Court rules inclusionary zoning is rent control in disguise

In January 2004, the Madison Common Council enacted Madison General Ordinance
section 28.04(25), which, in part, required developers building 10 or more rental
dwelling units involving a zoning map amendment, subdivision or land division
to designate a portion of the total units as “inclusionary dwelling units.”
Those units could only be rented to tenants falling within certain income parameters.
In addition, the combined rent and utilities on those units could not exceed
the “affordable” rates established by the city of Madison. The ordinance
took effect Feb. 15, 2004.

Considerable debate and controversy surrounded the enactment of the ordinance.
Although the Apartment Association of South Central Wisconsin Inc. has had a
long-standing commitment to providing quality and affordable housing to residents
of south central Wisconsin, it challenged the ordinance because it could not
be reconciled with a state law that bans the use of rent control by municipalities.
Led by a litigation team of William F. White, Steven P. Means and Roisin Bell
of Michael Best & Friedrich LLP, the AASCW sought declaratory judgment that
certain provisions of the ordinance directly conflict with section 66.1015(1),
of the Wisconsin statutes. Section 66.1015(1) provides that “no city, village,
town or county may regulate the amount of rent or fees charged for the use of
… residential rental dwelling unit[s].”

In October 2005, a circuit court judge upheld the challenged portions of the
ordinance. The AASCW appealed the decision, which was reversed by the Wisconsin
Court of Appeals in August 2006.

Not ‘mutual’

The city of Madison defended the ordinance by arguing that it constituted an
agreement between property owners and the city because it applied only when
property owners choose not to develop their land under the applicable zoning
and/or land division status. The Court of Appeals disagreed. In analyzing the
parties’ arguments, the Court of Appeals found that the ordinance was not
a “mutual understanding” or a “manifestation of mutual assent”
between the city and applicants. Instead, the court concluded that it was a
regulation that “imposes a requirement on all applicants for zoning map
amendments, subdivisions or land divisions that, in order to develop property
with 10 or more rental dwelling units, they must charge no more than a specified
amount of rent for no less than a specified percentage of rental dwelling units.”

Moreover, the Court of Appeals held that the Wisconsin Legislature has expressly
withdrawn the power of the city of Madison to enact a section of the ordinance
because the ordinance regulates the amount of rent that property owners may
charge for rental dwelling units. Finally, the court found that the ordinance’s
section 28.04(25)(e) is not permitted by section 66.1015(2)(b) of the state
statutes because the ordinance provision did not constitute an “agreement”
with the property owners to whom it applies.

Review denied

The city of Madison appealed the Wisconsin Court of Appeal’s decision.
However, the Wisconsin Supreme Court denied the request for review. Because
the Apartment Association case has been recommended for publication, it is binding
for municipalities that currently have or are contemplating an inclusionary
zoning ordinance scheme similar to the one the city of Madison adopted. They
may not enforce or adopt ordinance provisions similar to those struck down in
the Apartment Association case. This may very well send local legislative bodies
back to the drawing board to craft legally defensible inclusionary zoning ordinances
that do not offend the state’s ban on rent control.

Another impact is that it remains to be seen just how the Apartment Association
decision will impact developers in Madison who were compelled to designate units
to low- and moderate- income individuals under the inclusionary zoning ordinance.
Developers who received no tangible incentives or benefits may have a strong
argument that the decision should apply to those development projects that were
subject to the inclusionary zoning law.

H. Nia Enemuoh-Trammell is an attorney with Michael Best & Friedrich
LLP.