Here's a thought-provoking case: The Home Builders Association of Greater Austin Inc. and the National Association of Home Builders Inc. have teamed up with the NAACP to sue the City of Kyle.
In 2003, Kyle passed ordinances that increased the minimum lot size for single-family homes by 200 square feet, to 6,825 square feet; set a minimum of 1,200 sq. ft. for single-family houses; and mandated masonry exteriors.
Kyle officials say the ordinances were designed to slow growth in the wake of a spurt that has sent the city's population skyrocketing — from 5,314 in 2000 to 23,285 in 2007, according to estimates from the Texas State Data Center. The rules followed development moratoriums after sewer and water systems became overburdened.
"The passage of the ordinances that are at issue here today was just one more step that the city took once the development moratoriums were lifted in order to address those growth issues," Kyle's lawyer Bradford Bullock said.
The homebuilders and NAACP (strange bedfellows indeed) aren't buying it:
The trio of plaintiffs say the rules violate the federal Fair Housing Act because African American and Hispanic home buyers have been disproportionately pushed out of the local market.
"They raised the bar on every single district within the city," Michael Klein, one of the lawyers representing the plaintiffs, said in his opening arguments. "What they did was basically say, 'We're going to increase the cost of living in Kyle.' "
Klein is absolutely right. Kyle is dead set on increasing the cost of housing there.
This is not necessarily an expression of bigotry, though. Kyle is arguably attempting to cure a market failure, although clumsily.
A city like Kyle, which has no commercial or industrial base to speak of, can only fund its schools, parks, police and other city services with residential property taxes. All of the homeowners have the right to share equally in these services -- the kids go to the same schools, everyone gets the same police and fire protection, etc. The homeowners don't pay equal shares of the cost, though. The more expensive the home, the bigger the homeowner's share.
Duh. That's always the case. But a town like Kyle has plenty of undeveloped land. That creates a problem for homeowners who want the town to provide a high level of service. (Say, a well-funded high school someday.) They can vote to fund high-quality services, but that makes the town more attractive to potential residents, including lower-income residents. If the town attracts enough low-value construction, the new growth might actually lower the average property tax per household, thereby reducing the money available per capita to spend on services.
This poses a dilemma for the original homeowners: If they want to maintain the high-quality services they were initially willing to fund, they will have to raise their taxes because the city's per capita collections will no longer cover the bill. If they don't want to raise taxes, then they must cut services, which is obviously a second-best solution.
The residents of Kyle have settled on a third option: They have imposed what is essentially a minimum property tax by requiring that new homes have a minimum value.
I'll wager Kyle's attorneys don't put it this way in court. I don't have a problem in theory with cities offering different levels of services, though. When there are lots of suburbs offering lots of variety, home shoppers can pick the city that suits them best. (Urban economists call this Tiebout sorting, after economist Charles Tiebout, who proved that fragmented suburbs could generate efficient levels of government under certain conditions.)
Zoning is a pretty clumsy tool, though. Minimum lot sizes, home sizes and all-masonry construction all impose tremendous inefficiencies of their own. Among other things, they reduce the options available to prospective homeowners who are willing to pay for the services but who don't want the standard suburban set up. It would be much more efficient simply to charge an impact fee to cover the homeowner's share of fixed costs. That's hard to do under Texas law, though.
I've also got a problem with using zoning to cartelize the supply of housing to push up the current residents' land prices. That shouldn't be the case in Kyle, though. There's lots of land around Kyle, and no natural amenity that makes the land in Kyle more attractive than in another town. The citizens of Kyle, in other words, don't have the market power to raise their land value through zoning (as opposed to the structure value).
None of this addresses the lawsuit's claim, which is that Kyle's ordinance has a disproportionate impact on minorities, which is almost certainly true. That's not the end of the analysis, because the law tolerates some facially-neutral ordinances even when they have a disproportionate impact. If Kyle loses, enjoy the ensuing firestorm. I imagine even Austin would end up getting scorched.