Decision Removes Legal Uncertainty around Local Power to Require Mixed-Income Housing

July 1, 2015 – The California Supreme Court unanimously and without qualification upheld San Jose’s 15% inclusionary housing ordinance, freeing communities to adopt mixed-income housing ordinances to address critical shortages of affordable housing. PILP, the Silicon Valley Law Foundation and Wilson Sonsini Goodrich Rosati represented intervening low income tenants and affordable housing groups assisting San Jose in defending the constitutional attack on its inclusionary zoning law by the California Building Industry Association. See California Building Industry Assn. v. City of San Jose, 61 Cal.4th 435 (2015). For more info contact Michael Rawson (mrawson@pilpca.org) or Melissa Morris (melissam@lawfoundation.org).CBIA contended the law lacked sufficient justification and, therefore, constituted an unconstitutional “exaction” resulting in a taking of property. The Court ruled that the need for affordable housing and the goal to increase diversity of housing opportunity throughout the city provided ample justification for the adoption of the inclusionary requirement. Inclusionary laws, the Court said, come within the community’s “broad authority, under its general police power, to regulate the development and use of real property within its jurisdiction to promote the public welfare” of the community or the region. Approximately 170 California communities have inclusionary requirements.

Specific Holdings

• Inclusionary Requirement Are Land Use Regulations, not “Exactions.” Inclusionary zoning is not an exaction because it does not require a conveyance of a property interest. Inclusionary housing ordinances are land use regulations that merely restrict the use of property by limiting the price of some units.
• Building Industry Ass’n v. City of Patterson Disapproved. The Court rejected CBIA’s contention that under Patterson and San Remo Hotel v. San Francisco inclusionary housing requirements or in lieu fees are justified only if the need for affordable housing “was caused by or attributed to” the impact of new housing development.
• Inclusionary Ordinances Are Valid if they are Reasonably Related to Legitimate Public Purposes. The Court found that “unquestionably constitutionally permissible purposes” for adoption of an inclusionary requirement include:
• Increasing the number of affordable housing units in a community when there is an insufficient number in relation to the community’s “current and future needs,” including regional needs under the Housing Element Law
• Assuring new affordable housing units “are distributed throughout the city as part of mixed-income developments” in order to:
• “Obtain the benefits that flow from economically diverse communities”
• “Avoid the problems that have historically been associated with isolated low income housing.”
• In Lieu Fees Are Not Exactions. In-lieu fees as an alternative to on-site inclusionary requirements are not “mitigation fees” or exactions and, therefore, are not required to be related to some impact of new housing development.

Going Forward

• A Nexus Study is Not Required for the On-Site Inclusionary Percentage or In-Lieu Fee Alternatives Related to the On-Site Requirement. A study is unnecessary because the community is not required to show that new housing development is the cause of the need for affordable housing.
• Provisions Granting Mandatory Options to Purchase for Local Government May Not Be Permissible in Isolation. San Jose’s ordinance authorized utilizing options to purchase inclusionary units when resold, but did not mandate an option.

Rental Housing—Palmer v. Los Angeles Not Effected – Legislative Action Now Timely. The Palmer decision’s prohibition of inclusionary rent restrictions under the Costa-Hawkins Act was not at issue in this case. When vetoing AB 1229 in 2013, which would have overturned Palmer, Governor Brown indicated the legislation was premature because he first wanted “the benefit of the Supreme Court’s thinking.” Now that we have it, similar legislation is timely.