Below-Market Housing Mandates as Takings: Measuring Their Impact

in "Property Wrongs: The Law and Economics of Takings," ed. Bruce Benson, New York: Palgrave Macmillan, 2010

Independent Policy Report, 2007

Posted: 8 Mar 2021

See all articles by Tom Means

Tom Means

The Independent Institute

Edward Peter Stringham

Trinity College; American Institute for Economic Research

Edward J. Lopez

Western Carolina University

Date Written: November 2007

Abstract

Housing affordability has become a major issue in recent years. To address the problem, many cities have adopted a policy known as below-market housing mandates or inclusionary zoning. As commonly practiced in California, below-market housing mandates require developers to sell 10-20 percent of new homes at prices affordable to low-income households. Many developers, however, argue that the program is in violation of the takings clause of the U.S. Constitution because it forces developers to use some of their property to advance a public goal. Nevertheless, in Home Builders Association of Northern California v. City of Napa (2001), the court ruled against the regulatory takings argument, saying that below market housing mandates are legal because (1) they offer compensating benefits to developers and (2) they necessarily increase the supply of affordable housing. This study investigates these claims in the following ways: Section 2 discusses the history of regulatory takings and discusses why below-market housing mandates may be considered a taking. Section 3 investigates how much below-market housing mandates cost developers. Section 4 investigates econometrically whether below-market housing mandates actually make housing more affordable. Our research indicates that the decision by the California Courts of Appeal is on shaky ground. Below-market housing mandates require developers to forego substantial amounts of revenue and they provide little offsetting benefit. A mandate in Marin, California, for example, would require developers to forfeit roughly 40 percent of revenue from a project, and builders are offered almost nothing in return. We can see how below-market housing mandates affect housing markets by using econometrics to analyze data of price and quantity for California cities in 1990 and 2000. Our regressions show that cities that impose a below-market housing mandate actually end up with 10 percent fewer homes and 20 percent higher prices. For developers, inclusionary zoning has an effect similar to a regulatory taking. For society in general, affordable housing mandates decrease the supply of new housing and increase prices, which exacerbates the affordability problem.

Keywords: Price controls, below market housing mandates, exclusionary zoning, inclusionary zoning

Suggested Citation

Means, Tom and Stringham, Edward Peter and Lopez, Edward J., Below-Market Housing Mandates as Takings: Measuring Their Impact (November 2007). in "Property Wrongs: The Law and Economics of Takings," ed. Bruce Benson, New York: Palgrave Macmillan, 2010, Independent Policy Report, 2007, Available at SSRN: https://ssrn.com/abstract=2088201

Tom Means (Contact Author)

The Independent Institute ( email )

100 Swan Way
Oakland, CA 94621-1428
United States

Edward Peter Stringham

Trinity College ( email )

Hartford, CT 06106
United States

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

Edward J. Lopez

Western Carolina University ( email )

College of Business
Forsyth 224C
Cullowhee, NC 28723
United States

HOME PAGE: http://www.edwardjlopez.com

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