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April 22, 2024
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L.A. and Other CA Cities Likely to Follow San Jose with Affordable Housing Ordinance that Passes on Costs to Developers


Last week the CA Supreme Court voted unanimously to uphold City of San Jose’s affordable housing ordinance which requires 15 percent of all for-sale units be set aside as affordable units for any development project that creates 20 or more new, additional, or modified residential units. In California Building Industry Association v. City of San Jose, the Court rejected the claim by the CA Building Association that the ordinance was an exaction on the grounds that the ordinance does not require a developer to dedicate any portion of its property or pay any money to the public; it simply limits the price the developer can obtain for a certain number of units. The Court further held that such a restriction of use, i.e. limiting the number of market rate units for sale within a development, falls squarely within a City’s power to regulate the use of property to serve the legitimate interests of the community at large.

On Tuesday, Los Angeles City Councilman Mike Bonin (CD 11), along with City Councilman Gil Cedillo (CD 1), introduced a motion that directs the City Housing Department along with the City Attorney’s office to study “policy options and a framework for a potential inclusionary housing ordinance in the City of Los Angeles.”

Ellia Thompson
Ellia Thompson
Ellia Thompson, land use partner with Sklar Kirsh, says that since this will likely become the de facto template for Los Angeles and other cities hoping to pass similar ordinances, there are a few key takeaways for developers and investors from the decision.

1) The law only applies to residential developments that create units for sale
2) This type of ordinance can also demand that the affordable units have the same quality of exterior design, square footage, amenities, features, finishes and number of bedrooms as market rate units;
3) The ordinance contained a waiver provision that allows the requirements to be adjusted or reduced by the city if the applicant demonstrates no reasonable relationship between the impact of a proposed development and the requirements of the regulation.

Although this case was limited to the San Jose ordinance, it’s very likely that Los Angeles and many other cities throughout California will seek to pass similar regulations since the Court has provided a path to allow cities to shift their burden to provide affordable housing onto the shoulders of developers. In fact, the Court appears to have provided a “How-to” guide to public agencies and municipalities as to how a California agency may strictly regulate the development of residential property without triggering any constitutional limitations, such as “nexus” and “proportionality”.

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