The California Supreme Court has agreed to review the legality of a city’s inclusionary housing ordinance (IHO).

At issue is the IHO adopted by San Jose.  The IHO applies to new developments of 20 or more residential units and requires that 15% of the units be set aside for purchase at below-market rates by households who earn no more than 110% of the area median income.  The California Building Industry Association filed a lawsuit challenging the validity of this measure.

The Court of Appeal upheld the IHO.  The court reviewed the ordinance under a very deferential standard – whether the IHO bears a substantial and reasonable relationship to public welfare.  Under this standard, the IHO was easily justified as a measure addressing a well-documented shortage of affordable housing.

The Association tried to characterize the IHO as an exaction and argued that the city would have to justify this forced dedication under standards normally applied to takings cases, but the court did not agree.

The Supreme Court could easily have let this decision stand, or had it depublished if the Court did not want it used as a precedent.  By agreeing to review the case, the Court may be heading in the direction of classifying IHOs as “takings” from private developers for public purposes.  If so, cities adopting IHOs would have to have very strong justifications for them or pay compensation to the developers.

The case is California Building Industry Association v. City of San Jose, S1211742.  We will follow this one closely.

If you have any questions, please contact Mark Hudak at: (650) 342-9600 or mhudak@carr-mcclellan.com.