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HBAMT vs. Metropolitan Government of Nashville and Davidson County

April 24, 2017 9:48AM

Current Status of Lawsuit: Litigation ongoing

The Story

Imagine being a young, hardworking professional who can already barely afford to pay rent in the city where you are just beginning your career. Next, imagine that your landlord raises your rent so that a person even poorer than you can afford to move in next door and pay less. Now you will have to move further away from your job and live somewhere less desirable because you can no longer afford your rent.

Are you mad? You should be. This is just one of the many unfair scenarios that Nashville’s leaders are about to bring into being thanks to their unconstitutional “affordable” housing plans. When Nashville government officials decided housing wasn’t affordable enough, they decided that homebuilders should solve the problem instead of government. Nashville recently enacted a law that, in certain instances, requires homebuilders to sell a fixed percentage of the homes they build at below market value. In other words, Nashville is demanding that people lose money on an investment in order to promote social welfare. Ironically enough, the people that Nashville thinks should bear the cost of addressing affordable housing—homebuilders—are the very ones who are most directly addressing the problem in the first place.

Homebuilders, like the thousands of small business owners and individuals our client the Homebuilders Association of Middle Tennessee (HBAMT) represents, increase the supply of housing, thereby lowering the cost of housing. The homebuilders want nothing more than to address any affordable housing issues by increasing the supply of housing. The biggest obstacles are Nashville’s restrictions on their ability to build homes, obstacles which increase with Nashville’s new “affordable housing” mandate. John Sheley, the trade organization’s Executive Vice President, has worked in his field for nearly 30 years and decided to take action on behalf of all builders to challenge Nashville’s new law.

And for good reason. This plan is illegal and unconstitutional, as it demands that private individuals bear the burden of addressing what some have decided is a public concern. It is no more acceptable to expect property owners to address public housing by losing money on the houses they build than it is to expect grocers to lose money on the food they sell to address hunger. If there truly is a lack of affordable housing in Nashville, then the government should get out of the way and let the free market and the builders solve it naturally by creating a larger supply. But they should not force private parties to do it on their behalf. Their current plan will make housing more scarce and decrease the availability of affordable housing. This is fundamental to the constitutional protection of private property rights. What’s more, it is also illegal because the state of Tennessee has a law that bans local governments from passing mandates forcing homebuilders to set aside residential apartment units as “affordable.”

The Problem

In September 2016, the city of Nashville passed a law that, with limited exceptions, requires homebuilders to set aside a portion of their development as “affordable” or “workforce” housing or instead pay a significant fee into a slush fund. As anyone who has been paying attention knows, a government program that begins with the term affordable is typically anything but. Need proof? Look no further than the Affordable Care Act, or Obamacare. That redistribution of wealth scheme has left working-class Americans with astronomically higher prices and fewer health insurance options, all in exchange for a worthless guarantee that it will be more “affordable.”

“Affordable” housing is essentially the Obamacare of housing. It makes it more expensive to build. This will result in developers building fewer homes, which will cause housing supply to dwindle. The extra costs will be passed on to buyers and renters, increasing their expenses. In both scenarios, it will cause prices to rise for those who can afford it the least: lower- and middle-income earners. If you think housing is expensive now, just wait until it’s “affordable.”

Not only will this mandate make housing less affordable, it will also create the same fiscal cliffs as many other welfare programs. If a person will have to pay more for their housing as their income increases, then they will be less likely to pursue moderate increases in pay or take on more work to move up in life. This scheme by Nashville’s government creates a disincentive for the poor to improve their lives.

A requirement that property owners set aside a certain percentage of their housing inventory to sell at below the market price (or setting price controls at all) is more than just inconsistent with the American tradition and offensive to rudimentary notions of free markets. Forcing developers to sell the apartments they build at a loss poses very serious legal and constitutional problems.

Governments can’t condition things like building permits on the surrender of constitutional rights, such as the right to seek full value of one’s private property. Taking private property for a public purpose without just compensation is a takings issue that courts have ruled to be unconstitutional countless times. Cities can’t get around that by conditioning their agreement on the surrender of this or any other constitutional right.

On top of the constitutional and economic issues with this law, Nashville does not have the authority to enforce this plan in the first place. The state has never given cities the power to address affordable housing in this manner, and if there was any lingering confusion on this issue, the Tennessee General Assembly cleared it up in 2016 when affordable housing mandates began to surface in Tennessee. In response to the spread of these ordinances, the legislature passed a law prohibiting local governments from enacting affordable housing mandates as they relate to rental properties. Nashville passed its law anyway, even though it is illegal under state law.

The matter has already garnered a good deal of local media attention, as it should.  And, given the spread of similar ordinances across the southeast (including an anticipated ordinance in Atlanta sometime next year), this trend of liberal cities thwarting constitutional protections set by state governments will only continue to worsen.

