The Revolution That Wasn't: U.s. Supreme Court Refuses to Hear California Court of Appeal Case Upholding Inclusionary Zoning in West Hollywood
| Publication year | 2018 |
| Author | Gregg W. Kettles |
Gregg W. Kettles1
Gregg W. Kettles is a Partner at Best Best & Krieger, LLP.
Against the backdrop of a deepening affordable housing crisis in California, the U.S. Supreme Court recently declined to review a decision of the California Court of Appeal upholding the City of West Hollywood's inclusionary zoning ordinance. The ordinance was challenged by a developer, 616 Croft Ave LLC (the "Developer"), who, after declining to provide the affordable housing units required by the ordinance, paid an in-lieu fee under protest. The Developer filed a lawsuit, claiming that the City's ordinance is an unconstitutional condition/exaction and that the burden was on the City to prove the "reasonableness" of the fee under the Mitigation Fee Act and other authorities. The trial court ruled for the City and, in a published opinion, the court of appeal affirmed.2
The court treated the Developer's unconstitutional condition/exaction argument as a facial challenge to the ordinance and resolution adopting the fee schedule. The court held that such challenge was time-barred. Turning to the Developer's as applied challenge under the Mitigation Fee Act, the court held that the Act did not apply here. Relying on the California Supreme Court's decision in California Building Industry Association v. City of San Jose3, the court held that the in-lieu fee was not an exaction, but rather a regulation of land use. The court of appeal further found that the in-lieu fee's purpose is not to defray the cost of increased demand on public services resulting from the Developer's project, but rather to combat the overall lack of affordable housing. The court of appeal upheld the judgment in favor of the City.
This article explains that Croft is not the revolution suggested by the Developer's petition for certiorari and the six amicus briefs that argued for review by the nation's high court. Croft closely followed San Jose, which upheld a nearly identical inclusionary ordinance in the City of San Jose. Inclusionary zoning is nothing new. Inclusionary zoning ordinances have been adopted in more than 170 California cities and counties, and hundreds more jurisdictions nationwide.
As explained in greater detail in Section VIII, these inclusionary ordinances have made a difference. In West Hollywood, whose program dates back to 1986, in-lieu fees have helped finance the construction of 437 affordable units. Developers of market rate units have built another 322 deed-restricted affordable units. These results have been multiplied at the state level, where inclusionary zoning ordinances are credited with producing 30,000 affordable housing units in the past decade alone. Nationwide, inclusionary zoning programs have resulted in more than 170,000 units of affordable housing.
The fact that inclusionary zoning only produces affordable units if there is market rate development to pay for them shows that inclusionary ordinances have not caused development to come to a grinding halt. Nor has there been any retreat on the policy front. If anything, the California Legislature has doubled-down on inclusionary zoning. As clarified in Section IX, the 2017 the California Legislature adopted a bill establishing a permanent, ongoing source of funds dedicated to affordable housing development,4 and other bills encouraging local agencies to adopt inclusionary policies.5 There is evidence that moving families from poverty-blighted neighborhoods leads to improved health and higher incomes for those families. This article argues that in light of the trends in law and policy supporting it, the time has come for more developers to embrace inclusionary zoning.
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The City of West Hollywood first implemented an inclusionary zoning program in 1986, shortly after the City's incorporation. Its current inclusionary zoning ordinance (the "Ordinance") was adopted in 2001.6 The Ordinance is chaptered under the heading, "Affordable Housing Requirements and Incentives," and is part of the City's zoning code.7 The Ordinance regulates land use by requiring new residential development to include low and moderate income units, or pay a fee in lieu of providing inclusionary units.8 The purpose is to ensure that future residential development accommodates existing and projected needs for affordable housing.9 It also seeks to integrate affordable housing units with market rate housing, and situate affordable housing near public and commercial services.10
The Ordinance aims to achieve diversity in housing opportunities and to encourage the production of housing units to accommodate disabled and senior residents, both of which groups comprise a relatively high proportion of lower, fixed-income households.11 It is premised on the City's own desire to bring about more affordable housing, and to comply with the City's obligations under state law to accommodate the City's share of anticipated population growth in the region.12 The City's Ordinance states that it is "one means of meeting its commitment to encourage housing affordable to all economic groups, and to meet its regional fair share requirements for the construction and rehabilitation of housing affordable to low and moderate income persons."13
The Ordinance has broad application. It applies to the "construction of all residential units" and certain common interest conversions.14 Exemptions are limited to following: (1) construction of a single family dwelling, or (2) projects to be operated by non-profits where all the units are for affordable housing.15 Thus even a small multi-family residential project, such as, for example, a four unit condominium, is subject to the requirements of the Ordinance.
To help ensure the viability of inclusive development, the Ordinance offers developers density bonuses and concessions. Density bonuses can be up to 35% and may result in more market rate units than would otherwise be permitted in the zone.16 Concessions allow for deviations from otherwise-applicable development standards in order to accommodate additional units and reduce overall costs.17 Available concessions include an additional story, and reduction of required setbacks, open space, parking spaces, and other requirements.18 Additional provisions aim to ensure that the affordable, or "inclusionary," units are actually occupied by income-qualified households and remain affordable. There are restrictions on sale and resale of units.19 For example, lower income inclusionary units may be sold at a price that is no more than two and one-half times 65% of the median income of the City.20 Moderate income inclusionary units may be sold at a price that is no more than two and one-half times the median income of the city.21 Both prices are subject to an adjustment factor based on the number of bedrooms in the unit.22 In addition, the developer is required to give to the City or the City's designee a right of first refusal to purchase the affordable units.23
Developers of residential projects with 10 or fewer units may choose to pay a fee in lieu of providing the required affordable housing units on site.24 This is up to the developer. It is not the City's preference. The incentives and concessions described above demonstrate the City's desire that developers not avail themselves of the "escape hatch" represented by the in-lieu fee, but rather make available integrated, affordable housing in their own development projects.
West Hollywood's in-lieu fee is intended to provide a source of funds sufficient to facilitate the production of affordable units that the developer otherwise would provide as part of the project.25 The fee is calculated in compliance with a fee schedule established, and periodically revised, by the City Council.26 The amount of the fee is based on the subsidy required to build affordable units in the City.27 The schedule sets a dollars-per-square-foot figure, which is multiplied by a project's total square footage to yield the total in-lieu fee.28
The funds are placed into the City's Affordable Housing Trust Fund to be used exclusively for projects that have a minimum of 60% of the dwelling units affordable to low and moderate income households, with at least 20% of the units available to low income households.29 Only tax-exempt nonprofit corporations seeking to create or preserve affordable housing are eligible to apply for funding from the City's trust fund.30 The funds may be used for predevelopment costs, land or air rights acquisition, administrative costs, gap financing, or to lower the interest rate of construction loans or permanent financing.31
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A Developer applied to the City for approval of a project consisting of the demolition of two existing single family homes on two adjacent lots and the construction of an 11-unit condominium complex in their place. The project was subject to the City's inclusionary zoning ordinance. Rather than provide affordable housing as part of the project, the Developer voluntarily chose to pay the in-lieu fee.32 In 2005, the City approved the Developer's application, subject to a number of conditions, including that the Developer pay the in-lieu fee according to the City Council-approved fee schedule in effect when the Developer obtained a building permit. The Developer agreed to these conditions.
Project approval was originally set to expire two years from the City's approval, in 2007, unless significant construction had commenced. Due in part to the economic downturn that began in 2007, the Developer did not begin construction before the anticipated expiration date, and the Developer repeatedly requested extensions. The City granted these requests.
The...
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