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Inclusionary Housing Requirements: Still Possible?

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Inclusionary Housing Requirements: Still Possible? Inclusionary Housing Requirements: Still Possible? Friday, September 5, 2014 General Session; 10:15 a.m. – 12:00 p.m. Andrew L. Faber, Berliner Cohen DISCLAIMER: This paper is not offered as or intended to be legal advice. Readers and conference attendees should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. Copyright © 2014, League of California Cities®. All rights reserved. This paper, or parts thereof, may not be reproduced in any form without express written permission from the League of California Cities®. For further information, contact the League of California Cities at 1400 K Street, 4th Floor, Sacramento, CA 95814. Telephone: (916) 658-8200. 2014 League of California Cities Annual Conference – City Attorneys’ Track Los Angeles Convention Center, Los Angeles Notes:______________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ 2014 League of California Cities Annual Conference – City Attorneys’ Track Los Angeles Convention Center, Los Angeles LEAGUE OF CALIFORNIA CITIES CITY ATTORNEYS’ DEPARTMENT 2014 Annual Conference INCLUSIONARY HOUSING REQUIREMENTS: STILL POSSIBLE? By Andrew L. Faber, Esq. Berliner Cohen 10 Almaden Boulevard, 11th Floor San Jose, CA 95113 (408) 286-5800 [email protected] www.berliner.com September 5, 2014 Los Angeles Convention Center Los Angeles, CA Inclusionary Housing Requirements: Still Possible? By Andrew L. Faber, Esq. Why this paper? A few years ago, it seemed that inclusionary housing was a concept that was straightforward in execution and pretty defensible. It had been the subject of a League City Attorneys paper every few years. About one-third of the cities in the State used some form of it to help produce affordable housing. But several events have altered the legal landscape: • The demise of Redevelopment Agencies in 2012. • The redefining of “exactions” by the California Supreme Court in Sterling Park. • The granting of review by the California Supreme Court in the San Jose inclusionary housing case. • The possible ramifications of the decision of the U.S. Supreme Court in the 2013 Koontz case. So in light of these developments another look at this topic is warranted. Has the need for affordable housing increased in recent years? Yes it has. Many cities recognize the need for affordable housing, and, of course, there are many features of State law that mandate that awareness and recognition. For example the Housing Element Law requires that a city’s housing element identify sufficient sites that have appropriate zoning and are free from other physical and regulatory obstacles to be made available for affordable housing. See Govt. Code Section 65583.2(h). As another example, cities are required to give density bonuses and make other accommodations to projects that include appropriate affordable components. See Govt. Code Section 65915; Latinos Unidos Del Valle De Napa y Solano v. County of Napa (2013) 217 Cal.App.4th 1160 (density bonus is mandatory even if the project only includes affordable housing “involuntarily” to comply with a local ordinance). And in the good old days of redevelopment, 15% of housing in redevelopment areas had to be affordable, and the Redevelopment Agencies had to devote 20% of their tax increment revenue to affordable housing. The need has increased recently, particularly in parts of the State such as the San Francisco Bay Area, due to a confluence of several factors. First, the demise of redevelopment and a reduction in federal programs have led to a serious drop in funding available to affordable housing. For example, in Santa Clara County, it has been estimated that total funding available for affordable housing in 2008 (the last “normal” year) was approximately $126 million. In 2013, the corresponding number was $47 million. Assuming an average subsidy of $150k per affordable unit, that would allow 1 the construction of a little over 300 affordable units per year. That number, in turn, is less than 20 percent of the Regional Housing Needs Assessment requirement (the RHNA number) for the current Housing Element cycle of 2014 to 2022, just for extremely low- and low-income housing. The second factor has been the booming local economy. That has lowered the vacancy rate on rental housing, created a white hot real estate market for medium- to high- density multi-family housing, but, of course, also raised rents. According to economic surveys we have seen recently, rents in new construction in various Bay Area cities seem to average about $3,000 per month (and more like $3,600 in some cities). The average household income necessary to afford such rents is in the vicinity of one hundred thousand dollars per year, well above that of the average worker filling a new job in the retail sector generated by the new residents. Even opponents of inclusionary housing or affordable housing fees concede the need for affordable housing. Generally speaking, they just don’t think developers or landowners should have to foot the bill. The major opponents are builders’ groups (e.g., California Building Industry Association) and the Pacific Legal Foundation, a property rights advocate. How does all this relate to “inclusionary housing”? What is called inclusionary housing is one particular way that some cities have tried to accommodate the need for affordable housing. The basic concept is to require developers to include affordable units in their projects. Typically, the affordable units must be interspersed among the market rate units, and must be of the same general design and appearance, though it is not uncommon to allow some downgrading of interior appointments in the interest of saving on construction costs. There is a lively debate among affordable housing advocates over the desirability of using inclusionary housing. Compare, e.g., Kautz, “In Defense of Inclusionary Zoning: Successfully Creating Affordable Housing,” 36 U.S.F. L. Rev. 971 (2002) with Floryan, “Cracking the Foundation: Highlighting and Criticizing the Shortcomings of Mandatory Inclusionary Zoning Practices,” 37 Pepp. L. Rev. 1039 (2010). Generally speaking, dispersing affordable units among market rate units is seen as egalitarian and less stigmatizing, and is an approach that furthers integration of lower income households into the main fabric of a city. It also would tend to reduce neighborhood stratification of school-age children by economic class, and thus would further the goal of non-discriminatory public education. To the extent that economic status is correlated with race or ethnicity, it would also tend to reduce racial or ethnic geographic concentration. On the other hand, an alternative of collecting an in lieu fee that would be applied to subsidize affordable housing projects also has supporters. For one thing, it should be a more efficient method, producing more affordable housing for the same investment. 2 One reason is that a 100% affordable project can be built to a more economical standard. In addition, many developers would prefer to simply pay a fee, which they can ascertain and include in project budgets without the further complications inherent in marketing and administering the affordable units. Didn’t the Napa case uphold inclusionary housing requirements under the city’s police power? The Napa case, Home Builders Assn of Northern California v. City of Napa (2001) 90 Cal.App.4th 188, did indeed uphold the city’s inclusionary housing ordinance as against a facial challenge. The city’s ordinance required a ten percent affordable component in any residential subdivision, or payment of an in lieu fee. The court upheld Napa’s ordinance as a proper exercise of the city’s police powers and rejected challenges based on a takings claim and a claimed violation of due process. In addition, the ordinance contained a provision for administrative relief that the court also saw as preventing a facial challenge: When an ordinance contains provisions that allow for administrative relief, we must presume the implementing authorities will exercise
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