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Inclusionary Housing Ordinance Withstands Property Rights Suit

A property owner challenging the constitutionality of an inclusionary housing ordinance may not employ the nexus and rough proportionality tests from the Nollan and Dolan cases, the Second District Court of Appeal has ruled.

In litigation stemming from Santa Monica's inclusionary ordinance, the appellate court made clear that the Nollan/Dolan tests requiring that there be an essential nexus between a development's impact and an exaction, and requiring the exaction to be roughly proportional to the impact, apply only when a property owner is contesting a government decision on a specific project.

"Both the United States and California Supreme Courts have explained the two-part Nollan/Dolan test developed for use in land exaction takings litigation applies only in the case of individual adjudicative permit approval decisions; not to generally applicable legislative … decisions," Presiding Justice Paul Turner wrote for the unanimous three-judge panel.

The court also ruled that the City of Santa Monica did not have to seek state Department of Housing and Community Development review of its inclusionary ordinance because it was not part of the housing element.

A 1990 initiative, Proposition R, modified the Santa Monica city charter to require 30% of newly constructed multi-family housing to be permanently affordable to low- and moderate-income households. Although the city adopted ordinances to implement the initiative, city officials found that actual production of affordable units fell well short of the 30% mandate. In response, the city in June 2006 adopted Ordinance No. 2191 requiring developers of at least four multi-family units to construct affordable units on-site or at another location. The ordinance eliminated the option of a developer paying an in-lieu mitigation fee.

Aided by property rights attorneys at the Pacific Legal Foundation, a group called Action Apartment Association sued the city. The group argued that Ordinance No. 2191 violated the takings clauses of the Fifth Amendment and the California constitution, violated due process provisions in both constitutions and conflicted with various sections of the Government Code. A Los Angeles County Superior Court dismissed the claims, and the Second District affirmed the lower court ruling.

The two issues on appeal were whether the city's ordinance amounts to an unconstitutional taking, and whether the city had to receive state department of Housing and Community Development (HCD) approval of the ordinance.

Action Apartment Association argued that there was no connection between the construction of market-rate units and the need for subsidized housing — in violation of the Nollan essential nexus test. The group also argued that the requirement to build affordable units was not roughly proportional to the impact of constructing new or replacement market-rate units — in violation of the Dolan rough proportionality test. The organization argued that the U.S. Supreme Court ruling in Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005), brought the Nollan and Dolan inquiries into facial challenges of land use regulations.

The court disagreed. The Lingle decision overturned the Agins line of cases, which held that a regulation that substantially advances a legitimate state interest cannot be a taking. The Supreme Court ruled that the substantially advances test is no longer a ‘"freestanding" test for a regulatory taking, Turner explained.

"The Supreme Court did not purport to hold the two-pronged Nollan/Dolan test applied to a facial challenge such as that asserted by plaintiff," Turner wrote. "Moreover, the Supreme Court in Lingle emphasized it was not disturbing any of its prior takings jurisprudence."

"In San Remo Hotel v. City and County of San Francisco (27 Cal.4th 643, 670), our Supreme Court explained: ‘The sine qua non for application of Nollan/Dolan scrutiny is thus the discretionary deployment of the police power in the imposition of land-use conditions in individual cases,'" Turner wrote.

It took the court only two paragraphs to dismiss the contention that the city had to submit the ordinance to HCD. "Only housing elements or amendments thereto must be submitted to the Department of Housing and Community Development for review," the court concluded. "The city's affordable housing ordinance is not a housing element."

The Case:
Action Apartment Association v. City of Santa Monica, No. B201176, 08 C.D.O.S. 11585, 2008 DJDAR 13789. Filed August 28, 2008.
The Lawyers:
For the association: James Burling, Pacific Legal Foundation, (916) 419-7111.
For the city: Alan Seltzer, city attorney's office, (310) 458-8691.

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