Exclusionary Amenities in Residential Communities
University of Chicago Law School
U of Chicago, Law & Economics Working Paper No. 250; U of Chicago, Public Law Working Paper No. 98
This essay identifies an important mechanism by which segregation arises in new residential developments. The Fair Housing Act and other antidiscrimination laws closely regulate real estate sales, advertising, and racial steering. As a result of these laws and other factors, purchasers of homes often lack accurate information about the likely demographic makeup of a new neighborhood or condominium building. Yet these laws have not eroded the incentives for housing consumers to obtain this data. This essay argues that developers can circumvent fair housing laws by embedding costly, demographically polarizing amenities within a new development and recording covenants mandating that all homeowners pay for those amenities. Its central claim is that developers will select common amenities not only on the basis of which amenities are inherently welfare-maximizing for the residents, but also on the basis of which amenities most effectively deter undesirable residents from purchasing homes in the development. The essay dubs this approach the exclusionary amenities strategy and shows how it causes sorting and focal point mechanisms to act in concert, thereby engendering substantial residential homogeneity. The inability to exclude functions as an inducement to spend.
During the 1990s, the United States experienced a boom in the construction of residential developments built around costly golf courses. This occurred at a time when golf participation functioned as a noticeably better proxy for race than income, wealth, or virtually any other characteristic. Curiously, substantial numbers of Americans who purchased homes in mandatory-membership golf communities played no golf. This essay offers circumstantial evidence suggesting that by purchasing homes in these communities, homeowners may simply have been paying a premium for residential racial homogeneity. They essay then identifies a number of other examples where developers, or even municipalities, appear to be pursuing an exclusionary amenities strategy. It also identifies instances in which the use of exclusionary amenities may further neutral, or even laudable, objectives.
The essay then notes the possibility of inclusionary amenities, and shows how a few developers, common interest communities, and municipalities have used these amenities to achieve greater residential heterogeneity than would otherwise have been possible. It concludes by evaluating the law's current stance of leaving exclusionary amenities largely unregulated, and examines various strategies for curbing the use of exclusionary amenities to achieve racial homogeneity.
Number of Pages in PDF File: 59
Keywords: Segregation, Race, Property, Common Interest Communities, Planned Developments, Homeowners Associations, Condominium, Exclusionary Amenities, Inclusionary Amenities, Club Good, Public Good, Antidiscrimination, Fair Housing Act, Tiebout, Schelling, Tipping, Steering, Exclusionary Zoning
Date posted: July 19, 2005