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.
Matthew M. Gorman is a partner at the law firm of Alvarez-Glasman & Colvin, which serves as legal counsel to a number of cities in California. For more, please visit www.agclawfirm.com, or contact Mr. Gorman at mgorman@agclawfirm.com.
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