A photo of Newark, New Jersy.
Some New Jersey Republicans want to restore a cap-and-trade system that shuttled low-income housing from suburbs to cities such as Newark. Julio Cortez/AP

A new Housing Policy Debate paper explores a deeply controversial idea: a cap-and-trade system for building affordable housing. Some New Jersey lawmakers want to give it a try.

In 1985, New Jersey launched an innovative experiment in social science and housing segregation. It failed—spectacularly, if slowly. But now Garden State Republicans and lefty California academics are giving the idea behind that experiment another look.

Two state supreme court decisions forced New Jersey’s hand. Known as the Mount Laurel Doctrine, the 1975 and 1983 decisions represent an important plank of civil rights law today. The court ruled that local governments cannot use class as a proxy to establish racially exclusionary zoning. Moreover, the rulings require local authorities to affirmatively promote the opportunity for building low-income housing through zoning.

In response, New Jersey passed a law that set fair housing standards and formed the state’s Council on Affordable Housing. The new regulations included a novel way to satisfy fair housing obligations: a cap-and-trade system. It enabled wealthier cities or towns looking to wiggle out of their new low-income housing obligations to simply pay other municipalities to build up to half of their share. (Cities could also restrict the other half to seniors, effectively blocking out low-income families entirely.) From 1988 to 2008, “sending” municipalities offloaded more than 10,000 low-income housing units on “receiving” municipalities (with pay).

The results? Arguably, cap and trade enabled New Jersey to maintain existing segregation, utterly defeating the intent of the law. Cities and towns that sent housing (120 municipalities in total) gained more than 133,000 jobs between 1990 and 2003, while the places that received housing (53 cities and towns) lost 3,600 jobs. Concentrating low-income housing in neighborhoods with little opportunity was the last thing that the framers of the Mount Laurel Doctrine hoped to accomplish.

An attorney writing in a legal journal in 1987 described this system as “the selling out of Mount Laurel.” Nevertheless, it took another 20 years for New Jersey to pass a law to unwind the Regional Contribution Agreements that facilitated the cap-and-trade system. And some New Jersey lawmakers are now clamoring for the state to bring it back. Republicans such as State Senator Joseph Pennacchio and General Assembly Minority Leader Jon Bramnick would like to restore the cap-and-trade mechanism that enabled suburbs to shuttle low-income housing to Camden and Newark.

According to one researcher, perhaps there’s something to the idea. If Not-In-My-Backyard types who argue against affordable housing in their neighborhoods are right—if low-income neighbors do bring down their housing values, and that’s a problematic “if”—then cap and trade might be a tool to address the issue at a policy level.

“It’s not all that politically correct,” says Robert Wassmer, professor of public policy and administration at California State University, Sacramento. “The analogy I’m making is that affordable housing is a pollutant.”

Readers might reasonably tap out at this point. Low-income families aren’t an abstract problem, and an affordable-housing solution that treats them as a neutral variable is bound to be offensive.

It’s a controversial take, Wassmer acknowledges. In a paper published by Housing Policy Debate, he and co-author Imaez Wahid consider that “NIMBYism could be based in a rational self-interest to protect one’s home value.” They demonstrate that homeowners may be rationally motivated to oppose affordable housing construction in their areas. Then the authors pivot to a thought experiment: Why not compensate them?

“If you need to have 20 or 30 percent of your housing be affordable, let communities of similar job opportunities or [socioeconomic] characteristics be able to trade with another community if their citizens come out and say it’s so terrible to have this affordable housing,” Wassmer says.

The immediate reception to the paper, via urbanist Twitter, was chilly. The paper’s title (“Does the Likely Demographics of Affordable Housing Justify NIMBYism?”) could be read as an explicit appeal to racial discrimination. Wassmer says he regrets the word choice and that “motivate”—not “justify”—is closer to his correct meaning.

Some critics might argue that the apology doesn’t go far enough. Cap and trade, after all, would seem to give rich communities an out on fair housing. This could reward the nation’s worst impulses, since opposition to low-income housing is often rooted in racism. Wassmer’s own research shows that racial discrimination is a huge driver in perceptions about housing and neighborhood value. Offering affluent homeowners an opportunity to buy an exemption from fair housing standards seems, at the very least, morally questionable.

So are the researchers just trolling with this paper? Wassmer puts it a different way: If you want to be a NIMBY, you should have to pay for it. We never stopped selling out Mount Laurel, as it were, and these researchers wants to attach a price to the problem.

