Now that the emulator file system is ext4 I was able to re-size the userdata.img using standard Linux tools.
# Navigate to AVD
cd ~/.android/avd/Nexus5
# Delete old image
rm userdata-qemu.*
# Re-size the image
resize2fs userdata.img 512M
# Start the emulator and enjoy
emulator @Nexus5
Edit
I was also able to re-size userdata-qemu.img directly but I had to run e2fsck first.
e2fsck -f userdata-qemu.img
resize2fs userdata-qemu.img 512M