrative procedures.[72] Several years later, an even more modest effort to require the federal government, itself, to publish a cost impact statement when it imposes regulations that would drive up the cost of housing was not passed by the Congress despite being proposed several times.

Similarly, most states and localities, even those with severe shortages of affordable housing, have failed to rein in government regulation. States such as Massachusetts[73] and Colorado[74] and cities such as New York City[75] have issued or commissioned reports which elaborate in minute detail the nature of the problem and what needs to be done to solve it. Yet beyond the printed paper, little has been accomplished in reducing regulatory barriers to development.

Conclusion

The private real estate market in many parts of the United States has been unable to provide housing that meets the needs of many Americans. In many areas, demand is outstripping supply and prices are increasing rapidly. A number of reasons exist for the shortage of affordable housing including the high cost of construction. Among the major contributors to high construction costs are the laws many muncipalities have enacted to regulate land development. Research suggests that restrictive land use regulations, expensive subdivision requirements, high impact fees and stringent building code standards drive up the cost of development. Of course, in some instances, these regulations bring substantial benefits such as protecting environmental amenities and preserving health and safety. However, often these laws are overly restrictive and generate needless expense for developers, home buyers and renters.

Despite a recognition that the costs of regulation can sometimes be high, the public sector has been unable or unwilling to make major progress in removing regulatory barriers to development. Neither the federal government nor the states has taken an active role in policing municipal regulations. One of the principal reasons for the difficulty in getting these higher levels of government to take significant steps in reducing regulatory barriers to housing is the strong ideology of local autonomy that underlies American law.[76] Deeply engrained in the American legal psyche is a suspicion of higher levels of government and the belief that elected officials close to home will protect the interests of voters better than those further removed.

In addition, within many municipalities restrictive regulations do serve the interests of residents. In many localities throughout the nation, the property tax is the main source of locally derived revenue. Restrictive land use regulations and “gold-plated” building codes that add to the cost of new development and require bigger and more expensive homes also ensure that new residents pay more in tax revenue than they consume in local services.[77] In many instances those who are harmed by the regulations, such as low and moderate income households and owners of vacant land, live outside the city and do not vote in local elections. In many other cities, politically powerful interest groups have a vested interest in maintaining expensive regulations despite the fact that the housing shortages they contribute to harm people within the cities.[78]

The recent outcry against suburban sprawl in American metropolitan areas could exacerbate the problem of over-regulation or could harbor the seeds of reform. Several “smart growth” advocates have favored laws to make it increasingly difficult to develop land in less dense areas. Among the devices proposed are urban growth boundaries and growth control ordinances. At the same time, some people concerned with unchecked suburban development have proposed a regional approach to growth management. Reforms that would make housing a concern of the entire metropolitan area may well reduce the current parochialism in development regulation and foster a more coherent approach in the future.

-----------------------

[1]See, e.g., Robert W. DeForest and Lawrence Veilleur, The Tenement House Problem (1903); Roy Lubove, The Progressives and the Slums: Tenement House Reform in New York City 1890-1917 (1962).

[2]Tenement Housing Act, N.Y. Law, ch. 334, §100 (1901), amended by, N.Y. Law, ch. 352, § 47 (1902).

[3]Jared N. Day, Urban Castles: Tenement Housing and Landlord Activism in New York City, 1890-1943 (1999).

[4]See R. Allen Hays, The Federal Government and Urban Housing: Ideology and Change in Public Policy (2d ed. 1995).

[5]Indeed improvements in housing quality have been so dramatic, that old benchmarks of housing quality have been revised upward. See Peter D. Salins, America’s Permanent Housing Problem in Housing America’s Poor (P. Salins ed. 1987).

[6]See U.S. Census Bureau, Historical Census of Housing Tables (hhes/ww...census/historic/crowding.html).

[7]See James A. Orr and Richard W. Peach, Housing Outcomes: An Assessment of Long-Term Trends, FRBNY Economic Policy Review 51, 53-54 ( Sep. 1999).

[8]For a discussion of the affordability criterion see Michael E. Stone, Shelter Poverty: New Ideas on Housing Affordability (1993).

[9]See Orr and Peach, supra note 7, at 56.

[10]See Joint Center For Housing Studies, The State of the Nation’s Housing 2001 14 (2001).

[11]Id.

[12]Joint Center For Housing Studies of Harvard University, supra note 10, at 21.

[13]National Association of Homebuilders, Housing Facts, Figures and Trends 11 (2001).

[14]Interview with Angie Barksdale, U.S. Census Bureau (September, 2001). According to the Census Bureau the cost of building a one unit home in July 1996 was $151,267. This number increased to $195,393 in July 2001.

