Last week the City of Bloomington adopted an expansive “inclusionary zoning” ordinance for the purpose of compelling developers of single and multifamily housing to include a portion of their new housing as affordable based on prescribed income standards. “Inclusionary zoning” refers to a policy that compels developers to include some land use component desired by a given city as part of a development project being proposed in that city. It is justified in the affordable housing context to address the need in Minnesota and nationally to supply more affordable housing to a greater number of people, either through subsidy or otherwise.
Under Bloomington’s ordinance, any developer proposing 20 units or more of single or multifamily housing must commit at least 9 percent of such units to be affordable based on specified income and affordability parameters (the city backed away from imposing the requirement on existing housing based on objections from multi-family from owners of such properties. The ordinance does outline a set of “credits” that are potentially available to the developers of new housing to offset, at least partially, the financial burden of the new ordinance requirements, such as increased density or other performance criteria. The city reserves to itself the question of whether any such credits would be awarded for a given project, leaving the developer on the hook until that determination is confirmed. A developer seeking to avoid entanglement in the city’s evaluation process can buy its way out through a substantial payment to the City. Bloomington’s ordinance adds to those ordinances previously enacted by the cities of Minneapolis and Edina. Undoubtedly other cities will follow the lead of these cities.
In the author’s opinion, while laudable for their legitimate objective of addressing an important social policy, the approach of compelling private developers to contribute land or cash as a condition of securing an approval for new housing is quite plainly a regulatory taking. In no other segment of our development economy do we require private developers to commit their private funds to help solve a broad societal problem, such as housing affordability, absent clear legal authority from the legislature. For example, developers are routinely required to contribute land or cash to cities for the creation of new park systems as part of new developments based on an explicit grant of legislative authority; notably this policy applies to all forms of development, such as commercial and industrial, not solely housing. No such legislative grant of authority has been extended to so-called inclusionary housing ordinances. If challenged, it is most likely that Minnesota courts would render invalid such ordinances as lacking either constitutional or statutory support.
Recently the Minnesota Supreme Court unanimously determined that a city’s general transportation fee policy was invalid and illegal because it lacked appropriate statutory authority, which authority cities have been seeking from the Minnesota legislature for many years. The transportation fee was imposed in addition to costs incurred by developers to construct all the necessary transportation improvements for given development projects. The policy enabled cities imposing such a fee to illegally secure millions of dollars from developers, willingly or unwillingly, as the price of receiving approvals to which the developers were otherwise entitled. Fortunately, virtually all cities who had been collecting a general transportation fee suspended this practice based on the unequivocal decision of the Supreme Court.
The same argument applies to the spate of inclusionary housing ordinances. Credit Bloomington with constructing a thoughtful ordinance that seeks to balance its regulatory stick with the possibility of a bag of carrots to offset the financial burden imposed by its ordinance. But the ordinance is selectively applied to only a segment of new housing construction and there is no certainty of receiving an offsetting “credit” once the city completes its review. Make no mistake, Bloomington’s ordinance, as with those of Minneapolis and Edina, are sticks first, with no assurance of a sweet-tasting carrot in the end; developers will hesitate to pursue new housing projects in the city absent certainty of the financial trade-offs required under the new ordinance. Unfortunately, the real losers under the city’s ordinance may be those most in need of new housing.