Cal. Bldg. Indus. Ass'n v. City of San Jose, H038563

• Court: California Court of Appeals
• Writing for the Court: ELIA, J.
• Citation: 157 Cal.Rptr.3d 813
• Parties: CALIFORNIA BUILDING INDUSTRY ASSOCIATION, Plaintiff and Respondent, v. CITY OF SAN JOSE, Defendant and Appellant. Affordable Housing Network of Santa Clara County, et al., Interveners and Appellants.
• Docket Number: H038563
• Decision Date: 06 June 2013

157 Cal.Rptr.3d 813

CALIFORNIA BUILDING INDUSTRY ASSOCIATION, Plaintiff and Respondent,
v.
CITY OF SAN JOSE, Defendant and Appellant.

Affordable Housing Network of Santa Clara County, et al., Interveners and Appellants.

H038563

Court of Appeal, Sixth District, California.

Filed June 6, 2013
Review Granted September 11, 2013

Berliner Cohen, Andrew L. Faber, Thomas P. Murphy, San Jose, Richard Doyle, San Jose City Attorney, Nora Frimann, Assistant City Attorney, Margo Laskowska, Sr. Deputy City Attorney, for Defendants and Appellants.

Kyra Kazantzis, San Jose, James F. Zahradka II, Melissa A. Morris, Law Foundation of Silicon Valley Public Interest Law Firm, Michael Rawson, The Public Interest Law Project, California Affordable Housing Law Project, Colleen Bal, Corina I. Cacovean, Wilson Sonsini Goodrich & Rosati, San Francisco, David Nefouse, Palo Alto, for Interveners and Appellants.

David P. Lanferman, James G. Higgins, Sheppard, Mullin, Richter & Hampton, San Francisco, for Plaintiff and Respondent.

ELIA, J.

Respondent California Building Industry Association (CBIA) brought this action for declaratory and injunctive relief against the City of San Jose, the City Council, and the mayor (collectively, "the City") to invalidate the City's "Inclusionary Housing" ordinance on its face. The superior court granted the requested relief, on the ground that the City had failed to demonstrate a nexus between the challenged

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ordinance and the "deleterious public impacts of new residential development." The City appeals. Also separately appealing are several nonprofit entities that intervened in the action. We find the appellants' arguments to be well taken. Accordingly, we must reverse the judgment and remand the matter for further consideration.

Background

Repeatedly throughout Title 7 of the Government Code the Legislature has highlighted the "severe shortage of affordable housing" in this state, "especially for persons and families of low and moderate income." ( Gov.Code, § 65913, subd. (a).)¹ In the Housing Accountability Act the Legislature stated that the lack of housing "is a critical problem that threatens the economic, environmental, and social quality of life in California." (§ 65589.5, subd. (a)(1).) The Legislature further recognized that "California housing has become the most expensive in the nation." (§ 65589.5, subd. (a)(2).)

Accordingly, the Legislature has expressly declared that the availability of housing for every Californian is "of vital statewide importance." (§ 65580.)² To that end, local governments are charged with the responsibility of facilitating the provision of housing for "all economic segments of the community." (Ibid .) Each locality, however, is acknowledged as "best capable of determining what efforts are required by it to contribute to the attainment of the state housing goal," by addressing regional housing needs through the implementation of "housing elements" as part of the community's general plan. (§§ 65581, 65582.) Section 65583 delineates the components of those housing elements, including an assessment of housing needs for all income levels, the identification of adequate housing sites, and a program that assists in the development of such housing "to meet the needs of extremely low, very low, low-, and moderate-income households." (§ 65583, subd. (c)(2).) The housing element is presumptively valid. (§ 65589.3.)

The City's effort to implement the state's policy took the form of Ordinance No. 28689, the Inclusionary Housing Ordinance (IHO or the Ordinance), which the city council passed on January 12, 2010. In the measure, the city council cited its "legitimate interest" in alleviating the shortage of affordable housing in San Jose for "Very Low, Lower, and Moderate Income Households." The "Inclusionary Housing Requirement" of the new law called for residential developments of 20 or more units to set aside 15 percent for

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purchase at a below-market rate to households earning no more than 110 percent of the area median income, though the units could be sold to households earning at most 120 percent of the area median income.³ The inclusionary housing requirement could also be satisfied by constructing affordable housing on a different site at specified percentages. However, incentives were available if the affordable units were constructed on the same site as the market-rate units.