[15]Examples include the Clean Water Act, 42 U.S.C. §§ 1251-1387 (2000); the Endangered Species Act, 16 U.S.C. §§ 1531-1544 (2000) and the Emergency Wetland Resources Act of 1986, 16 U.S.C. §§ 3901-3932 (2000). For an extensive list of federal laws that affect home building see National Association of Homebuilders, The Truth About Regulatory Barriers to Housing Affordability (1990).

[16]See, e.g., West Branch Conservation Ass’n v. Bd. Of the Town of Clarkstown, 207 A.D. 2d 837 (1994).

[17]See, e.g., Doremus v. Town of Oyster Bay, 274 A.D. 2d 390 (2d Dep’t, 2000)

[18]This literature review focuses on studies of relatively recent vintage. For an excellent review of the literature as of ten years ago, see William A. Fischel, Do Growth Controls Matter? A Review of Empirical Evidence on the Effectiveness and Efficiency of Local Government Land Use Regulation (1990).

[19]See Robert C. Ellickson, Suburban Growth Controls: An Economic and Legal Analysis, 86 Yale L.J. 385, 404, 430-31 (1977).

[20]See, e.g., Bruce W. Hamilton, Zoning and the Exercise of Monopoly Power, 5 J. Urb. Econ. 116, 125-28 (1978) (study of metropolitan areas in New Jersey suggests that interurban price variations of as much as 50% may be attributable to monopoly zoning); Louis A. Rose, Urban Land Supply: Natural and Contrived Restrictions, 25 J. Urb. Econ. 325, 344 (1989) (monopoly zoning may explain 40% of the interurban price differentials in 45 urban areas).

[21]See James A. Thorson, An Examination of the Monopoly Zoning Hypothesis, 72 Land Econ. 43 (1996).

[22]See Henry O. Pollakowski & Susan M. Wachter, The Effects of Land-Use Constraints on Housing Prices, 66 Land Econ. 315, 323 (1990); Susan M. Wachter and Man Cho, Interjurisdictional Price Effects of Land Use Controls, 40 J. Urb. & Contemp. L. 49, 62-63 (1991). Fischel argues that this spillover effect provides evidence that increased prices are attributable to supply restraints rather than increased amenities since the size of the jurisdictions make amenity spillovers unlikely. See William A. Fischel, Do Growth Controls Matter: A Review of Empirical Evidence on the Effectiveness and Efficiency of Local Government Land Use Regulation 36 (1990).

[23]Richard K. Green, Land Use Regulation and the Price of Housing in a Suburban Wisconsin County, 8 J. Housing Econ. 144 (1999).

[24]These variables include (1) whether mobile homes are permitted, (2) minimum lot width requirements for subdividers, (3) minimum frontage setback requirements, (4) minimum street width requirements, (5) whether sidewalks were required and (6) whether curb and gutters were required. Id. at 156.

[25]An affordable home was one priced at less than $75,000.

[26]Id.

[27]Larry D. Singell and Jane H. Lillydahl, An Empirical Examination of the Effect of Impact Fees on the Housing Market, 66 Land Econ. 84 (1990).

[28]Marla Dresch and Steven M. Sheffrin, Who Pays for Development Fees and Exactions? (1997).

[29]Brett M. Baden and Don L. Coursey, An Examination of the Effect of Impact Fees on Chicago’s Suburbs (Irving B. Harris Graduate School of Public Policy Studies, University of Chicago, 2001).

[30]Id. at 27-28. See also Mark Skidmore and Michael Peddle, Do Development Impact Fees Reduce the Rate of Residential Development?, 29 Growth and Change 383 (1998) (impact fees in DuPage County reduced rate of new construction by more than 25%).

[31]See Lawrence Katz and Kenneth Rosen, The Interjurisdictional Effects of Growth Controls on Housing Prices, 30 J. L. and Econ. 149 (1987).

[32]See Ned Levine, The Effects of Local Growth Controls on Regional Housing Production and Population Redistribution in California, 36 Urban Stud. 2047 (1999).

[33]Id. at 2065.

[34]See Wendell Cox and Ronald D. Utt, Smart Growth, Housing Costs and Homeownership, in The Heritage Foundation Backgrounder (April 6, 2001); Samuel R. Staley and Gerard C.S. Mildner, Urban-Growth Boundaries and Housing Affordability: Lessons From Portland (1999).

[35]See Justin Phillips and Eban Goodstein, Growth Management and Housing Prices: The Case of Portland, Oregon, 18 Contemp. Econ. Pol’y 334 (2000).

[36]Eli M. Noam, The Interaction of Building Codes and Housing Prices, 10 Amer. Real Estate and Econ. Assoc. J. 394 (1983).

[37]See National Association of Homebuilders, supra note 18.

[38]This amount varied considerably from 4% in Grand Rapids, Michigan to 28.6% in San Francisco, California. Id. at 4.

[39]For projects that require a rezoning, 37% reported having to wait 7 to 12 months for a building permit, 29.6% waited 13 to 23 months and 22.2% waited for over two years. Just over 44% of the respondents to the survey reported that they had to go through between 5 and 9 government approvals and reviews before beginning land development; an additional 11% reported 10 or more reviews and approvals. Id. at 6.

