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The Role of Private-Sector Developers in Challenges to Local Land Use Regulations

Keri-Nicole Dillman and Lynn M. Fisher

May 2009, English

Increasingly, states are employing a property rights approach to confront exclusionary zoning at the local level. This approach relies on providing private developers with a density bonus or other zoning-related benefit as an incentive to challenge localities that do not comply with state mandates on affordable housing. Viewing this from a property rights perspective, extra development rights are transferred to private developers as payments for actions to enforce state housing objectives or actually build affordable units. In this paper Keri-Nicole Dillman and Lynn M. Fisher call these systems “housing appeal regimes” and use a game theory framework to analyze the behaviors of developers and municipalities so as to understand the diverse bargaining outcomes of the programs.

From the developer’s perspective, Dillman and Fisher suggest that the decision to challenge a noncompliant municipality depends on four preconditions: (1) a favorable market environment; (2) a high likelihood of winning the lawsuit; (3) a sufficient density bonus; and (4) a high possibility of recovering litigation costs. Based on their model, they predict three possible outcomes. If none of the four conditions is present, the developer does not confront the municipality, rendering the antiexclusionary zoning program ineffective. If the developer is uncertain about winning the lawsuit, she may be willing to accept the municipality’s settlement offer of an impact-fee waiver or a permit that allows a higher density development. If similar lawsuits have a sufficiently high success rate with adequate density bonuses to cover the costs of litigation and other inclusionary requirements, such as providing affordable housing units, the developer will not settle the case out of court.

How would these outcomes affect the behavior of the municipality? If enough lawsuits create a credible threat to local exclusionary planning practices, the municipality could either amend its land use plan or remain reactive to developers’ legal challenges. The decision will depend largely on whether the expected benefits of changing zoning regulations are higher than the gains from bargaining with developers minus the costs of compliance. Developers can be seen as enforcers of state policy if their challenges alter the municipality’s exclusionary zoning practice. They will be implementers if they adopt the role of providing affordable housing for low- and moderate-income households.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2008 and is Chapter 15 of the book Property Rights and Land Policies.