August 12, 2015 - From the August, 2015 issue

TPR Readers: Divergent Views on Inclusionary Housing Ordinance Decision

A June decision by the California Supreme Court in the case California Building Industry Association v. City of San Jose upheld a San Jose inclusionary housing ordinance and declared that jurisdictions throughout the state can impose such requirements. The decision has been met with mixed responses in the land-use and local-governance fields. Here, TPR presents five diverse perspectives from our readership, as well as a client alert on the subject from Cox, Castle & Nicholson, reprinted with the firm’s permission.

Kelli Bernard

"CBIA v. San Jose is a precedent that should help local jurisdictions and the state maximize use of the inclusionary housing tool in for-sale developments and, hopefully, rental projects, too, where the problem is most pernicious.” -Richard Bloom

"Inclusionary rules are not the answer to our need for more housing. These arbitrary regulations will discourage new development and pass costs on to middle-income buyers.” -Len Hill

"The Supreme Court aptly describes a statewide housing crisis of ‘epic proportions.’ In my district, and throughout California, affordable housing is rapidly disappearing. This crisis is lowering quality of life for millions and adding to financial burdens. CBIA v. San Jose is a precedent that should help local jurisdictions and the state maximize use of the inclusionary housing tool in for-sale developments and, hopefully, rental projects, too, where the problem is most pernicious."
-Richard Bloom, Assemblymember, California State Assembly

“Inclusionary rules are not the answer to our need for more housing. These arbitrary regulations will discourage new development and pass costs on to middle-income buyers. They are impossible to police once a project has received its Certificate of Occupancy. The city should sell the valuable air rights that will allow greater density and establish an affordable housing trust fund rather than attempting to impose byzantine regulations that will be subject to abuse and will discourage developers from creating new projects that we so desperately need.”
-Len Hill, Partner, Linear City Development 

"As Mayor Garcetti stated, we commend the California Supreme Court’s recent decision on inclusionary zoning. One of this administration's primary goals is to expand housing production that’s affordable across our city’s income spectrum. So we’ll be examining multiple tools, like mandatory inclusionary zoning, as ways to ensure that new market-rate housing developments provide a range of options for Angelenos."
-Kelli Bernard, Deputy Mayor, City of Los Angeles

“Given the dramatic decline in government funding for housing subsidies, land use policies are becoming an increasingly important piece of the affordable housing puzzle in Los Angeles. This ruling may be a first step toward putting inclusionary housing back into the city’s policy toolbox, and the Department of City Planning is also identifying for the City Council nearly two dozen potential land use strategies and incentives to spur the production and preservation of affordable housing.”
-Ken Bernstein, Principal City Planner, City of Los Angeles Department of City Planning 

“It is unfortunate that inclusionary zoning is necessary. It will further distort the market, making it more difficult for it to meet the needs of housing affordability. The biggest challenge we have is the policy distortion that has created an oversupply of retail and an undersupply of housing—which will continue to make it a challenge for our region to produce housing at a price point that people can afford. There is no way to generate enough subsidy to produce the amount of housing that is absolutely necessary. Just look at the current waitlist of any housing authority throughout Southern California to see the number of families that are struggling for adequate shelter.”
-Steve PonTell, President/CEO, National Community Renaissance


Cox, Castle & Nicholson Client Alert

“Mixed-Income Development”: The California Supreme Court Declares that San Jose’s Inclusionary Housing Ordinance is Valid

by Tim Paone and Ken Bley

Forget nexus. Don’t worry about rough proportionality. It’s not an exaction and it’s not a taking. In a ruling that will adversely impact landowner and market-rate developers, while providing new opportunities for affordable housing developers, the California Supreme Court has given the go-ahead to the City of San Jose’s affordable housing ordinance, which requires developers to include affordable housing units within their market-rate projects, unless they elect other, equally impacting alternatives.

As a result of the Court’s ruling today in California Building Industry Association v. City of San Jose, developers should anticipate that both the Legislature and local municipalities will consider new opportunities to increase the numbers and distribution of affordable units, both rental and for-sale, within local communities. One of the important practical effects of this ruling is that municipalities will not need to demonstrate that market-rate housing creates the need for affordable housing in order to adopt and implement an affordable housing ordinance.

The San Jose ordinance applies to all for-sale projects of twenty or more new, additional, or modified residential units. The ordinance requires that fifteen percent of a project’s on-site units be available to “moderate income” households, those earning no more than 120 percent of the area median income. The ordinance itself provides that it will not apply to rental units until a 2009 appellate court decision, Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, is no longer the law. When and if that occurs, the ordinance requires nine percent of the rental units to be available at rates affordable to moderate income households, with another six percent to be available at affordable rates to very low income households. It also contains alternative methods of compliance, such as building off-site affordable for-sale units, paying an in lieu fee, dedicating land, and rehabilitating offsite affordable units. The Court’s focus, however, was on the “inclusionary” component of the ordinance.


In adopting this ordinance, the San Jose City Council found that, among other things, new market-rate housing drives up the price of land and diminishes the amount of land available for affordable housing. It also found that new market-rate homes create demands on services resulting in “a demand for new employees” whose earnings will allow them only to pay for affordable housing. Those circumstances, in turn, were found to “harm the city’s ability to attain employment and housing goals articulated in the city’s general plan and place strains on the city’s ability to accept and service new market-rate housing development.” 

The stated purposes of the ordinance included meeting the city’s share of regional housing needs, implementing the goals of the city’s general plan and, specifically, its housing element, and providing for the integration of affordable and market-rate housing products in the same neighborhoods.

In its ruling, the Court made a critical distinction between affordable housing impact fees intended to mitigate the specific impacts of a project and an inclusionary affordable housing requirement designed “to serve a constitutionally permissible public purpose other than mitigating the impact of the proposed development project.” In doing so, the Court carefully distinguished both state and federal judicial decisions focusing on “nexus” and “rough proportionality,” concluding that this ordinance is more akin to other “permissible land use regulations,” such as use, density, size, setback, and aesthetic requirements and restrictions and price controls. As a result, the Court concluded that the San Jose ordinance is neither an exaction nor a taking, but rather a proper exercise of the city’s general police power to regulate land development to promote the public welfare. In the context of constitutional law, once the Court reached that conclusion, it could only review the ordinance “deferentially” and the burden shifted to the California Building Industry Association to establish that the ordinance bears “no reasonable relationship” to the public welfare, a challenging threshold which the Court determined had not been met. 

The Court concluded that increasing the supply and distribution of affordable housing within the city is within the city’s “constitutionally permissible public purposes” and is “intended to shape and enhance the character and quality of life of the community as a whole.” As a result, the ordinance was found to address “the critical need for more affordable housing in this state” and allowed to stand. 

In rendering this decision, the Court has provided public agencies and developers alike with additional guidance on how far a California agency may go in regulating land development before its actions will be considered an exaction subject to the constitutional limitations of “nexus” and “rough proportionality.” The implications of this decision are likely to be significant not only with respect to affordable housing, but also with respect to other land use restrictions and requirements aimed at “promoting the public welfare.”

Unless a hearing before the United States Supreme Court is sought and granted, this is the final say on the validity of San Jose’s affordable housing ordinance.


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