Is America's Primary Affordable Housing Policy Unconstitutional?

Laws forcing developers to include affordable units in their projects are common in the U.S. A new lawsuit argues that they're also unconstitutional.

On Wednesday, builders in Pittsburgh, Pennsylvania, filed a lawsuit against the city over its requirement that some of the new units they construct in mid- and larger-sized housing developments must be rented or sold at substantial discounts.

Last month, the Pittsburgh City Council approved an ordinance requiring that at least 10 percent of units in housing projects of at least 20 units be offered at below-market rates to lower-income homebuyers and tenants in Pittsburgh's Polish Hill and Bloomfield neighborhoods. Since 2019, the city has imposed identical requirements on development in the city's Lawrenceville neighborhood.

The complaint—filed by the Builders Association of Metropolitan Pittsburgh (BAMP) in the U.S. District Court for the Western District of Pennsylvania—says that mandate is an uncompensated taking that violates the U.S. Constitution's Takings Clause.

Pittsburgh's inclusionary zoning law "effectively is a tax on housing," said BAMP Executive Director Jim Eichenlaub in a press release. "It forces real estate developers—or the other 90% of the units—to subsidize the cost of the so-called 'inclusionary units.'"

The lawsuit also argues that Pittsburgh's policy violates the Pennsylvania Constitution's limits on local governments' powers and its requirement that taxes be uniform among general classes of taxpayers.

Pittsburgh neighborhood groups have generally supported inclusionary zoning on the grounds that it will stem gentrification and ensure lower-income residents see some new benefits from new, pricey construction.

Developers, in contrast, have argued that they're being forced to take a substantial haircut on the mandated affordable units without any offsetting compensation or incentives from the city.

An affordable one-bedroom apartment created under the city's ordinance would have to rent for $795 per month, per the city's planning department. A two-bedroom unit would go for $955 per month.

That compares to roughly $1,500 average monthly rents in the neighborhoods covered by Pittsburgh's inclusionary zoning policies, according to data from the rental website RentCafe. The discount is probably steeper when one considers that the city's inclusionary zoning requirements apply to new construction (or substantial renovations), which are going to be more expensive on average.

BAMP's complaint says that these affordability requirements would lead to "substantial economic losses" to developers, who are being also asked to "furnish time, talents, labor, and financial resources to construct housing for the benefit of the City and/or for the benefit of third parties favored by the City."

The lawsuit argues that this is an uncompensated taking in violation of the Constitution's Takings Clause and that Pittsburgh is imposing unconstitutional conditions on their ability to obtain building permits.

Past Supreme Court opinions have found that the Takings Clause puts limits on the kinds of conditions governments can attach to building permits, says Larry Salzman, an attorney with the Pacific Legal Foundation.

In general, if the government is going to add conditions to approving an otherwise legal construction project, those conditions have to be aimed at mitigating some public harm caused by the project, Saltzman tells Reason.

Inclusionary zoning likely violates that principle, he says.

"If building market-rate housing isn't harming anyone or causing the social problem; if the government's land-use policies are causing the housing shortage," he tells Reason. "Why are you making the developer paying for that?"

Indeed, recent research has shown that new market-rate housing (even when it's expensive, "luxury" housing) reduces demand for housing at all price levels. That would seem to improve housing affordability and availability for everyone.

The Pacific Legal Foundation has twice sued in California state courts over local inclusionary zoning policies that required people to build affordable housing or pay into affordable housing funds as a condition of developing their property.

California courts rejected those challenges, ruling instead that inclusionary zoning isn't a taking but a permissible land use regulation.

In 2019, the Supreme Court declined to take up a Pacific Legal Foundation lawsuit against Marin County, California, over its inclusionary zoning law.

But Salzman says that some justices have given indications that inclusionary zoning ordinances are something the court should take up. The lawsuit against Pittsburgh's law would give them another opportunity to tackle the issue.

Doing so could have massive effects on affordable housing policy in the country. One 2019 Urban Institute paper notes that at least 866 jurisdictions in the U.S. have adopted some form of inclusionary zoning.

The research on these policies is mixed, and a lot depends on the details of individual inclusionary zoning laws. In general, the more mandatory the policy is, the more affordable units it requires a developer to build, and the more affordable those units have to be, the more it raises overall prices and/or suppresses new construction. Even supposedly well-designed inclusionary zoning policies have a poor track record of creating new housing.

Pittsburgh's policy is among the most burdensome in the country. The developers' lawsuit against it could see the courts put some limits on how burdensome these policies can be.