By Ben Christopher, CalMatters
This story was originally published by CalMatters. Sign up for their newsletters.
East Palo Alto, like cities across California, has a law on the books that forces developers of new housing projects to foot the bill for the state’s shortage of affordable homes.
New residential projects need to set aside a share of the units they plan to build for lower-income renters and homeowners under the terms of the city’s “inclusionary zoning” ordinance. Builders who refuse have to instead pay a fee, ranging from the tens of thousands to hundreds of thousands of dollars.
An East Palo Alto homeowner filed a lawsuit in federal court on Thursday challenging the constitutionality of that law, likening it to “extortion” — and he had a little help from the U.S. Supreme Court.
The implications of the lawsuit range far beyond the Bay Area. A 2017 report estimated that 149 cities and counties across California have some form of inclusionary zoning rule, though the specific terms vary. That makes it one of the most commonly used affordable housing programs both in California and in the country.
Now all that may be on the constitutional chopping block.
The case was filed in federal court in San Francisco by Wesley Yu, a husband and father between jobs, who was planning to build a home and backyard guest cottage for himself and his extended family on a neighboring parcel.
Because Yu was planning to construct two new structures, the city’s inclusionary zoning rules kicked in, requiring him to either sell or rent out one of the units at “affordable” rates or to pay a one-time fee of $54,891 to be deposited in the city’s affordable housing subsidy fund.
The core of Yu’s lawsuit, which was filed by the libertarian-oriented Pacific Legal Foundation, draws on a U.S. Supreme Court ruling from last year that also emerged from a heated California housing dispute.
That case was brought by Placerville septuagenarian, George Sheetz, who contested that the government of El Dorado County had not done enough to justify the $23,420 traffic fee it placed on his home construction project.
Sheetz’s case drew on the U.S. Constitution’s Fifth Amendment, which puts limits on when the government can take private property. Decades of court rulings have said that if a local government wants to base approval of a construction permit on certain conditions, those conditions have to directly relate to the costs associated with the development. A city, for example, might be able to hold off on approving a new dump until a developer pays an environmental clean up fee, but not a fee to fund local arts and recreation.
Courts have also ruled that such “exactions” on private development should be “roughly proportionate” to their cost. That is, the $23,420 that El Dorado County wanted to impose on Sheetz should match the cost of fixing the wear and tear his new home would leave on local roads.
The Supreme Court agreed that these standards ought to apply to the impact fee.
Now Yu and his legal team are asking a federal judge to apply that same rule to inclusionary zoning. For East Palo Alto’s program to pass constitutional muster, the city would have to show that the $54,891 fee or the requirement to set aside new units at a discount relates to and matches the cost that Yu’s development would impose upon the city.
The city won’t be able to show that, said David Deerson, the lead lawyer representing Yu.
“New residential development doesn’t have a negative impact on housing affordability. If anything, it has a positive impact,” he said.
A growing body of economic research has indeed found that local market-rate development puts downward pressure on neighborhood and city-wide rents.
Affordable housing in California zoning
In the past, California courts have ruled that the high constitutional bar set by the Fifth Amendment doesn’t apply to inclusionary zoning programs like the one in East Palo Alto. Requiring private developers to toss in some added affordable housing isn’t an “exaction,” the courts have found, but a standard land-use restriction akin to any other zoning rule.
Whether a city decides it needs more schools, apartment buildings, businesses or, in the case of inclusionary zoning, affordable housing, it has broad power under the constitution to “decide, for the good of the general welfare, that we’re going to require this,” said Mike Rawson, director of litigation at the Public Interest Law Project.
The state Supreme Court ruled as such most recently in 2015. The U.S. Supreme Court declined to weigh in, a tacit approval.
“They can always change their mind,” said Rawson. “I don’t see a basis for it, though obviously that doesn’t necessarily stop them.”
The composition of the court has changed since 2015, veering sharply to the right. The Sheetz decision from last year has offered new fodder for legal challenges to inclusionary zoning.
“Sheetz really helps out here a lot” in that campaign, said Deerson. He pointed to other challenges in Denver and Teton County, Wyoming. “I would expect them to keep coming.”
Tradeoffs in housing policy
If and when the nation’s highest court takes up the issue of inclusionary zoning, it will be wading into one of the more politically charged debates in housing policy.
Evidence on the impact of these laws is mixed. Requiring private developers to build affordable units can and regularly does result in more local housing options for lower income tenants at no additional cost to taxpayers. By putting affordable and market-rate units side-by-side, they also promote economic and racial integration, supporters argue.
But inclusionary requirements can also make any given housing project less profitable, meaning that fewer units get built, leading to higher prices and rents overall. In housing markets like California’s, that see relatively little new development, the rate at which these programs add designated affordable units to the housing stock is also quite slow.
That policy debate isn’t relevant to the legal case, which will be fought and won over abstract constitutional principles. But for libertarian-leaning groups like the Pacific Legal Foundation, building industry groups and many “Yes In My Backyard” housing development advocates, an end to inclusionary zoning would be a win on both fronts.
“In addition to being illegal, I think that these inclusionary zoning policies are also frankly stupid,” said Deerson.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.
