The planners may have all gone home from Squaw Valley, but the planning talk has continued apace in San Jose, where the League of California Cities annual conference started on Wednesday. Most of the talk, not surprisingly, is about money – specifically, how Sacramento keeps taking it – but there's also plenty of policy talk, especially about affordable housing.
One of the big topics – especially among city attorneys – is affordable housing. That's largely because of two recent appellate court rulings that are reshaping the world of inclusionary housing and housing fees – Palmer v. City of Los Angeles, in which the Second District ruled that inclusionary housing requirements can't be applied to rental apartments, and BIA v. City of Patterson, in which the Fifth District rejected the city's methodology for an in-lieu fee.
A third of the cities in California have "inclusionary" requirements, which force homebuilders to set aside a certain percentage of their units for low/mod housing or else pay a fee of more or less equivalent value. Inclusionary requirements are increasingly popular – and increasingly a target for the builders. The issue that both these cases bring up, according to Goldman & Lipfarb's Barbara Kautz, is what kind of an action an inclusionary housing ordinance really is.
Kautz, a former community development director of San Mateo, suggested that in legal terms an inclusionary housing ordinance could be considered any one of the following three types of actions:
1. A land use control, like zoning.
2. An exaction, subject to rules under such precedents as Nollan, Dolan, and Ehrlich.
3. Economic regulation, similar to price controls and rent control.
It's pretty clear that most planners would prefer that inclusionary housing be considered just another form of land use control – a necessary regulation to protect health, safety, and welfare. Unfortunately, Kautz said, the only place where the courts have viewed inclusionary housing as straightforward land use controls is in New Jersey, where the Mount Laurel cases have established that line of reasoning.
Inclusionary housing related to rental units is getting tripped up by laws related to economic regulation, especially rent control. That's what happened in the Palmer case, where the court ruled that Los Angeles's requirement that central city apartment developers set aside some rental units for affordable housing was a violation of the state's Costa-Hawkins Act, which limits local governments' ability to maintain rent control. The law says landlords have the ability to set rental prices when they put units on the market, and then again when apartments turn over. Only when an apartment is occupied may rents be controlled. The court said the inclusionary housing ordinance violated the landlord's right to set rents at the outset.
Kautz seemed to suggest that this leaves California cities little choice but to treat inclusionary housing as an exaction – as Patterson attempted to do, but failed because the city's methodology left a lot to be desired. (In the Patterson case, the city simply took the total subsidy required to provide the low/mod units under the Regional Housing Needs Assessment and divided it by the remaining residential buildout to come up with a per-unit fee.) This would appear to suggest more nexus studies, this time for inclusionary housing.
(In a separate presentation on the same panel, Alan Selzer, chief deputy city attorney in Santa Monica, made an interesting point about inclusionary housing fees. Updating the city attorneys on the appellate court ruling in Action Apartment Association v. City of Santa Monica, which held that the Nollan/Dolan test can't be applied to inclusionary housing ordinances, he noted that there's a big difference between impact fees, which require a nexus study, and in-lieu fees, which simply provide a developer with the option of "monetizing" an on-site requirement such as affordale housing.)
However, as Kautz pointed out, it may be difficult to prove that construction of market-rate housing has a big impact on the supply of low/mod housing – though economic consultants will certainly be more than willing to try. Indeed, this has been the building industry's big argument all along – that the need for low/mod housing is created by a wide variety of circumstances, including job creation and non-residential development, and the burden should not be placed entirely on homebuilders. From the point of view of affordable housing advocates, support for inclusionary housing has not always been based on technical analysis but on practical reality. Inclusionary requirements are a way to make sure affordable housing actually gets built.
More litigation to come, for sure. But in the meantime, bring on the nexus studies.
– Bill Fulton
