Supreme Court Ruling a ‘Win’ for Affordable Housing, San Jose

The California Supreme Court decided Monday that local governments can require developers to supply a certain percentage of below-market-rate housing as a condition of building permits.

The landmark ruling ends a years-long legal battle for San Jose, where average rental prices went up 54 percent during the last five years, and it will enable other cities with housing shortfalls to demand more of developers as housing costs outpace wage growth. It also keeps intact existing inclusionary housing rules in some 170 California cities.

“This is a huge win for our community,” said Law Foundation of Silicon Valley attorney Melissa Morris, who argued the case at the Supreme Court. “The ordinance will help to address San José’s incredible need for affordable housing, and it will help to ensure that our community is more diverse and inclusive as it develops.”

San Jose passed an inclusionary housing ordinance in 2010, which required developers of market-rate projects with 20 or more housing units to set aside 15 percent of homes for low-income buyers or pay an in-lieu fee. But before the ordinance went into effect in 2013, the California Building Industry Association challenged it in court, arguing that the city didn't prove that new market-rate homes created a concurrent need for affordable units.

Monday's decision—which can be read here—firmly insists otherwise, noting that the dearth of affordable housing has reached "epic proportions."

“There is no reason why a municipality may not ... [require] 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,” Chief Justice Tani Cantil-Sakauye wrote in the unanimous ruling.

A group of nonprofit affordable housing advocates—namely The Law Foundation of Silicon Valley, Public Interest Law Project and the law firm of Wilson Sonsini Goodrich & Rosati—intervened in the case to support San Jose's ordinance.

Mayor Sam Liccardo celebrated the legal victory, saying it allows cities and counties to fulfill their responsibilities in meeting federal affordable housing targets.

"The California Supreme Court has vindicated San José's bold decision to become the largest city in the nation with an inclusionary housing policy, and it couldn't have come at a time of greater need for affordable housing,” Liccardo said in a statement. “With the crisis we face in our housing markets, I only regret that it required a Supreme Court ruling to uphold the ordinance, because we could have had the benefit of several years of implementation of this important tool."

While the battle over inclusionary housing fees played out in court, San Jose's City Council passed a housing impact fee last fall. The impact fee, which is expected to generate up to $30 million a year for affordable housing, starts at $17 per net rentable square foot and applies to developments of a few or more units.

Jennifer Wadsworth is the former news editor for San Jose Inside and Metro Silicon Valley. Follow her on Twitter at @jennwadsworth.

14 Comments

  1. > San Jose passed an inclusionary housing ordinance in 2010, which required developers of market-rate projects with 20 or more housing units to set aside 15 percent of homes for low-income buyers or pay an in-lieu fee.

    Translation: It’s just a tax on market rate housing.

    Quiz for the economic deep thinkers on the city council:

    Q1. In a city with a shortage of market rate housing, does putting a tax on market rate housing INCREASE or DECREASE the supply of market rate housing.

    Q2. If a taxpayer got run over by a city vehicle in a cross walk in front of city hall, would you:
    A. Call an ambulance, or
    B. Check the taxpayer’s pockets for cash, and use whatever you found to buy whiskey for the City Council liquor cabinet?

  2. Oh great! SJ, which already has way more than its proportionate share (a phrase dear to the hearts of Cordell and Jayadev) of below market rate (BMR) housing, has been given the go-ahead to tip the balance even further against finding enough tax money for more cops and to fix it’s third world roads. If I recall correctly, there is no property tax on BMR units. And who does Sam think pays the extra $17/rentable square foot on the non BMR units? That would be the middle class folks who can afford it. So, by building more BMR units, the cost of market rate housing rises by AT LEAST $17/square foot. The owner has to get that money from those who rent the market rate units, which results in an increase in the average rents that everyone seems to be decrying. And Mayor Liccardo thinks this is a good thing? What a waste of a costly education at Bellarmine, Georgetown, and Harvard!

  3. Well, now another layer of government red tape and taxes for developers to factor into their plans to build or not to build. If I was a developer and I had to choose to build in CA which is running out water, in fact is in a water crisis, over taxed, over regulated and overrun with illegals, I think I’d find another state with less baggage. There are plenty of other sunbelt states to build new homes for retireing baby boomers who will be moving from their cold northern homes enmasse starting next year (my sister is one of them) and the states with the least amount of government interference are going to be the most profitable. California just shot itself in the foot again, as it does over and over again and people are moving out in droves, if you can transfer with your company its about a automatic 17% raise if you go to a state with no income tax like Florida. Nothing the government has ever done when it comes to affordable housing has worked, now they will have developers leaving the state and taking the jobs with them. What a bunch of idiots.

  4. Head line should be C.C.C.P. California Commey Court Punishing developers.

    Well I don’t know about you guys but I’m going right out a buy a plot of land that I can spend lots of money on, and then lose my butt off renting it out to a bunch of people that will likely trash the place and sue me for it.

    Mayor Sam do you really want to turn San Jose into Detroit?

  5. — “There is no reason why a municipality may not … [require] 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,” Chief Justice Tani Cantil-Sakauye wrote in the unanimous ruling. —

    If this allegedly learned purveyor of wisdom can find no reason to restrain the government from mandating price discrimination on one basic human need, one would have to assume the Chief Justice would be likewise supportive of the city council ordering grocers, physicians, dentists, medical marijuana suppliers, and clothiers to likewise charge for the goods and services they are able to provide (by way of their own risk and effort) according to each customer’s need and ability to pay (or, as Marx succinctly stated it: From each according to his ability to each according to his need).

    Anyone want to take a shot at quantifying what the Chief Justice meant by the terms “price that is affordable” or “moderate or low income?”

    • Obviously fodder for more lawyers. I wonder if they would like to take a crack at affordable attorney fees while they are redistributing the wealth. Don’t hold your breath!

  6. To all the whiners here, let me call whine-1-1 and have them send a whambulance.

  7. A “win” for affordable housing??? Whenever government is involved in a program, for every so-called “winner” who benefits from the program there are AT LEAST two actual “losers” who get stuck with the tab.

  8. Here’s a classic. The venerable Houghton-Donner house was built over 120 years by early, rugged San Jose pioneers (they survived the Donner Party after all). the house became vacant and was subsequently partially burned by vagrants. The house was then torn down to make way for Donner Towers built by Mid Pen housing for 80 units of low income housing. Now wouldn’t it be ironic if one of those units is given to the vagrant who burned down the original house? And he sure isn’t going to pay no stinking taxes you can be sure. But very likely will vote.

  9. I’m no loy-yah, but t looks to me like Liccardo and his gang of affordable housing communists might be on a collision course with the U.S. Supreme Court:

    http://www.npr.org/sections/itsallpolitics/2015/06/22/416538131/california-raisin-growers-get-their-day-in-the-sun

    If the Supremes are (after 11 years of litigation) finally going to strike down market rigging of raisin prices, it seems to me that they can do the same to market rigging of housing prices.

    The Supremes apparently didn’t see a compelling justification for “affordable raisin” prices.

    “The language of the opinion was far-reaching, declaring for the first time that there is no difference between real property — that is, land and buildings — and other personal property. Raisins are private property and “the fruit of the growers’ labor,” not “public things subject to the absolute control of the state,” said Roberts.”