• Land Use Attorney Capitola

CASE UPDATE: California Supreme Court Upholds City Of San Jose’s Affordable Housing / Inclusionary Housing / Affordable Housing Ordinance.

In California Building Industry Association v. City of San Jose (2015), the California Supreme Court affirmed the court of appeal’s ruling and upheld the City of San Jose’s inclusionary housing ordinance.  In order to address state policies and goals intended to encourage more affordable housing units, hundreds of  California municipalities have adopted what are commonly referred to as “inclusionary zoning”,  “inclusionary housing” or “affordable housing” programs, which typically require or encourage developers to set aside a certain percentage of housing units in new or rehabilitated projects for low- and moderate-income residents.

The City of San Jose adopted its inclusionary housing ordinance in 2010.  The principal purposes of the ordinance are: 1) to enhance the public welfare by establishing policies requiring the development of housing affordable to low and moderate income households in order to meet the city’s regional share of housing needs and implement the goals and objectives of the city’s general plan and housing element; 2) to provide for the residential integration of low and moderate income households with households of market rate neighborhoods and to disperse inclusionary units throughout the city where new residential development occurs; and 3) to alleviate the impacts that would result from the use of available residential land solely for the benefit of households that are able to afford market rate housing and to mitigate the service burden imposed by households in new market rate residential developments by making additional affordable housing available for service employees.

The substantive provisions of the ordinance apply to all residential developments in the City that create 20 or more new, additional or modified residential units.  With regard to such developments, the ordinance’s basic inclusionary housing requirement specifies that 15 percent of the proposed on-site for-sale units in the development shall be made available at an “affordable housing cost” to households earning no more than 120 percent of the area median income for Santa Clara County adjusted for household size.  The ordinance generally defines affordable housing cost by reference to the definition set forth in Health and Safety Code section 50052.5, which in turn defines affordable housing cost as 30 percent of the area median income of the relevant income group (i.e. extremely low, very low, lower and moderate income).

As an alternative to providing the required number of for-sale inclusionary units on the same site as the market rate units, the ordinance affords a developer a number of compliance options, which include: (1) constructing off-site affordable for-sale units; (2) paying an in lieu fee based on the median sales price of a housing unit affordable to a moderate income family; (3) dedicating land equal in value to the applicable in lieu fee; or (4) acquiring and rehabilitating a comparable number of inclusionary units that are affordable to low or very low income households.   As additional incentives to encourage developers to comply with the ordinance by providing affordable units on site, the developer can apply for several economically beneficial incentives, including: (1) a “density bonus”, that is, permission to build at great density than otherwise permitted, which results in a greater number of units; (2) a reduction in the number of parking spaces otherwise required by the San Jose Municipal Code, which may increase the number of units; (3) a reduction in minimum set-back requirements; and (4) financial subsidies and assistance from the city in the sale of the affordable units.

The plaintiff’s main argument was that the City’s inclusionary housing ordinance was invalid on its face on the ground that the City failed to provide a sufficient evidentiary basis to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.  In other words, plaintiff’s argument was that the ordinance affected an “exaction” (like a development impact fee or land dedication requirement), the type and amount of which must have an “essential nexus” and “rough proportionality” between the type and amount of the fee or other condition and the anticipated impacts of the project, which is Constitutionally required under the Dolan and Nollan line of U.S. Supreme Court cases.

The California Supreme Court rejected that argument and held that this particular inclusionary housing ordinance was not an exaction.  Rather, the Court characterized the ordinance as a type of land use regulation that restricted the way a developer may use its property by limiting the price for which the developer may offer some of the units for sale.  The Court likened these restrictions to zoning restrictions, such as density, height and set back requirements, which are permitted under cities’ general police power, and it noted that price controls, in general, are constitutionally permissible to achieve a municipality’s legitimate public purpose.

©2015 Miles J. Dolinger. This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship.

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Miles J. Dolinger
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