In a decision likely to have wide-ranging impacts on the building industry, the California Supreme Court has upheld the City of San Jose’s inclusionary housing ordinance and bolstered California cities’ ability to impose affordable housing requirements without triggering a constitutional “takings” analysis. The Court’s long-anticipated opinion in California Building Industry Association v. City of San Jose will lay the groundwork for cities to implement new and expanded affordable housing requirements, without having to evaluate these requirements as exactions subject to heightened scrutiny—rather, these requirements can be upheld as long as they have a “reasonable relationship” to a legitimate governmental purpose.

SAN JOSE’S INCLUSIONARY HOUSING ORDINANCE -

In 2010, the City of San Jose adopted an inclusionary housing ordinance, which requires all new for-sale residential development projects of 20 or more units to set aside 15 percent of the units for purchase at below market rates, or to contribute to the affordable housing stock through specified alternatives—payment of an in-lieu fee or dedication of land equal in value to the in-lieu fee, construction of off-site affordable units, or acquisition and rehabilitation of a comparable number of affordable units.2 The San Jose ordinance provides a disincentive to utilize an alternative by increasing the affordability requirement to the equivalent of 20 percent of the units in the residential development project.