Source-of-Income Discrimination and the Fair Housing Act.

• Author: Schwemm, Robert G.

ABSTRACT

Amending the federal Fair Housing Act ("FHA") to ban "source-of-income" discrimination has been discussed for over twenty years. During this time, a growing number of states and localities (including many of the nation's largest cities) have taken this step by amending their fair housing laws to prohibit discrimination against Section 8 voucher holders and others based on their source of income. Meanwhile, bills proposing such an amendment to the FHA have regularly been introduced, including four in the current Congress.

Proponents of such an amendment say it would help fulfill the voucher program's goal of providing low-income families with a wider choice of housing and eliminate a form of discrimination that has frustrated the FHA's goals of ending racial discrimination and segregation. The refusal of many landlords to rent to people who rely on vouchers or other government assistance programs has undercut the ability of these programs to extend opportunities outside areas of minority concentration. Further, much of today's racial segregation reflects economic segregation, and a crucial part of FHA litigation has always involved disputes over locating affordable housing projects in affluent white areas.

What if the FHA were amended to ban source-of-income discrimination? The most obvious result, as experience shows in states and localities that have taken this step, would be a substantial rise in litigation against landlords who continue to engage in such discrimination. Another likely area of increased litigation would be challenges to exclusionary zoning and other municipal practices that block affordable housing. A variety of other practices might also be challenged under an amended FHA.

This Article reviews the experience of states and localities that have banned source-of-income discrimination in housing and then contemplates how the FHA, if amended to add this protected class, would work. Part I provides the legal background by describing the FHA, the Section 8 program, and the state and local laws that now ban source-of-income discrimination. Part II explores cases that have challenged source-of-income discrimination, first under these local laws and then under the FHA's disparate-impact and other theories of liability. After Part Ill's review of the arguments for and against a source-of-income amendment to the FHA, Part IV examines the various types of claims that might arise if such an amendment were enacted.

The Article concludes that a source-of-income amendment, though not a panacea, would be an important step forward in helping the FHA achieve its core missions of reducing segregation and ending arbitrary limits on housing choice.

CONTENTS INTRODUCTION I. LEGAL BACKGROUND A. The Fair Housing Act B. The Housing Choice Voucher Program ("Section 8") C. State and Local Source-of-income Laws 1. Locations and Variety 2. Legal Challenges To II. PAST EXPERIENCE A. State-and-Local-Law Cases 1. Types of Cases and a Caution 2. Cases Against Landlords B. Source-of-income Claims Under the Fair Housing Act 1. Overview 2. Impact Claims: Race and National Origin 3. Impact Claims: Disability and Other Protected Classes 4. Disability: Reasonable Accommodation Claims 5. Intentional Discrimination Claims 6. Summary: Mixed Results III. AMENDING THE FHA: ARGUMENTS FOR AND AGAINST A. Overview B. Arguments For C. Arguments Against IV. AN AMENDED FAIR HOUSING ACT--IMPLICATIONS AND APPLICATIONS A. Rental Discrimination 1. Overview 2. Landlord Justifications for Admitted Source-of-income Discrimination B. Exclusionary Zoning C. [section] 3604(c): Discriminatory Ads, Notices, and Statements D. Discriminatory Sales, Financing, and Home Insurance F. Harassment and Retaliation G. Other Applications 1. Standing to Sue 2. Discriminatory-Effect Claims; Income-to-Rent Policies 3. Gentrification CONCLUSION Appendix I Appendix II APPENDIX III INTRODUCTION

Over twenty years ago, a law review note that called for an amendment to the Fair Housing Act ("FHA") (1) described source-of-income discrimination as the "New Frontier" of fair-housing law. (2) At that time, a few states and localities had banned housing discrimination against Section 8 voucher holders (3) and others based on their sources of income. (4) Today, seventeen states and over seventy localities, including many of the nation's largest cities, have taken this step. (5) Meanwhile, bills proposing such an amendment to the FHA have regularly been introduced, (6) including three that are pending in the current Congress. (7)