[40]Michael I. Luger and Kenneth Temkin, Red Tape and Housing Costs: How Regulation Affects New Residential Development (2000).

[41]See id. at 137.

[42]See id. at 141.

[43]Richard K. Green and Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy 162-63 (Univ. of Wisconsin -Madison School of Business Center for Urban Land Economics Research Working Paper, Oct. 4, 2000).

[44]Christopher J. Mayer and C. Tsuriel Somerville, Land Use Regulation and New Construction, 30 Reg. Sci. & Urb. Econ. 639, 652-53 (2000).

[45]Mayer and Somerville also find that the effect of an impact fee is less than the effect of a 2 month increase in the time to receive an approval. They attribute this somewhat surprising result to the negative effect of uncertainty on development. See id. at 653.

[46]“No person shall ... be deprived of life, liberty, or property, without due process of law nor shall private property be taken for public use, without just compensation.” U.S. Const. amend. V.

[47]See, e.g., Cal. Const. art. I, §19 (“[P]rivate property may be taken or damaged for public use only when just compensation, ascertained by a jury... has first been paid to... the owner.”); Colo. Const. art. II, §15 (“Private property shall not be taken or damaged, for public or private use, without just compensation.”).

[48]See Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S. 470 (1987) (upholding law that made it illegal to mine coal in such a way as to cause subsidence).

[49]See Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992) (invalidating law that restricted development of coastal areas so as to prevent beachfront erosion).

[50]See Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978) (upholding landmarks preservation ordinance in the face of challenge by owner of Grand Central Terminal that wanted to build tower on top of terminal).

[51]483 U.S. 825 (1987).

[52]458 U.S. 419 (1982) (invalidating ordinance that required owner of residential building in New York City to permit cable company to string a wire across her building).

[53]Id at 837.

[54]Id. The Court determined that the easement requirement was not substantially related to the stated purpose of the regulation– creating visual access to the public wet sand. Id.

[55]512 U.S. 374 (1994).

[56]For example, in Penn Central, Justice Rehnquist argues that while landmark preservation ordinances such as the one in New York may constitute a taking, they are to be distinguished from zoning ordinances. A zoning ordinance, while restricting an owner’s property rights, also benefits the owner through the restrictions it places on others. 438 U.S. at 139-40.

[57]Under First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987), plaintiffs who successfully argue that they have been the victims of takings are entitled to damages as a remedy for the lost value of their property during the time the regulation was in place.

[58]67 N.J. 151 (1975).

[59]Id. at 174.

[60]456 A.2d at 452-53.

[61]N.J. Stat. Ann. §§ 52:27D-301 to D-329 (_____)

[62]510 A.2d 621 (N.J. 1986).

[63]N.J. Stat. Ann. §52:27D-314.

[64]“About COAH” at state.nj.us/dca/coah/about.htm

[65]See Berenson v. Town of New Castle, 38 N.Y.2d 102 (1975).

[66]See Wisniowski v. Planning Comm’n, 37 Conn. App. 3 307 (1995) (citing Conn. Gen. Stat. §8-30g (c)).

[67]Mass. Ann. Laws ch. 40B §§ 20, 23 (_____)

[68]Advisory Commission on Regulatory Barriers to Affordable Housing, “Not In My Back Yard”: Removing Barriers to Affordable Housing C-1 (1991).

[69]Id. at 7-2.

[70]Id. at 6-1.

[71]See, e.g., Michael H. Schill, The Federal Role in Reducing Regulatory Barriers to Affordable Housing in the Suburbs, 8 J. L.& Pol. 703 (1992).

[72]See Removal of Regulatory Barriers to Affordable Housig Act of 1992, 42 U.S.C. § 12705a (2001).

[73]See Commonwealth of Massachusetts, Executive Office For Administration and Finance, Bringing Down the Barriers: Changing Housing Supply Dynamics in Massachusetts (Policy Report Series No. 4, Oct. 2000).

[74]See Colorado Dep’t of Local Affairs, Division of Housing, Reducing Housing Costs Through Regulatory Reform (1999).

[75]See Jerry J. Salama, Michael H. Schill, and Martha E. Stark, Reducing the Cost of New Housing Construction in New York City (1999).

[76]See Richard Briffault, Our Localism, 90 Colum. L. Rev. 1 (1990).

[77]See Bruce W. Hamilton, Zoning and Property Taxation in a System of Local Governments, 12 Urb. Studies 205 (1975) (expanding upon Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. Pol. Econ. 416 (1956)).

[78]For example, in many cities labor unions have fought housing code simplification. One of the reasons for this is that more streamlined construction processes might allow builders to economize on labor. See Jerry J. Salama, Michael H. Schill and Martha E. Stark, supra note 80, at 96.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download