Last week, the California Supreme Court released a key ruling that allows cities to require new market-rate housing developments to include homes that are affordable to people with low or moderate incomes. The case that came to the court’s attention was focused on a 2010 City of San Jose ordinance, but the ruling has broader implications for cities across the state.
San Jose’s ordinance required market-rate ownership developments of 20 homes or more to make 15 percent of those homes affordable to qualifying moderate-income households (those who make 120 percent of the area median income). The ordinance is an example of inclusionary zoning, a tool cities can use to encourage a mix of low-, medium- and high-income households within a neighborhood or building. Inclusionary zoning is used in hundreds of communities across the country; at least 170 municipalities in California had passed some form of it as of 2006. The California Building Industry Association (BIA) filed suit soon after the San Jose ordinance passed, arguing that the city had not demonstrated that residential ownership development created a need for affordable housing, and the Santa Clara County Superior Court ruled in the BIA’s favor in 2012. The city appealed that decision, and in 2013 the Sixth Court of Appeal reversed the decision in the city’s favor. The BIA’s appeal brought it to the State Supreme Court, who agreed in 2013 to hear the case.
The court’s decision means that it will be easier for cities to adopt new inclusionary requirements and defend existing ordinances from challenges. The recent ruling defines an inclusionary housing ordinance as a use restriction that a city can adopt under its zoning powers rather than an exaction or “taking” of property that needs to be backed up by a relationship or “nexus” between a development and a resulting impact. This means it’s now clear that, for ownership housing developments, an affordability or inclusionary requirement does not require a study proving that new market-rate housing creates a need for new affordable housing.
What does it mean for San Jose? The city will at last be able to implement its 2010 inclusionary requirement, and indications are that it will do so within the next six months. While most housing units in the city’s current pipeline are planned to be rented, the impact could be significant over the long run.
What about rental housing developments? Inclusionary requirements for rental housing were invalidated in the 2009 Palmer decision, which struck down Los Angeles’s inclusionary ordinance for rental development based on the idea that it violated the Costa Hawkins Act limiting rent control. The state legislature passed a law in 2013 that would overturn Palmer and amend the Costa Hawkins Act to allow for inclusionary requirements on rental housing. However, Governor Brown vetoed it, indicating he wanted the Supreme Court to signal its thinking on the San Jose ownership development case before moving forward on rental developments. Now that the court has ruled in San Jose’s favor, we may see the legislature bring back a legislative fix for Palmer. While waiting for this decision, San Jose and many other cities in the Bay Area have completed nexus studies and financial feasibility analyses as clearance to legally impose impact fees on rental development.
SPUR is happy to see this decision, since inclusionary housing is an important tool for cities to have at their disposal. Further, we have never agreed with the basic argument made in affordable housing nexus studies: that market-rate housing is causing the housing crisis rather than helping to solve it. We agree that inclusionary zoning is a legal use of the zoning authority of local government. And in a housing crisis like the one we are currently experiencing, it is vitally important that cities be able to use every tool they have to produce more affordable housing.
Read the court decision >>
Read our blog post on the 2010 ordinance >>
Read our blog post on San Jose's housing impact fee >>
Check out future updates from the city of San Jose >>
Special thanks to Eric Phillips at Goldfarb & Lipman LLP.