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California Supreme Court Upholds City Inclusionary Zoning Requirements Against Constitutional Attacks

iStock_000009179828_LargeIn a long-awaited decision, the California Supreme Court upheld an “inclusionary zoning” ordinance by the City of San Jose that provided for construction of low and moderate-income housing by requiring a developer of 20 or more units to set aside 15% of the units for the private purchase by those with low- or moderate-incomes. The California legislature had authorized, but did not require, any particular method to provide such housing.

In a number of recent decisions, the United States Supreme Court has used the “takings” and “just compensation” clauses of the Fifth Amendment to limit the ability of state and local governments to impose conditions on individual developments by way of exactions of land, money, or public works. Plaintiff California Building Industry Association (“CBIA”), representing the homebuilder community, challenged the San Jose ordinance, asserting that these cases required an “essential nexus” between a condition and the alleviation of a problem created by a development, and that the condition be “roughly proportional” to that problem. CBIA asserted there was no study or report to justify the 15% figure or the other alternatives required by the City to meet its affordable housing shortage. While San Jose asserted that new market rate housing raised the price of affordable housing and often led to pricing out those who served market rate housing from the market, the City did not advance any evidence for that view. But the City did note that the inclusionary zoning ordinance provided incentives to developers to provide for affordable housing, such as density bonuses, subsidies, and reduction of parking requirements to alleviate the burden of providing for affordable housing.

The important issue before the Court was the test to be used to evaluate regulations that restrict the use of property - the inclusionary zoning requirements. If the Court used the essential nexus and rough proportionality analysis, it was likely the City’s ordinance would be found to violate the takings and just compensation clauses. The City pointed out that there was no exaction requiring the conveyance of land, public works or money to a public agency, and characterized the ordinance as a “use restriction” that was evaluated under a deferential “reasonable relation” standard.  Thus, not every land use requirement must be based on a one-to-one ratio to cure an identified problem or even be related to that problem. If the local government had enacted price controls or required that new housing include an accessory unit (such as a “granny flat”) or proposed a tax to promote public art, or otherwise limited impacts, there would be no claim for takings that would trigger application of the “just compensation” clauses. Additionally even if a taking claim could be made, because there were mitigating measures (subsidies, density bonuses and the like), a claimant must make an application and bring a takings claim only after the development process were complete. Moreover, the ordinance was uniformly applied and had definable standards, so the danger of ad hoc application was greatly lessened. The court agreed with the City concluding:

As noted at the outset of this opinion, for many decades California statutes and judicial decisions have recognized the critical need for more affordable housing in this state. Over the years, a variety of means have been advanced and undertaken to address this challenging need. We emphasize that the legal question before our court in this case is not the wisdom or efficacy of the particular tool or method that the City of San Jose has adopted, but simply whether, as the Court of Appeal held, the San Jose ordinance is subject to the ordinary standard of judicial review to which legislative land use regulations have traditionally been subjected.

The U.S. Supreme Court will likely be asked to review the constitutional analysis used by the California Supreme Court. The distinction between the taking of a property interest, whether it be land or money, does appear to be of a qualitatively different order than that of a use restriction or requirement to provide for certain construction of a variety of housing types, for example. Although Oregon was unable to muster the gumption to allow local governments to require mandatory affordable housing, this case could significantly affect land use planning efforts nationwide as the vehicle for evaluating state and local government compliance with federal housing policies.

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