The paper draws one big analogy between fair housing and climate change. Here’s how that works: It costs nothing for neighborhoods to object to low-income housing, even though it harms everyone when every community takes this same position. That’s why we have an affordability crisis. Similarly, carbon emissions don’t cost anything to an individual polluter, but they add up to a price the whole world must pay. Wassmer frames fair housing as a tragedy of the commons like climate change, one in which homeowners are behaving according to their rational best self-interest yet hurting themselves and others.

“Some citizens think that affordable housing is a negative externality,” Wassmer says. “And [that] NIMBYism is the way to stop it.”

The researchers show that homeowners may rationally perceive affordable housing as a threat to their home values. That’s the case even if there is no actual detriment (such as a rise in crime or evident strain on infrastructure). In Sacramento County, a 1-percent increase in the percentage of African American and Latinx households in a census tract results in 0.5 and 0.4 percent dips in sales prices, respectively. After controlling for race, increases in the poverty rate, average household size, or the percentage of residents over the age of 25 with less than a high school diploma all result in depressed home sale values.

The findings are unambiguous: “The racial/ethnic composition of a neighborhood, even in a highly diverse county like Sacramento, matters to the sales price obtained for a home.” Put another way, in the form of a problematic lament: “There goes the neighborhood.”

Yet the perception of demographic change does not actually alter the viability of a neighborhood. Low-income housing doesn’t acidify the oceans or exacerbate forest fires. Unlike with climate change, there isn’t a NIMBY problem to solve except perception. That’s what Wassmer is driving at. Talking about neighborhood character in concrete terms—in dollars—exposes the bias at the root of debates about neighborhood composition.

“People claim that [affordable housing] would be purely detrimental to their neighborhood,” Wassmer says. “Let’s put a value on it. If the character of a neighborhood is priceless, for every affordable housing unit that you don’t have to build, are you willing to pay another community $10,000 to build it over there?”

Try doubling that. Under New Jersey’s Regional Contribution Agreements, communities that “sent” affordable housing delivered $255 million (in 2018 dollars) in payment to “receiving” communities. That works out to about $25,000 per unit, according to the nonpartisan nonprofit New Jersey Future—adding up to $13 million per year for distressed communities to rehabilitate and preserve affordable housing.

But since families aren’t hydrocarbons and equity can’t be achieved in the aggregate, cap and trade did nothing to rectify the state of inequity in New Jersey. Arguably, the state’s Regional Contribution Agreements didn’t facilitate a viable cap-and-trade system—the communities were never equal members in the marketplace. The system enabled wealthier communities to steer low-income housing toward places that could not afford to say no, sequestering poverty in those places.

Cap and trade between communities with similar outlooks and incomes would look different. Affluent NIMBYs would have to find other affluent NIMBYs and reach a deal, Wassmer says. This might shed light on the irrational beliefs (racism and classism) behind the rational motivations (perceived home value) underlying NIMBYism. Wassmer says that he predicts that in a true neighborhood cap and trade, no trading would happen at all. “It points out some of the irrationality of how bad these effects are going to be,” he says.

With this thought experiment, Wassmer and Wahid describe a carrot approach to building affordable housing. California, however, favors the stick. The state’s Housing Element Law requires every municipality to account for its fair share of low-income housing (and housing production, period). City and county housing plans are subject to state oversight; currently, the state reports that 5 percent of municipalities are out of compliance, and most jurisdictions have been noncompliant in recent years. Even when cities zone land for construction, socially powerful neighborhoods use the law—the California Environmental Quality Act, for example—to thwart affordable-housing projects.

California’s reliance on law and principle over market incentives might be more attractive to fair-minded people—but it isn’t actually producing fair housing. While it’s something of a lark, the proposal out of Sacramento builds on existing literature that says that a homeowners’ opinion about a zoning policy depends less on their personal convictions and more on their perception of how other others feel about it. If NIMBYism is rooted in prejudice and projections, then cap and trade could be a way to put a dollar figure on those perceptions—and perhaps expose them as worthless.

It can’t be that much worse than the status quo, Wassmer says.

“It doesn’t cost anything for a citizen group to say, once affordable housing is proposed in their neighborhood, this is bad, let’s stop it. This would put a price on it,” he says. “You’re going to have to put your money where your mouth is.”

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