The availability of housing units for low or moderate income households has been an on-going challenge in the State of California for the past several decades. In 2010, the City of San Jose enacted an “inclusionary housing ordinance,” mandating that all new residential development projects of twenty units or more must sell a minimum of fifteen percent of the units at a price deemed affordable to low or moderate incomes. Immediately following the passage of this City ordinance, attorneys for the California Building Industry Association (CBIA) filed suit in Superior Court challenging the legality of the ordinance.
CBIA brought legal action (CBIA v San Jose) on the grounds that the City ordinance was invalid on its face, because the City failed to provide a sufficient evidentiary basis to demonstrate that the lack of housing for low or moderate income households in the City was as a direct result of the residential developers failing to make such housing available at a reasonable cost, and that the conditions and restrictions on the residential developers were necessary to correct this inequity in the housing market. CBIA relied on the analysis found in San Remo Hotel v. City and County of San Francisco (2002) 27 Cal. 4th 643. Further, CBIA argued that the conditions imposed by the City amounted to “exactions” under the takings clause of both the California and United States Constitutions, and therefore, were unconstitutional without compensation by the government.
The Superior Court found in favor of CBIA, and issued a judgment that prevented the City from enforcing the ordinance. The Court of Appeals reversed this judgment, holding that the Superior Court had erred in two ways: (1) that the conditions of the City ordinance were not sufficient to amount to “exactions” under the takings clause of either the California or United States Constitutions, and (2) the trial court’s application of the analysis in San Remo that the City ordinance could only apply conditions that are “reasonably related to the adverse impact the development projects that are subject to the ordinance themselves impose on the City’s affordable housing problem.” The Court of Appeals remanded the case to the Superior Court for review under the appropriate legal standard of “whether the ordinance bears a real and substantial relationship to legitimate public interest.”
CBIA sought review of the Court of Appeals decision by the Supreme Court of California, which upheld the decision of the Court of Appeals. The Supreme Court held that the conditions imposed by the City ordinance on future development projects did not amount to “exactions” under the definitions outlined by the takings clause. Further, the Supreme Court of California found that the factual basis in San Remo Hotel relied upon by CBIA does not apply, because no residential developer in San Jose had been required to pay a monetary fee under the ordinance. Instead, the City Ordinance is only a restriction on how a developer may use property. Finally, the Supreme Court of California held that by applying the correct legal standard as held by the Court of Appeals, the City ordinance did serve the legitimate purposes of (1) increasing the number of affordable housing units in the City of San Jose, and (2) assured that the development of new mixed development neighborhoods would be distributed across the City.
This decision is disappointing on several levels. First, the Court grants extreme deference to the government’s factually baseless assertion that much needed new housing somehow creates the need for low income housing. In Nollan v. California Coastal Commission, a 1987 decision, the United States Supreme Court held that the conditions placed on development must bear a “nexus” to the burden created by that development. Yet now such showing was made by the government in this case.
Second, this decision will only further increase the high cost of housing in California, as developers will simply pass on the exorbitant fees to the consumer.
Finally, the decision does not bode well for the future of property rights in California. All of the new Justices on the California Supreme Court joined in on the decision to force developers, and ultimately consumers, to pay for low housing costs which should be the responsibility of the public at large, not the burden of developers and purchasers.