On July 11, 2012, the Santa Clara County Superior Court entered a judgment declaring the City of San Jose's inclusionary housing ordinance to be invalid. The court concluded that the City had failed to provide "a legally sufficient evidentiary showing to demonstrate justification" for the ordinance's exactions of privately subsidized homes or substantial fees in lieu of such housing exactions. The Judgment also enjoins the City from enforcing or implementing the ordinance. The ordinance had been challenged by the California Building Industry Association, on grounds that the City had failed to provide any nexus analysis or other evidence purporting to show that the housing exactions and in lieu fees (estimated at $122,000 per home) were in fact reasonably related to any increased community need for subsidized housing created or caused by development of new market-rate housing. (California Building Industry Association v. City of San Jose, No. 1 10 CV 167289.)
The San Jose ordinance (Ord. No. 28689) was adopted in January 2010, and required that 15% of the new homes approved in the City be offered for sale at artificially low, below market, prices set by the City. Alternatively the City could in its discretion accept payment of fees in lieu of the actual provision of price restricted homes. The in lieu fees were estimated to be in the amount of $122,000 per price restricted home otherwise required under the inclusionary zoning ordinance. Home builders' associations, as well as several other advocacy groups and individuals, had questioned the City's rationale for the proposed ordinance and had objected that the ordinance was approved without any supporting evidentiary justification. During a bench trial, the court had asked the City to provide evidence in the record demonstrating the constitutionally required reasonable relationships between new residential development and the exactions established under the ordinance, but concluded that "the City has appeared to be unable to do so." The court declared the ordinance to be invalid: "Since the City of San Jose adopted this ordinance in derogation of controlling state law, without providing any evidence purporting to meet the legal standards required, the ordinance was not properly enacted and is invalid on its face."
Inclusionary Zoning: It has been reported that roughly one third of the cities and counties in California have adopted some form of mandatory "inclusionary zoning" or "below market rate" (BMR) housing policies similar to the San Jose ordinance, despite the absence of any state legislation authorizing local governments to impose mandatory exactions of privately subsidized affordable housing, and despite the absence of any published California case approving the practice. In adopting its Inclusionary Housing ordinance, San Jose—like some other jurisdictions that have previously embraced the notion of inclusionary zoning—did not attempt to provide any kind of nexus study or other evidentiary justification for shifting the responsibility for affordable housing onto home builders and new home buyers.
Many of the assumptions that San Jose and other inclusionary jurisdictions relied upon in omitting a nexus justification have been undercut by more recent court decisions during the past decade, which have made more explicit the constitutional requirements for demonstrating a reasonable "nexus" between development exactions and alleged development impacts. The Supreme Court and the California Courts of Appeal have held that local ordinances imposing affordable housing requirements would need to meet the same standards as other development exactions. San Jose was the first major California city to consider or adopt an inclusionary ordinance following the 2009 court of Appeal decisions in BIA v. City of Patterson, and in Palmer v City of LA. While San Jose did acknowledge the Palmer decision and suspended its requirements as to new "for rent" housing, the City did not believe that the Patterson decision regarding the need for a nexus showing as to fees or exactions on new "for sale" housing was applicable. The court, however, rejected the City's contention that it could impose the inclusionary set aside requirements without any evidentiary showing of nexus.
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