Bad policies that take hold in cities such as Nashville have a tendency to spread throughout the state. Nashville is blatantly disrespecting state lawmakers (and thereby the will of the people) who already voted to ban this practice. If Nashville can pass an affordable housing law in defiance of state law, then it can pass a $15 minimum wage law or a gun ban. We don’t want our cities to become sanctuary cities for liberal policies, therefore Nashville needs to be reigned in here and now.

In late July 2016, before the proposed ordinance was brought up for a second of three readings before the Metro Nashville Council, the Southeastern Legal Foundation and Beacon sent a letter to city officials analyzing the proposed ordinance from a legal perspective. We explained that the proposed ordinance not only violated state law, but that it was patently unconstitutional. The letter was raised by the Metro Council’s attorney and discussed in the hearing. The Council passed the ordinance anyway. Their willful disregard for the rule of law proves that, in this situation, the only way to protect the Constitution is in the courtroom.

It is now imperative that we take action to protect the property rights of Tennesseans and their values from out-of-control local governments.

The Law

We intend to challenge Nashville’s affordable housing mandate as illegal under Tennessee law and unconstitutional in violation of the Takings Clause of the Fifth Amendment to the U.S. Constitution.

The Ordinance Violates the Fifth Amendment.

The Takings Clause prohibits the government from taking one’s property without just compensation. Here, Nashville is not “taking” the developers property outright, it is demanding that they lose money in exchange for the city’s permission to develop, and if they do not want to do that, they can just kick into a slush fund to avoid the mandate. The courts have recognized these sorts of shenanigans before and have stated that a demand for a person to surrender a right in exchange for a permit is still an unconstitutional taking.

The Takings Clause exists because the Founders did not envision a country where governments could strong-arm private parties into paying for things the government did not care to pay for itself. The Supreme Court has made clear that the Fifth Amendment not only protects one from a physical taking, but also from governments that misuse the power of land-use regulation.

To prevent governments from circumventing the Takings Clause and from trying to accomplish indirectly what they cannot do directly, the Supreme Court applies the “unconstitutional conditions doctrine.” Under this well-settled doctrine, “the government may not require a person to give up a constitutional right…in exchange for a discretionary benefit conferred by the government where the benefit sought has little or no relationship to the property.” In other words, the Takings Clause prohibits Nashville from forcing homebuilders to choose between the permission they need to build and the right to receive just compensation from a taking. This “affordable housing” mandate is a prime example of the “gimmickry” that the Supreme Court so harshly rejected over two decades ago.

The Ordinance Violates Tennessee Law

The law passed in 2016 by the Tennessee legislature prohibiting local governments from enacting affordable housing mandates took direct aim at measures such as the one presented in this ordinance. Despite Nashville officials’ statements otherwise, the ordinance is not an incentive-based approach, which would be allowed under the new state law. The ordinance requires property owners comply as long as financial incentives are available. But when the incentives are available, not when they are provided to the property owner, the property owner must comply. The property owner has no ability to opt out.

The way Nashville’s zoning is currently structured, there is almost no place left to build. So homebuilders almost always have to ask the city to rezone the land to allow for buildings of a greater height or density before a project can go forward. And the city will not allow any changes (and thus will deny permission to build) unless homebuilders agree to its onerous demand that they address affordable housing by losing money on some of their homes. By requiring homebuilders to do so before Nashville will give them the permission they need to build, Nashville has imposed a kind of a condition on development. That’s exactly the sort of law that the state of Tennessee has said is illegal.

Due to the aforementioned reasons, the Beacon Center is filing a lawsuit against the city of Nashville and seeking an overturning of the city’s “affordable” housing mandate.

Case Logistics

The plaintiff in this case is John Shely with the Home Builders Association of Middle Tennessee. They are seeking clarification on the law and the overturning of Nashville’s affordable housing mandate. The defendant is the Nashville Metro Government.

Legal Documents

Complaint 

Metro’s motion to dismiss

HBAMT’s response to motion to dismiss

Metro Reply to motion to dismiss

HBAMT surreply to motion to dismiss

The Legal Team

Braden Boucek is the Director of Litigation for the Beacon Center. Prior to joining the Beacon Center, he worked as an Assistant United States Attorney, and before that for the State of Tennessee as a trial and appellate prosecutor.

Justin Owen is the president and CEO of the Beacon Center and is licensed to practice law in Tennessee.

The Beacon Center will work this case in conjunction with Southeastern Legal Foundation in Atlanta, one of the most established and well respected free market litigation groups in the nation. SLF will be represented by Kimberly Hermann, General Counsel for SLF. Prior to working for SLF, she was in private practice and an accountant for an international accounting firm.