October 19, 2015

Several amici join PLF’s request that the U.S. Supreme Court review San Jose’s inclusionary zoning ordinance

By Brian T. Hodges Senior Attorney

PLF received seven amicus briefs joining our request that the U.S. Supreme Court grant certiorari in the case, California Building Industry Association v. City of San Jose. As you may recall, PLF’s petition asks the Court to review a California Supreme Court decision holding that a city or county can force landowners to dedicate private property to public use, without providing just compensation, so long as the government can show that its use of the land will enhance the public welfare. That decision marks a stunning departure from decades of U.S. Supreme Court case law, which has repeatedly warned that, standing alone, a strong public desire to improve public conditions has never been sufficient to justify the government’s appropriation of private property.

At issue is the City of San Jose’s “Inclusionary Housing Ordinance,” which forces developers of 20 homes or more to dedicate 15% of their newly built homes as low-income housing for sale at below market prices, or pay $122,000 for each home that would have been dedicated for the inclusionary housing program into a city housing fund. California Building Industry Association filed a lawsuit, seeking to invalidate the ordinance provisions as unconstitutional conditions as that doctrine is set out in Nollan v. California Coastal Commission (1987), Dolan v. City of Tigard (1994), and PLF’s recent victory in Koontz v. St. Johns River Water Management District (2013). Under those cases, a demand for property or money as a condition of a land-use permit—an “exaction”—will be unlawful and invalid unless it mitigates for an adverse impact of the development. The California Supreme Court, however, refused to review the ordinance under those precedents, adopting instead a rule that allows the government to circumvent the rule of Nollan, Dolan, and Koontz whenever the legislature adopts a law that requires that permit applicants dedicate property to the public welfare. According to the California court, only conditions imposed at the permit desk are subject to the constitutional limitations in Nollan, Dolan, and Koontz.

That rule, if allowed to stand, would have significant impacts on the building and realty industries—not to mention home buyers.

The National Association of Home Builders’ amicus brief focuses on the harsh effect that inclusionary zoning ordinances have on builders and home buyers alike. Most obviously, by shifting the cost of new low-income housing onto home builders, such policies drive up the cost of new development. Builders are forced to either cut costs (impacting labor, materials, quality, number of new units), leave the market, or build the units and pass along the increased costs to home buyers. The last option—the aim of inclusionary zoning—has shown perverse results where implements. Regulations imposed by government already account for approximately 25% of the cost of a house. Increasing the regulatory costs has the effect of pricing thousand of entry-level buyers out of the housing market, exasperating the need for affordable housing.

The amicus brief filed by the California Association of Realtors and National Association of Realtors argues that the inclusionary zoning ordinance—whether it’s characterized as an “exaction” or a “price control”—places the burden of building new affordable housing on individuals who did not create the problem, while absolving the public beneficiaries of any costs. Moreover, the burden placed on developers directly impairs one of the fundamental rights inherent in property ownership—the right sell one’s property—and denies the developer a reasonable rate of return on his or her investment. That formulation sets up a classic violation of the Takings Clause.

The California court’s decision also raises significant questions of federal constitutional law.

As pointed out by the National Federation of Independent Business legal Center and Owners Counsel of America, the inclusionary zoning requirement forces owners into the same type of dilemma that the U.S. Supreme Court held subject to the unconstitutional conditions doctrine in Nollan, Dolan, Koontz, and Horne v. Department of Agriculture (2015). The lower courts, however, are divided whether such a condition should be subject to heightened scrutiny, warranting review.

The Cato Institute and Reason Foundation argue that there is no basis in the U.S. Supreme Court’s unconstitutional conditions case law for treating legislative demands that a person surrender a protected right in order to receive a permit any differently than demands made by other government bodies. Indeed, subjecting legislative demands to minimal scrutiny would effectively eviscerate the concept of property by allowing state and local legislative bodies to broadly condition a wide array of benefits upon the transfer of private property to the public.

The Center for Constitutional Jurisprudence opens its brief by calling out the elephant in the room: California’s well-documented antipathy toward individual liberty. That antipathy is made plain in this case by the city’s bold concession that the affordable housing problem is not of the affected homebuilders’ making—nonetheless, the city wants them to pay to cure it. Such a plain and deliberate attempt to undercut the rights guaranteed by the constitution should not escape review.

The brief filed by Mountain States Legal Foundation argues that the city’s inclusionary housing scheme plainly targets the well-recognized right to sell and transfer one’s property. Thus, if the California court’s decision were to stand, it would render the unconstitutional conditions doctrine meaningless—any exaction traceable to a legislative mandate would be subject only to minimal, rational basis scrutiny. Such a standard would strip the doctrine of its intended purpose, which is to protect against the government using the permitting process as an opportunity to exact unrelated benefits from landowners who must receive approvals to make use of their land.

Finally, the Southeastern Legal Foundation, Real Estate Professionals and Associations, and the Beacon Center argue that review is necessary in this case, at this time, because more and more cities are likely to adopt inclusionary housing requirements. Review is not only essential because low-income housing requirements violate developers’ property rights, but because inclusionary housing programs have historically produced less housing, harm the people they are intended to benefit, and distort the housing and lending markets.

Each of the seven amicus briefs raises an interesting and unique argument and is well worth the time for a read.

The city and its supporters are scheduled to file any briefs in opposition by November 16, 2015. We anticipate that the Court will conference on the case in early December.

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