“Because Yu was planning to construct two new structures, the city’s inclusionary zoning rules kicked in, requiring him to either sell or rent out one of the units at “affordable” rates or to pay a one-time fee of $54,891 to be deposited in the city’s affordable housing subsidy fund.”
That’s f’ing crazy. These zoning rules or laws need to be shelved.
Yeah f’ing crazy for a homeowner expanding on their own lot especially, and in East Palo Alto??? Seriously!
Pacific Legal Foundation is awesome.
I’m unclear as to what the goal is in the first place, in regard to (both) the new ADU law, and “affordable” housing. And I STRONGLY suspect that the state doesn’t actually know, either (or how any of this advances a supposed goal).
The legislature and governor just pass laws without even analyzing the impact.
Now, if you want to pass a law so that homeowners can build an ADU, pay increased taxes on it, and rent it out to someone at market rate (or have a relative in it), that’s what the state has accomplished. But I guarantee you that it has nothing to do with “affordable housing”.
Really what is the LAO then?
Don’t know what those initials stand for, nor is it spelled out in the article.
But for sure, ADUs increase impacts on infrastructure (e.g., street parking, water, sewer, etc.). And have absolutely nothing to do with “affordable” housing.
Again, they do increase property taxes, though. So there is THAT source of income for the government.
And in the example above (“extended family”) – contribute to “generational wealth”.
You don’t know what the LAO is? And yet you made your comment.
Normally, when someone brings up initials (which aren’t spelled-out in their article, or referenced elsewhere), it’s up to the author/commenter to spell it out (and state its relevance). Except on the Vanguard, apparently.
And how would that impact MY comment, anyway?
Maybe you should start putting a little more effort into your responses, assuming you actually want me to address something more-important than initials.
Now, I’m sure that I can look them up, but wouldn’t that be YOUR job – since you brought it up? And more-importantly, its importance?
Your comment was: “The legislature and governor just pass laws without ever analyzing the effect.”
In fact, that is the LAO’s function – a significant gap in your knowledge base – once again – but that never stops you from making these kinds of comments. And no, I cannot anticipate gaps in knowledge.
O.K. – but again, it’s up to authors/commenters to spell out initials and what they refer to – not readers.
And what, pray tell, did the LAO claim regarding affordability of ADUs (or lowering housing prices) – especially those that house family members such as the one cited in the article above)?
Isn’t that the more-important question, given that this goal is the ENTIRE JUSTIFICATION of the state’s housing mandates (including ADUs)?
If you’re going to bring it up (as if it’s some kind on inane insult), what, exactly did they say? (And what evidence do they provide regarding whatever they claim?) (Hopefully, the head of such agencies isn’t appointed by the YIMBY governor in the first place.)
But truth be told, ADU’s are probably the low-hanging fruit of increased density. Especially since everyone’s “home-owing grandma” is on board with “keeping up with the Joneses” ADU next-door.
You’d have to look that up – each bill has the LAO analysis on it. My comment was directed towards the fact that your specific statement was false.
You’re going to have to do better than that, if you want to make any sense to your readers (not just me).
What, exactly, did I say that was “false”?
And what was the claim in the first place (e.g., in regard to affordable housing and ADUs)?
Or is that not something that the “LAO” even examined?
What, exactly DID the LAO examine and provide input for, in regard to the legislature and governor for in regard to this particular issue), since you think it’s important?
So, I’m pretty sure that what you’re referring to (in regard to the LAO) is the projected fiscal impact on the state, which has nothing to do with what I was commenting on in regard to “affordable” housing.
I’ve seen analyses on ballots in regard to projected fiscal impacts of various proposals.
“Normally, when someone brings up initials (which aren’t spelled-out in their article, or referenced elsewhere), it’s up to the author/commenter to spell it out (and state its relevance). Except on the Vanguard, apparently.”
David, I agree with Ron. You often use initials, acronyms and abbreviations that aren’t ever spelled out in the article which I think is journalistically lazy. Your readers then have to look them up if they aren’t familiar with them. Yes you’re familiar with these terms because you deal with them often but don’t put others down because they don’t.
Both of you missed the point – he made the claim that there was no analysis, there is. It’s probably not sufficient. But Ron wasn’t even familiar with the Legislative Analyst Office (LAO) – the point was not the initials, it was that there is in fact analysis.
You’re missing the point. The point is when you use these abbreviations it’s up to you to spell them out. I can’t tell you how many times I’ve had to do a search in order to find out what term or organization you were talking about in your article.
The abbreviation was besides the point – his statement: “The legislature and governor just pass laws without even analyzing the impact” preceded my question about the LAO.
I give up.
Me too
“Me too”. (Hey, do we have the beginning of a “movement” here? In any case, it seems like it’s already been occurring prior to this article.)
Actually, David – I think you’re missing a more-important point, in regard to the limitations of what the LAO analyzes. In regard to this particular article, I’m not aware of any analysis that the LAO performed regarding how much housing prices would supposedly be reduced via the new ADU laws.
Also not aware of any analysis regarding how much housing prices would supposedly be reduced by ANY of the new housing laws. (And yet, that’s supposedly a primary justification for ALL of the new housing laws/mandated.)
So if I’m correct regarding that, the result is that the legislature is passing laws without even analyzing the impact that they’re hoping for – just as I said.