The Ordinance provided an alternative to setting aside the "inclusionary units": developers could pay an "in-lieu fee." The fee was not to exceed the difference between the median sale price of a market-rate unit in the prior 36 months and the cost of an "affordable housing" unit for a household earning no more than 110 percent of the area median income. All in-lieu fees collected were destined for the Affordable Housing Fee Fund, to be used exclusively to provide affordable housing to the designated households. The housing requirement could also be satisfied by dedication of land. A "waiver, adjustment or reduction" provision allowed the developer to show, "based on substantial evidence, that there is no reasonable relationship between the impact of a proposed Residential Development and the requirements of this Chapter, or that applying the requirements of this Chapter would take property in violation of the United States or California Constitution."

Respondent CBIA filed its complaint on March 24, 2010, seeking declaratory and injunctive relief and a writ of mandate to set aside the Ordinance. On May 9, 2011, two months before the July 11 trial, the court permitted a motion by several nonprofit entities and one individual to intervene in opposition to the complaint.⁴ In May 2012, after extensive briefing and oral argument revolving around a set of stipulated documents, the superior court granted the relief CBIA had sought. In its July 11, 2012 judgment the court declared Ordinance No. 28689 invalid and enjoined the City from implementing it "unless and until the City of San Jose provides a legally sufficient evidentiary showing to demonstrate justification and reasonable relationships between such Inclusionary Housing Ordinance exactions and impacts caused by new residential development." The City and Interveners separately filed timely notices of appeal.

Discussion

1. Basis of the Relief Granted

In its complaint CBIA alleged that the City had adopted the inclusionary housing requirements in the Ordinance "without demonstrating any reasonable relationship between the requirements imposed by the new Ordinance and any increased public

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needs for additional affordable housing caused by such new residential development or any reasonable basis for the allocation of the burdens and public costs of providing additional affordable housing to such new residential development subject to the Ordinance, and without substantial evidence in the public record purporting to demonstrate the necessary reasonable relationships to justify the IHO." These "actions," CBIA alleged, violated "controlling state and federal constitutional standards governing such exactions and conditions of development approval, and the requirements applicable to such housing exactions as set forth in San Remo Hotel L.P. v. City & County of San Francisco (2002) 27 Cal.4th 643[117 Cal.Rptr.2d 269, 41 P.3d 87(San Remo) ], and Building Industry Association of Central California v. City of Patterson [(2009)] 171 Cal.App.4th 886[90 Cal.Rptr.3d 63]."

In its trial brief CBIA elaborated on its position, contending that appellate precedent had established that "cities seeking to establish inclusionary housing mandates such as the IHO must—at least—provide an evidentiary showing that the fees and exactions to be imposed on new development are ‘reasonably related’ and limited to the city's reasonable costs of addressing ‘the deleterious public impacts’ caused by the new development." According to CBIA, the City had failed to show a "reasonable relationship between affordable housing exactions and demonstrable impacts of new development." The City Council staff reports endorsing the proposed ordinance lacked any "attempt to identify, much less to quantify, any ‘deleterious public impacts’ on City needs for affordable housing caused by new market rate development ." The fixed percentages applicable to the set-aside requirements were "arbitrary" and the in-lieu fees rested on a "house of cards." Because these deficiencies could not be cured, CBIA argued, the Ordinance was invalid on its face.

CBIA added that it had no quarrel with the legitimacy and importance of the City's objective of making affordable housing available in the community. It repeatedly emphasized that "this is not a takings case ." Indeed, during the hearing counsel explained that a taking would arise if a developer could not build his project because of the City's permit conditions. But "[w]e don't get there because we're not looking at the impact on the individual developer." Even without such an individual impact, "there has to be a showing that it's related to some impact caused by the developer."

In defense of the IHO, the City posited two arguments: (1) CBIA's facial challenge could not succeed because CBIA could not show that the Ordinance could never be legally applied and (2) CBIA was misstating the law and relying on the wrong standard of judicial review. In the City's view, the Ordinance should be regarded as a land use restriction similar to a zoning regulation adopted pursuant to the local government's police power. It thus must be accorded a "highly deferential standard of judicial review" and must be upheld if it "merely has a reasonable relation to the public welfare." The Interveners more precisely argued that the Ordinance was reasonably related to the legitimate government purpose of creating affordable housing and therefore was within the City's police power. The Interveners also disputed CBIA's assertion that the inclusionary...