The Wall Street Journal editorializes today, not for the first time, about the long-running dispute between New York’s suburban Westchester County and the U.S. Department of Housing and Urban Development. Even if you’re not a former county resident (as I am), it’s a dispute worth knowing about, with many implications for property owners in the rest of the country.

Excerpt:

At issue is a 2009 settlement with HUD in which Westchester committed to develop 750 public housing units in mostly white neighborhoods over seven years. County executive Rob Astorino has financing for 305 units (110 of which are already occupied), putting Westchester ahead of schedule. … [Not satisfied,] the agency is interfering with local zoning in Westchester to force more racial diversity on suburban neighborhoods. Last week, HUD New York’s Director of Community Planning and Development Vincent Hom wrote Mr. Astorino and threatened to cancel $7.4 million in unrelated housing and community development funds. To keep the cash, Westchester must produce “a satisfactory zoning analysis and plan to overcome exclusionary zoning practices.”

Part of the county’s defense is that under New York’s system of home rule, towns enjoy legal independence and their surrounding counties cannot simply order them to change their zoning. These town zoning laws assuredly perpetuate economic stratification — if every home needs to be on an acre or two with well-and-septic, you’re likely to draw an affluent average resident — and libertarians, with some notable exceptions such as Richard Epstein, have often dismissed zoning based on economic-stratification motives as bad policy, improper infringement on property rights, or both. But zoning for economic stratification, when distinct from a racial motivation, has not up to now been thought in itself to violate federal law, and part of the question in the Westchester case is whether HUD will succeed in developing such a norm. (Westchester argues with considerable evidence that affluent, heavily zoned towns like Scarsdale, Chappaqua, and Katonah have a history of being relatively welcoming to minorities, and have long scored well on measures of integration when compared with other similarly affluent communities.)

joseph a / photo on flickrjoseph a / photo on flickrFor a libertarian, it’s easy to click past stories like these on the grounds that 1) this is a complex dispute among levels of government, not directly between the state and the individual citizen; 2) it’s about time someone pressed these towns to reconsider economic-stratification zoning, so why shouldn’t that someone be the feds? 3) HUD’s main leverage is its threat to cut off federal money, and from a limited-government standpoint, the more federal funds that get cut off the better.

But as usual, it’s more complicated than that.

To begin with, in this case — as indeed in most cases of this sort — the threat of a federal funds cutoff is being deployed with the aim of raising government outlays, not lowering them. HUD is pressing the county to commit to extremely costly plans for subsidized housing, at a price tag estimated to run between $730 million and $1 billion. For more on how the modern arrangements sometimes called “cooperative federalism” operate to push all the participating levels of government into expanding their level of activity, rather than employing the ambition of one level to check another, see Michael Greve’s recent work.

Moreover, the question of whether the federal government can ban local government practices for which it cannot show racial motivation, but which have “disparate impact” on one or another protected group, is emerging as one of the hottest issues in housing and local government law. Consider, for example, the situation of a town council that is considering cutting back public bus schedules or recreation programs with more than their share of minority users. Even if motivated by budget concerns or an overall small-government philosophy rather than by a desire to harm or discourage minority patrons, such cutbacks might be arguably illegal if “disparate impact” concepts are to rule the day, as the Obama administration keeps suggesting.

Not least, the Westchester dispute does relate directly to regulation of private citizens. As part of its pressure on the county, HUD is insisting that it is a violation of fair housing law for the county not to enact an ordinance commanding that private landlords not engage in so-called source-of-income discrimination — which in practice mostly means banning them from turning away government-aided applicants like those from the Section 8 program. Nationally, landlord participation in the Section 8 program is supposed to be voluntary, and many apartment managers and private renters do not participate, sometimes because of less-than-happy experiences with Section 8 tenants. If HUD prevails, it will be one step closer to its apparent goal of requiring — federal law or no — that property owners nationwide consent to become Section 8 landlords, a status that brings them under a variety of additional regulations as well as itself seriously infringing their freedom to run their businesses as they please.

That’s one reason even those who aren’t fans of restrictive zoning should hope HUD loses this fight.