California affordable housing programs face new legal challenge

Hundreds of affordable housing programs across California may be in legal jeopardy after a new federal lawsuit challenged the constitutionality of one of the state’s most widely used housing tools.

The suit — filed Thursday in federal court in San Francisco and first reported by CalMatters — targets East Palo Alto, California’s “inclusionary zoning” ordinance.

That legislation requires developers to either build a share of new homes at below-market rates or pay into a fund supporting affordable housing.

Legal opposition could reverberate statewide and potentially undermine similar rules in more than 140 cities and counties, according to a 2017 estimate by the Lincoln Institute of Land Policy.

Lawsuit background

New litigation was brought by Wesley Yu, a homeowner who planned to build a new house and guest cottage for his family.

Under East Palo Alto’s ordinance, his project triggered a mandatory $54,891 fee or the requirement to make one unit affordable.

Yu — represented by the libertarian Pacific Legal Foundation — argues this violates the Fifth Amendment, which limits government takings of private property.

The complaint builds on a U.S. Supreme Court ruling last year involving a similar development fee in El Dorado County, Calif.

In that case, the high court sided with homeowner George Sheetz, who challenged a $23,420 traffic impact fee. The court ruled that permit conditions must be directly tied to the harm caused by a specific project — and proportionate to its impact.

Now Yu’s lawyers are asking the court to apply that same principle to inclusionary zoning, arguing that East Palo Alto can’t justify the affordability mandate or fee by linking them to his modest development’s impact on housing.

“New residential development doesn’t have a negative impact on housing affordability. If anything, it has a positive impact,” David Deerson, Yu’s lead attorney, told CalMatters. “In addition to being illegal, I think that these inclusionary zoning policies are also frankly stupid.”

Potential consequences

If the case succeeds, it could deal a blow to one of California’s primary local tools for building affordable housing without taxpayer subsidies. While policies vary by jurisdiction, inclusionary zoning has become a standard part of the state’s urban development.

California courts have long upheld such ordinances, reasoning that requiring affordable units is a zoning regulation — not an unconstitutional “exaction” like impact fees.

The state Supreme Court most recently affirmed that view in 2015. The U.S. Supreme Court declined to take up the case, letting the ruling stand.

Deerson said similar challenges are emerging in Denver and Teton County, Wyoming. “Sheetz really helps out here a lot,” he said. “I would expect (challenges) to keep coming.”