Proponents of such an amendment say it would help fulfill the federal voucher program's goal of providing low-income families with more housing choices and would eliminate a form of discrimination that has frustrated the FHA's goals of ending both racially segregated housing patterns and discrimination against certain minorities. (8) The refusal of many landlords to rent to people who rely on vouchers or other government assistance programs has undercut the ability of these programs to extend opportunities outside areas of minority concentration. Further, much of today's racial segregation reflects economic segregation, and a crucial part of FHA litigation has always involved disputes over locating affordable housing projects in affluent white areas. (9)

A note about the difference between "income" and "source-ofincome" discrimination: the former deals with "how much," while the latter deals with "where from." Income-based discrimination has consistently been viewed as compatible with the FHA, as confirmed by the statute's legislative history. (10) Thus, landlords and other housing providers in FHA cases have always been perceived as having a legitimate interest in their tenants' ability to pay the rent or to meet other financial obligations (e.g., to secure protection against default, property damage, etc.). (11) Where this income comes from, however, is a different matter (e.g., wages, investments, trusts, government assistance, etc.). In theory, a tenant's source of income should not matter to a landlord, so long as that income is reasonably likely to continue and does not impose on the landlord other risks or hardships. (12)

What if the FHA were amended to ban source-of-income discrimination? The most obvious result, as cases from states and localities that have taken this step show, would be a substantial rise in litigation against private landlords who continue to engage in such discrimination. (13) Another likely area of increased litigation would be challenges to exclusionary zoning and other municipal practices that block affordable housing. (14) Beyond these types of suits, litigation under an amended FHA might include a variety of other scenarios. (15)

This Article reviews the experience of states and localities that have banned source-of-income discrimination in housing. It then contemplates how the FHA would work if it were amended to add this protected class. Part I begins with the legal background, describing the FHA, the Section 8 program, and their goals and experiences, followed by a review of the state and local laws that now include source-ofincome among their prohibited bases of discrimination. Part II then explores cases that have alleged source-of-income discrimination, first under these state and local laws, and then under the FHA's "impact" theory of liability. Part III considers the arguments for and against amending the FHA to ban source-of-income discrimination. Finally, Part IV examines the various types of claims that might arise if the FHA were so amended.

1. LEGAL BACKGROUND

   1. The Fair Housing Act

      The current FHA prohibits discrimination in most housing and housing-related transactions based on seven factors (16): race, color, national origin, and religion were included in the original statute in 1968; (17) sex was added in 1974, (18) and handicap (disability) and families with children were added by the 1988 Fair Housing Amendments. (19) The statute also bars conduct that interferes with the FHA's substantive rights, as well as retaliation for asserting those rights. (20) The FHA authorizes three separate methods of enforcement: private suits; administrative complaints to the Department of Housing and Urban Development ("HUD"); and Justice Department actions. It provides for remedies that include uncapped actual and punitive damages, civil penalties, and attorney's fees, (21) making its enforcement scheme among the strongest of all U.S. civil rights laws. In addition, the FHA mandates that HUD and other federal agencies administer their housing programs in a manner that actively furthers fair housing, (22) although this provision does not provide for private enforcement. (23)

      The FHA has also fostered the development of many state and local fair-housing laws and agencies, in part through its requirement that complaints to HUD be referred to these agencies. (24) Over fifty localities and thirty-five states now have laws that are substantially equivalent to the FHA. (25) And many go farther in that they have narrower exemptions or additional protected classes, (26) both of which are specifically authorized by the FHA. (27)

      The original FHA sought to eliminate private and public practices that had for decades confined African-Americans to segregated, ghetto-like neighborhoods. The FHA was passed in the wake of racial violence in many urban areas,' (28) which led the Kerner Commission to conclude that America was "moving toward two societies, one black, one white--separate and unequal," and to call for a national open-housing law. (29) The Senate responded in early 1968 by passing a fair-housing bill that was intended, according to its principal sponsor Senator Mondale, to replace "the ghetto ... [with] truly integrated and balanced living patterns." (30) Shortly after the assassination of Dr. Martin Luther King, Jr., the House agreed to this bill, and President Johnson signed it into law on April 11...