In reaching its decision, the Court opined, “[T]he ordinance does not impose an ‘exaction’ on developers’ property under the takings clauses of the federal and California Constitutions.” In the Court’s opinion, this is not a case of an unconstitutional condition or exaction as asserted by California Building Industry Association (CBIA), but rather an “example of a municipality‘s permissible regulation of the use of land under its broad police power.” This constitutional “police power” analysis is significant in that it is far more difficult to overcome and removes a landowner's' right to just compensation for a government taking of private property.
The City of San Jose enacted an inclusionary housing ordinance that, among other features, requires all new residential development projects of 20 or more units to sell at least 15 percent of the for-sale units at a price that is affordable to low or moderate income households. (See below for a description of the ordinance.) CBIA’s challenge rested primarily on the unconstitutional conditions doctrine, as applied to development exactions under the takings clauses (or, as they are sometimes denominated, the just compensation clauses) of the United States and California Constitutions.
The CBIA maintained that the ordinance was invalid on its face on the ground that the City, in enacting the ordinance, failed to provide a sufficient evidentiary basis to support its policy. The ordinance failed to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City caused by or reasonably attributed to the development of new residential developments. CBIA argued that the conditions imposed by the City's inclusionary housing ordinance would be valid only if the City produced evidence demonstrating that the requirements were reasonably related to the adverse impact on the City's affordable housing problem that was caused by or attributable to the proposed new developments that are subject to the ordinance’s requirements, and that the materials relied on by the City in enacting the ordinance did not demonstrate such a relationship.
The Court disagreed with CBIA and dismissed the takings based argument. The Court opined, “[T]he conditions imposed by the San Jose ordinance at issue here do not require a developer to pay a monetary fee [which may have been a takings issue] but rather place a limit on the way a developer may use its property.” The Court further opined, “[T]he conditions are intended not only to mitigate the effect that the covered development projects will have on the City's affordable housing problem but also to serve the distinct, but nonetheless constitutionally legitimate, purposes of (1) increasing the number of affordable housing units in the City in recognition of the insufficient number of existing affordable housing units in relation to the City's current and future needs, and (2) assuring that new affordable housing units that are constructed are distributed throughout the City as part of mixed-income developments in order to obtain the benefits that flow from economically diverse communities and avoid the problems that have historically been associated with isolated low income housing.”
As a result of this opinion, municipalities in California have far greater latitude for imposing inclusionary zoning requirements by ordinance on residential developers, so long as its legislative bodies can show a “reasonable relationship to the public welfare” that has “a reasonable basis in fact . . . to support the legislative determination.”
Summary of San Jose's Inclusionary Zoning Policy
- Applies to all residential developments within the City that create 20 or more new, additional, or modified dwelling units
- 15 percent of the proposed on-site for-sale units in the development shall be made available at an affordable housing cost to households earning no more than 120 percent of the area median income for Santa Clara County adjusted for household size
- The requirement increases to 20 percent of the total units in the residential development if (1) units are provided off-site, or (2) developer opts for in-lieu fees for equivalent units
- Incentives include (1) density bonus, (2) reduction of parking spaces, (3) reduction in set-backs, and (4) financial subsidies and assistance from City in sale of affordable units
- A developer may seek a waiver from these requirements by showing "no reasonable relationship between the impact of a proposed residential development [and the ordinance]"
The San Jose inclusionary housing policy is further discussed on the City's web site at https://www.sanjoseca.gov/index.aspx?NID=1305.