Court: Builders Can be Required to Provide Affordable Housing

Reprint of Article from Orange County Register on June 16, 2015

SAN FRANCISCO

The state Supreme Court on Monday let California cities keep their authority to require builders to include a share of affordable housing in new residential construction projects.

The decision keeps intact affordable housing requirements approved in more than 170 California cities – including 10 in Orange County, according to a 2013 tally.

The court ruled on a legal battle pitting the city of San Jose against the California Building Industry Association trade group.

A 2010 law in San Jose requires new residential developments in the city to set aside 15 percent of their units for sale at below-market rates.

The California Supreme Court sided with San Jose, saying the city's requirement does not require the developer to dedicate any portion of its property to the public or pay any money to the public.

Rather, the law restricts the way the developer may use the property, so it falls in cities' “general broad discretion to regulate the use of real property to serve the legitimate interests of the general public and the community at large,” Chief Justice Tani Cantil-Sakauye wrote.

In this case, those interests were increasing the amount of affordable housing in the city and locating such housing in economically diverse developments, the chief justice said.

The decision is “sending shock waves throughout our industry,” said Mike Balasamo, chief executive of the Building Industry Association of Southern California's Orange County chapter. “It opens the door for more public agencies to target homebuilders and new homebuyers to fund affordable housing in the state.”

These so-called inclusionary zoning laws upheld by the state's highest court are routinely criticized by industry officials as either limiting the supply of new residences created – or raising the prices of those built. That's a result of build ers' reduced profitability after paying the cost of the below-market housing created.

“We're already in a state of massive undersupply of housing,” said housing analyst Mark Boud of Irvine. “It will only get worse as we continue to restrict supply. The need will only increase.”

Affordable housing advocates say that if the build ers' argument had won over the Supreme Court, fewer affordable residences would be built.

“It basically would derail those laws. And if they do come back, they are going to come back possibly less effective,” said Tim Iglesias, a housing law expert at the University of San Francisco School of Law who wrote a brief in the case in favor of the city.

Register columnist Jonathan Lansner contributed to this report.