Affordable housing can be one of the most stressful issues that city
managers and their staff must face: developers and builders demand
freedom from affordability constraints, while housing advocates demand
expanded housing opportunities.
These stresses are
exacerbated by the current economic downturn, which has made the need
for affordability programs even more urgent, but those very programs
are challenged as unrealistic barriers to development and economic
growth.
Those who face these dilemmas should take note of several
recently-decided court opinions which address the legality of
affordable housing requirements. These cases have largely rejected
affordable housing restrictions, and make it increasingly difficult for
public agencies to justify affordable housing requirements.
One of the most significant cases is Palmer/Sixth Street Properties, LP v. City of Los Angeles,
in which the City of Los Angeles imposed affordable housing
requirements on a developer who was constructing a rental housing
project.
The court held that the City’s affordable housing requirements conflicted with the Costa-Hawkins Rental Housing Act,
which gives developers of rental housing the absolute right to set the
initial rental levels of their projects (subject to certain
exceptions).
The court held that the affordable housing
requirements mandated project’s rental rates, and therefore conflicted
with the Act. This ruling has broad implications for new rental
housing, as it substantially restricts cities in imposing rental limits
on those projects.
Another important case is Building Industry Ass’n of Central Cal. v. City of Patterson.
In this case, the court invalidated an affordable housing in lieu fee
($20,946/unit) because the City failed to articulate how the fee amount
related to the City’s affordable housing needs.
The holding
in this case is applicable any time a city seeks to impose an in lieu
fee which fails to satisfy the “reasonable relationship” test, and
should therefore be considered any time a city imposes or increases its
affordable housing in lieu fees.
A case which may be similarly problematic for cities is Weisblat v. City of San Diego,
in which the court invalidated a City levy that was charged to
landlords to recover costs in administering the City’s rental unit
business tax.
The court held that the levy failed to comply
with Prop 218 because it was the type of charge which requires voter
approval and had not been so approved. This case will make it more
difficult for cities to impose cost-recovery measures in their
affordable housing programs.
Finally, in the most recent case, Guggenheim v. City of Goleta,
the court held that the City’s mobile home rent control provisions
amounted to a “regulatory taking,” entitling the mobile home park
owners to just compensation.
The City’s rent control
ordinance limited rent increases to 75 percent of the increase in local
CPI per year, but housing costs in the City had increased by 225
percent.
Applying the factors provided in the U.S. Supreme Court’s precedent-setting “Penn Central” case,
the court held that the rent control restriction was a substantial
economic hardship on the owners and, while it did not strongly
interfere with their investment backed expectations, it nevertheless
forced them to bear the burden of supplying affordable housing rather
than placing this burden on the public.
Thus, the court held
that the mobile home rent control ordinance was a regulatory taking
requiring the City to pay the owners just compensation.
As
these cases illustrate, affordable housing remains hotly contested.
City managers and their staff should take heed of these cases when
implementing affordable housing programs, especially when establishing
new affordability restrictions.
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