Last month's California Supreme Court decision (California Building Industry Association (CBIA) v. City of San Jose, June 15, 2015) will make it easier for California cities and counties to pass inclusionary zoning ordinances. According to the U.S. Department of Housing and Urban Development (HUD), inclusionary zoning or housing programs "require or encourage developers to set aside a certain percentage of housing units in new or rehabilitated projects for low-and moderate-income residents. This integration of affordable units into market-rate projects creates opportunities for households with diverse socioeconomic backgrounds to live in the same developments and have access to [the] same types of community services and amenities…"

California counties and cities have long had an obligation to develop a general plan "…including a mandatory housing element consisting of standards and plans for housing sites in the municipality that ‘shall endeavor to make adequate provision for the housing needs of all economic segments of the community."

In the case at hand the city of San Jose had adopted an ordinance that would apply to all residential developments in the city that would create 20 or more new, additional, or modified dwelling units. The inclusionary housing requirement specified that "15 percent of the proposed on-site for-sale units in the development shall be made available at an ‘affordable housing cost'" (as defined in the Health and Safety Code). If the developer chose an available alternative option, such as constructing affordable housing elsewhere or paying an in lieu fee, the requirement increases to no less than twenty percent of the total units.

The CBIA challenged the ordinance on the grounds that there was no evidence that new developments of twenty units or more would have such negative public impacts as to justify the requirements of the new ordinance. If it couldn't be shown that the development itself would cause a lack of affordable housing, then, according to the CBIA, it couldn't be justified to make the developer sell units at below market rates. To do that, they argued, would amount to an unconstitutional taking of the developer's property.

The Superior Court agreed with the CBIA's contentions and ruled that the ordinance was constitutionally invalid. On appeal, however, the Appellate Court ruled that the city did not have to show a causal relationship (a nexus) between the potential harm caused by the development and the benefit brought about by the ordinance's requirements. Rather, the Appellate Court held, the ordinance only needed to be evaluated under the standards for general land use regulations: namely, did the requirements "bear a real and substantial relation to the public welfare…"?

The Supreme Court agreed with the Appellate Court and upheld its ruling. It noted that, "As a general matter, so long as a land use regulation does not constitute a physical taking or deprive a property owner of all viable economic use of the property, such a restriction does not violate the takings clause…"

In the case of the San Jose ordinance, no transfer of any real estate interest to the city was required; nor was any parcel of property taken. Moreover, it certainly was not the case that the property owner would be deprived of any economic benefit. Indeed, it was noted that "the San Jose ordinance makes available a number of economically beneficial incentives -- including a density bonus, a reduction in parking requirements, and potential financial subsidies …" such that "it is not the case that the San Jose ordinance will necessarily reduce a developer's revenue or profit…"

The Supreme Court acknowledged that "A municipality's authority to impose price controls on developers is, of course, unquestionably subject to constitutional limits." If they were deemed to be confiscatory – if they denied a property owner a fair and reasonable return on its property -- they would be deemed to be unconstitutional. But no evidence had been introduced to suggest that the effects of the San Jose ordinance would be so extreme.

The court wrote, "Most land use regulations or restrictions reduce the value of property; in this regard the affordable housing requirement at issue here is no different from limitations on density, unit size, number of bedrooms required set-backs, or building heights." [my emphasis] But such reductions in value do not in themselves constitute an unconstitutional taking. Hence, "the validity of the ordinance does not depend upon a showing that the restrictions are reasonably related to the impact of a particular development to which the ordinance applies. Rather, the restrictions must be reasonably related to the broad general welfare purposes for which the ordinance was created."

Currently, 170 California jurisdictions have some sort of inclusionary zoning ordinance. This ruling will make it easier for such ordinances to withstand court challenges. (Particular cases could still be found invalid if they were too extreme.) The burden of proof shifts from the city or county to the owner/developer. Unless this case goes to the U.S. Supreme Court and is overturned there, it can be expected that there will be more inclusionary zoning ordinances in California.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.