Today, the California Supreme Court unanimously upheld the City of San Jose’s Inclusionary Housing Ordinance, rejecting a facial constitutional challenge brought in California Building Industry Association (CBIA) v. City of San Jose (Affordable Housing Network of Santa Clara County et al.), S212072. The Court determined that, contrary to CBIA’s position, conditions upon new development contained in San Jose’s Inclusionary Housing Ordinance did not need to be justified by the more stringent constitutional standard that would be applicable under the takings clauses of the federal or state Constitution, and instead passed muster under the more lenient standard that “such regulations must be reasonably related to a constitutionally permissible public purpose.”

In reaching its conclusion, the Court agreed with the City that the Ordinance’s 15 percent affordable housing set-aside did not in fact deprive developers of a legally identifiable property interest. (Decision at pp. 31-32). Instead, writing for the Court, Chief Justice Cantil-Sakauye compared the Ordinance to an ordinary land use regulation akin to a price control:

“[I]t is well established that price controls are a constitutionally permissible form of regulation with regard to real property as well as to other types of property or services. . .  Accordingly, just as it would be permissible for a municipality to attempt to increase the amount of affordable housing in the community and to promote economically diverse developments by requiring all new residential developments to include a specified percentage of studio, one-bedroom, or small-square-footage units, there is no reason why a municipality may not alternatively attempt to achieve those same objectives by requiring new developments to set aside a percentage of its proposed units for sale at a price that is affordable to moderate or low income households. So long as the price controls are not confiscatory and do not constitute a regulatory taking, there is no reason such price controls should not be evaluated under the same standard applicable to the public art requirement in Ehrlich and other land use measures that are not subject to the Nollan/Dolan test, namely, that such regulations must be reasonably related to a constitutionally permissible public purpose.” (Decision at p. 54)

Furthermore, the Court rejected CBIA’s position that the heightened standard of judicial review was appropriate based upon the Court’s previous decision San Remo Hotel L.P. v. City & County of San Francisco, in which the Court upheld a local development mitigation fee against a constitutional takings claim. The Court emphasized that, unlike the development mitigation fee at issue in San Remo that sought to mitigate the impact of new development on affordable housing, San Jose’s Inclusionary Housing Ordinance served the additional “constitutionally legitimate purposes” of increasing affordable housing supply and assuring the distribution of affordable housing units as part of mixed-income developments citywide to promote economic diversity within the City. (Decision at p. 6). Accordingly, the Court affirmed the determination of the Court of Appeal that the less stringent “legitimate public purpose” standard generally applicable on judicial review of legislative land use regulations applies to the Ordinance.

Justice Werdegar filed an additional concurring opinion to discuss further the bounds of San Remo’s “reasonable relationship” test, and Justice Chin likewise filed an additional concurring opinion to distinguish the Ordinance from a true “subsidized” housing requirement. Latham prepared a detailed summary of the issues, lower court decisions, and Supreme Court oral argument for the case earlier this year in the Clean Energy Law Report here. Plaintiff CBIA had argued successfully in the Superior Court that the City had failed to demonstrate a nexus between the Ordinance and the deleterious public impacts of new residential development, that developers should not be required to pay for the costs of subsidizing affordable housing, and that the City’s justification for shifting that burden to the builders was not adequate. The Court of Appeal reversed, however, finding that the Superior Court had erred by applying an overly rigorous standard of judicial review and holding that the Ordinance should have been analyzed as an exercise of the City’s police power under a more lenient “legitimate public interest” standard.