Legal Alerts Jun 17, 2015

California’s Highest Court Upholds San Jose’s Affordable Housing Ordinance

Requirement to Construct or Provide Affordable Housing Is Permissible Under California Constitution Police Powers

California’s Highest Court Upholds San Jose’s Affordable Housing Ordinance

This week, in a long awaited decision, California Building Industry Association v. City of San Jose, the California Supreme Court upheld the City of San Jose’s affordable housing ordinance. In doing so, the Court resoundingly held that the requirement to either construct affordable housing units or provide affordable housing through alternative means per the City’s inclusionary housing ordinance is not an exaction. Instead, the Court held that such ordinances are permissible land use regulations derived from the police powers contained in the California Constitution. This distinction has been at issue between cities and the development industry for a number of years and it is finally settled law.

The decision is important because it ultimately determines the level of Constitutional scrutiny a city needs to meet in adopting an affordable housing ordinance. If the California Supreme Court had determined such ordinances constituted exactions, a city would need to show that the requirements in the affordable housing ordinance were being imposed to negate any adverse public impacts caused by new housing development. The Court’s decision, however, now means that a city need only show that it is adopting an affordable housing ordinance to promote the public welfare of the community – a much lower constitutional burden.

The California Supreme Court’s 2013 decision in Sterling Park L.P. v. City of Palo Alto seemed to indicate that the Court was prepared to hold that affordable housing requirements were exactions. In that case, the Court held that an affordable housing ordinance requiring a developer to sell units at a below market rate price and grant the City a purchase option for the affordable units was subject to the statute of limitations in the Mitigation Fee Act as an “other exaction” as that term is used in the Act. The California Supreme Court in the San Jose case, however, clarified that its holding in the Sterling Park case only addressed a procedural question regarding the appropriate statute of limitations for a challenge to the imposition of inclusionary housing requirements on a specific development, and did not address the substantive validity of an inclusionary housing ordinance.

The San Jose ordinance, adopted in 2010, required developers proposing 20 or more for-sale residential units to set aside 15 percent of those units for sale to low or moderate income households. The ordinance provided a number of alternatives to this set-aside requirement, including construction of affordable units at another site, payment of an “in lieu” fee into the City’s affordable housing fund, dedicating land to the City in equal value to the applicable in-lieu fee or acquiring and rehabilitating a comparable number of affordable units. Shortly after adopting the ordinance, San Jose was sued by the California Building Industry Association.

For more information about this decision and its impact on your organization, please contact one of the attorney authors of this legal alert listed at right in the Municipal Law practice group, or your BB&K attorney.

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