No nexus: affordable-housing impact fees are unconstitutional
Creating jobs for poor people is good, actually
In 2013, San Diego increased its affordable-housing impact fee on new office buildings. The rationale: office buildings bring in low-wage employees who can’t afford market-rate housing, so commercial developers are charged a fee to build affordable housing. However, if your office building brings in high-wage workers, you don’t have to pay the fee.
But wait, isn’t it good to create jobs for low-wage workers? Isn’t this just a tax on poor people?
In the U.S. legal context, if a land use has a negative impact, then an impact fee can be charged to mitigate that impact. For example, a developer builds a subdivision of houses; this leads to more traffic on the highway, increasing congestion and maintenance costs. Here the negative impact is the traffic congestion and strain on the public road budget. So a traffic impact fee is connected to the negative impact; in legal jargon, there is a “nexus” between the fee and the impact, which makes the fee legitimate.1
What is the negative impact caused by creating jobs for poor people? There’s an entire industry of consultants writing nexus studies to justify these affordable-housing impact fees, but they never seem to say what the negative impact is. For example, here’s a recent example from Minneapolis. The argument is that new development brings residents who spend in the local economy, which creates jobs; some workers at those jobs will be poor, and hence unable to afford market-rate housing (in the sense of spending at most 30% of income on housing). Hence, development creates a need for affordable housing.
But which part is the negative impact? Is the low-wage worker worse off by having more job opportunities? Clearly not. By accepting the job, the worker is demonstrating that they are better off than before. If moving to San Diego made them worse off, they wouldn’t do it. (If anything, creating jobs is a positive impact, and should be rewarded with an impact bonus, not punished with a fee.)
Is the negative impact on taxpayers, because they have to pay for more affordable housing? This is a possible argument, but it leads down a dark road. By this logic, poor people need to pay extra taxes to offset their use of the welfare state. But this completely inverts the idea of redistribution, so I doubt anyone will argue it.
So there is no negative impact analogous to traffic congestion or road maintenance costs. The nexus study just says that new development creates affordable housing need, and implicitly assumes that this is a negative impact which can justify an impact fee.2 Similarly, this law review article by Nicholas and Juergensmeyer never explicitly identifies an adverse impact caused by new housing or commercial developments.
But without a negative impact, there is no nexus, which makes affordable-housing impact fees unconstitutional. Subsidized housing is a public good that should be funded by society as a whole, not by special taxes on developers.
The fee needs to be connected to the negative impact (the nexus test, where “nexus” is the legal term for “connection”, from Nollan), and be roughly proportional to the impact (the proportionality test from Dolan).
Note that in the traffic example, drivers could already offset their impact on maintenance costs through property or gas taxes.
More fundamentally, they don’t even prove that development creates affordable housing need, because they don’t compare to a no-development counterfactual. But low-wage workers would probably still need affordable housing in the scenario where San Diego didn’t allow the new office building. In that case, they might live somewhere else and be another city’s problem; this suggests the primary motivation is to keep poor people out, not to provide affordable housing.