From the Field: California Supreme Court Upholds Inclusionary Housing

On June 15, the Supreme Court of California unanimously upheld inclusionary zoning laws by ruling in favor of the City of San Jose’s ordinance requiring affordable homeownership development. The ruling affirms the appellate court’s opinion that inclusionary zoning does not impose “exactions” upon developers’ property in a manner that would violate either the federal or California takings clause. The Non-Profit Housing Association of Northern California (NPH), an NLIHC State Coalition Partner, was an intervener and appellant in the case. In addition, its publication, “Affordable by Choice: Trends in California Inclusionary Housing Programs,” was cited in the Court’s opinion. The Public Interest Law Project (PILP), an NLIHC member, represented nonprofit housing organizations throughout the litigation, along with the Law Foundation of Silicon Valley and pro bono firm Wilson Sonsini.

The California Supreme Court’s ruling resolves the constitutionality of an ordinance established five years ago by the City of San Jose. The ordinance requires all new residential developments of 20 or more owner-occupied units to sell 15% of the homes below market price. Developers can opt out of the 15% requirement by dedicating land elsewhere or by paying “in-lieu fees” to the city. The goal is to encourage income-integrated communities and expand opportunities for low income households. This approach to development is typically referred to as inclusionary zoning or inclusionary housing, and it is a common tool in California. More than 170 jurisdictions in California have some type of inclusionary zoning ordinance, and these policies have led to the production of approximately 30,000 new affordable homes.

When San Jose’s inclusionary housing ordinance passed in 2010, the California Building Industry Association (CBIA) sued the city alleging the ordinance was an unconstitutional “exaction,” effectively taking of property without adequate justification. CBIA won at trial court before losing on appeal in 2013. The CBIA requested that the California Supreme Court review the appellate decision.

The Supreme Court upheld the appeals court decision to overturn the trial court’s invalidation of the San Jose ordinance. It has stated that the conditions of the ordinance do not constitute exactions and that enforcing these limits to address a growing housing problem is “constitutionally legitimate.” The ruling cited the severe scarcity of affordable housing in California in its decision.

It is not clear if CBIA will appeal this decision to the Supreme Court of the United States.

While this is a very positive ruling for inclusionary zoning in California, it is important to note that it only applies to ordinances on for-sale housing developments. Since 2009, California municipalities have suspended enforcement of their inclusionary zoning ordinances for rental housing development based on the Appellate Court ruling in Palmer/Sixth Street Properties v. City of Los Angeles. That ruling found inclusionary zoning ordinances for rental housing to be an illegal form of rent control. Advocates will now use this recent California Supreme Court affirmation of both the constitutionality of inclusionary zoning and the authority of local jurisdictions to adopt such ordinances through their “police power” to provide clarity and momentum for a legislative fix that would overturn Palmer and allow these ordinances to be enforced on rental housing as well. A previous legislative fix to the Palmer decision was passed by the California legislature in 2013, but was vetoed by Governor Jerry Brown (see Memo, 1/10/2014)

"We are heartened by the Court's opinion,” said Michael Lane, Policy Director at NPH. “Inclusionary or mixed-income housing ordinances are a critical tool for local jurisdictions to address the lack of affordable housing available to lower-income households as well as to comply with state and federal Fair Housing laws. These ordinances are especially important to ensure that we maintain and create integrated and socio-economic and ethnically diverse communities."

For more information, contact Michael Lane, Policy Director, Non-Profit Housing Association of Northern California, at [email protected] or Michael Rawson, Director, Public Interest Law Project, at [email protected].

The California Supreme Court decision in California Building Industry Association v. City of San Jose is at

Additional information about inclusionary housing in general is on page 6-6 of NLIHC’s 2015 Advocates’ Guide,