Inclusionary Housing Ordinance Withstands Facial Challenge In New California Court Of Appeal Decision; California Building Industry Association V. City Of San Jose

The California legislature has declared the availability of housing for every Californian to be a matter of "vital statewide importance." Thus, the legislature has charged local governments with facilitating the provision of housing for all economic segments of the community through the implementation of "housing elements" as part of the community's general plan. The components of those housing elements, including an assessment of housing needs for all income levels, the identification of adequate housing sites, and a program that assists in the development of such housing to meet the needs of low-income households.

San Jose's Inclusionary Housing Ordinance

To implement the state's inclusionary housing policy, the City of San Jose (the "City") passed in 2010 an Inclusionary Housing Ordinance ("IHO"). The IHO requires multi-unit residential developments including at least 20 units to set aside 15 percent of the units for purchase at a below-market rate to households earning no more than 110 percent of the area median income. Alternatively, the developer could comply with the IHO by paying an in-lieu fee not to exceed the difference between the price of a market rate and affordable housing unit or dedicating land.

Trial Court Proceedings

The California Building Industry Association ("CBIA") filed suit against the City on March 24, 2010, seeking declaratory and injunctive relief and a writ of mandate to set aside the IHO. CBIA alleged that the City had adopted the IHO

[W]ithout demonstrating any reasonable relationship between the requirements imposed by the [IHO] and any increased public needs for additional affordable housing caused by such new residential development or any reasonable basis for the allocation of the burdens and public costs of providing additional affordable housing to such new residential development subject to the [IHO], and without substantial evidence in the public record purporting to demonstrate the necessary reasonable relationships to justify the IHO. According to the CBIA, "cities seeking to establish inclusionary housing mandates such as the IHO must -- at least -- provide an evidentiary showing that the fees and exactions to be imposed on new development are 'reasonably related' and limited to the city's reasonable costs of addressing 'the deleterious public impacts' caused by the new development." CBIA's argument was based in large part upon the California Supreme Court decision in San Remo Hotel, L.P. v. City &amp...