Housing developers in San Francisco and across the state appear to have won a major victory in the battle over whether they must provide affordable housing as part of new projects.
Late last month, the California Supreme Court declined to review and therefore let stand a lower court decision precluding the city of Los Angeles from enforcing affordable housing rules on a new apartment development.
The ruling in the case, Palmer/Sixth Street Properties vs. City of Los Angeles, appears to mean that builders in California would prevail in challenges to local rules mandating that a percentage of units in new apartment buildings be rented at rates affordable to residents earning below the area median income.
It is unclear whether the court ruling also might apply to new condominium projects. It does not apply to developments that have received government support, such as grant funding.
Since 1992, San Francisco has created affordable housing laws to address the city's chronic housing shortage and high housing costs.
In 2006, the city revised the rules, requiring developers to sell or rent 15 to 20 percent of new housing at affordable levels. Developers also can choose to pay a fee in lieu of building affordable housing.
Approximately 170 jurisdictions in California have some form of affordable housing laws, also known as "inclusionary" housing ordinances.
The definition of affordability varies depending on the housing costs and median incomes of a given area. San Francisco's area median income for a family of three is $77,750 per year.
Depending on the size and type of a new development, the city requires builders to provide housing at different percentages of the median income.
Builders in San Francisco have long complained that the city's affordability requirements make many projects impossible to build because they cut so deeply into the bottom line.
"This is a big deal," said San Francisco developer Oz Erickson. "It appears that as far as rental projects go, it is illegal for the city to require affordable housing."
Erickson said he did not know of a developer that had challenged San Francisco's laws, but the poor economy has meant that few proposed projects are moving forward.
"In the short term, there is nothing under construction, so it won't have an immediate impact, but in a normal market, it will be interesting to see if someone challenges the rules," Erickson said.
The San Francisco City Attorney's Office said it was analyzing the implications of the court ruling.
"We have been examining the case and are working with city departments on the effect of the case on the city's inclusionary housing program," said Deputy City Attorney Kate Stacy.
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