Appellate Court Ruling Significantly Increases the Likelihood of New Affordable Housing Requirements in California

by Allen Matkins
Contact

In California Building Industry Association v. City of San Jose, 2013 Cal. App. LEXIS 447, 2013 WL 2449204 (Cal. App. 6th Dist. June 6, 2013), a California appellate court upheld an inclusionary housing ordinance ("IHO") adopted by the City of San Jose ( "City"). The trial court had struck down the ordinance and ruled that the City failed to demonstrate a reasonable relationship between the challenged ordinance and the public impacts of new residential development. This is the standard applied by courts in a number of recent decisions addressing the imposition of affordable housing requirements on new development projects. The Sixth Appellate District concluded that the trial court applied the incorrect standard for this facial challenge to the IHO and that it was the burden of the challengers to demonstrate that the IHO was an improper exercise of the City's broad police power. This standard provides great deference to local jurisdictions. If this decision stands it will encourage many more cities and counties in California to consider adopting similar IHO's and will make it virtually impossible to avoid a significant increase in the cost of producing market rate housing in those communities that adopt IHO's. Home builders and their industry groups will need to become strong advocates at the local level to educate cities and counties of the increased costs of housing that could result from the adoption of IHO's.

Background

The City adopted an IHO which required residential developments of 20 or more units to set aside 15% of those units as affordable, 9% for moderate income households, and 6% for very low income households. This obligation could also be met by constructing affordable units off site, or by paying an in-lieu fee. It was estimated that the in lieu fee would be approximately $122,000 per affordable unit required. The ordinance also included a waiver, adjustment or reduction if a developer could show that there was no reasonable relationship between the impact of a proposed residential development and the requirements of the new ordinance or that applying the requirements of the ordinance would take property in violation of the state or federal constitution.

The California Building Industry Association ("CBIA") filed a complaint to set aside the IHO as invalid on its face. CBIA argued that the City had adopted the ordinance without demonstrating any reasonable relationship between the requirements imposed by the ordinance and any increased public needs for affordable housing created by new residential development and that such action violated controlling state and federal law. In support of this position, CBIA argued that in order to adopt such an ordinance, the City must provide evidence showing that the fees and exactions to be imposed on new development are reasonably related, and limited, to the City's reasonable cost of addressing the negative impacts caused by the new development. The trial court agreed with CBIA and the City appealed.

Holding and Analysis

On appeal, the City argued that CBIA was misstating the law and relying on the wrong standard of judicial review. The City argued that the IHO should be regarded as a land use restriction similar to a zoning regulation adopted pursuant to the local government's police power and, as such, must be accorded a highly deferential standard of judicial review and must be upheld if it bears a reasonable relation to the public welfare. Intervenor affordable housing groups argued that the ordinance was reasonably related to the legitimate government purpose of creating affordable housing and therefore was within the City's police power.

The appellate court agreed with the City and intervenors, and remanded the matter back to the trial court: "We thus leave it to the superior court to determine whether CBIA has rebutted the presumption that the [IHO is] reasonably related to the City's legitimate public purpose of ensuring an adequate supply of affordable housing in the community." In reaching its conclusion, the appellate court reviewed the facts and the holdings in a number of prior affordable housing decisions. In particular, the court focused on Homebuilders Association of Northern California v. City of Napa (2001) 90 Cal.App.4th 188 ("Napa"), San Remo Hotel L.P. v. City and County of San Francisco (2002) 27 Cal.4th 643 ( "San Remo"), and Building Industry Association of Central California v. City of Patterson (2009) 171 Cal.App. 4th 886 ( "Patterson").

In the current case, CBIA relied on San Remo and Patterson and argued that the IHO is neither a zoning ordinance nor a regulation of the use of property but, instead, establishes a dedication or fee on covered projects. In San Remo, the plaintiffs challenged a development impact fee that was specifically designed to mitigate the loss of housing caused by the conversion of residential units to tourist uses. In that case, the court held that a "reasonable relationship" must exist between the development mitigation fee and the deleterious public impact of the development. The appellate court in the current case distinguishes the facts in San Remo by concluding that the IHO at issue does not appear to have been enacted for the purpose of mitigating housing loss caused by new residential development but, rather, was for the purpose of enhancing the public welfare by establishing policies which assist in the development of affordable housing. Thus, according to the appellate court, whether the ordinance was reasonably related to the deleterious impact of market rate residential development in the city is irrelevant and the wrong question to ask.

The court then addressed the Patterson decision. The court acknowledged that in Patterson the "reasonable relationship" standard from San Remo was appropriately applied but, based on their lengthy analysis, concluded that the standard articulated in San Remo is not applicable in the case of a facial challenge. In the case of a facial challenge, the court held that the ordinance should be reviewed as an exercise of the City's police power. Pursuant to this standard, an IHO is a valid exercise of the police power if it bears a substantial and reasonable relationship to the public welfare and is invalid only if it is arbitrary, discriminatory, and without a reasonable relationship to a legitimate public interest. Thus, in reviewing a legal challenge to an IHO, the City is entitled to substantial deference and the ordinance will survive such legal challenge if it is fairly debatable that the ordinance reasonably relates to the welfare of those in need of affordable housing.

Implications of this Decision

Assuming this case survives a likely appeal to the California Supreme Court, it will stand for the proposition that all cities and counties in California may adopt IHO's as an appropriate exercise of their police power and that such ordinances will only be overturned if it can be established that the adoption of the ordinance was arbitrary, capricious, entirely lacking in evidentiary support, bears no reasonable relationship to a legitimate public interest, or is unlawfully or procedurally unfair. Given this standard, a successful facial challenge to such an ordinance is virtually impossible. After Patterson a number of jurisdictions did away with or stopped implementing their IHO's and ad hoc affordable housing requirements. This decision will likely encourage those cities and, perhaps, many more, to adopt IHO's along the lines of the one adopted by San Jose. It will be imperative for the housing industry to strongly educate and advocate, at the city and county level, the negative impacts such IHO's will have on housing affordability and development in their communities.

[Note: opinion only touches on Palmer, which holds IHO's for rental projects are preempted by Costa-Hawkins.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins
Contact
more
less

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.