Silicon Valley House Builders Just Lost Their Attempt To Wriggle Out Of Affordable Housing Law

Pizza cook Alex Simangas with his children in front of their Palo Alto, CA mobile home. CREDIT: AP
Pizza cook Alex Simangas with his children in front of their Palo Alto, CA mobile home. CREDIT: AP

California cities are well within their rights to require housing developers to build homes normal people can afford in any new projects they ask the city to permit, the state Supreme Court ruled Monday.

San Jose, CA’s “inclusionary zoning” law has been unenforceable for about six years while a lawsuit by the California Building Industry Association (CBIA) worked its way through the courts. Even at the start of that six-year delay, the city was far behind on building enough housing for people at or below the median income of Silicon Valley. The city had just 6 percent of the housing it was projected to need for people earning a middle-class income for the region, and just 2 percent of the units it expected to need for people living on between 50 and 80 percent of the median income.

Since then, the projections for middle-class housing needs have declined very slightly, but the city says it expects to need far more low-income housing than predicted prior to the law suit. San Jose was able to build just 46 percent of the affordable units it needs from 2007 to 2014, while other communities in the surrounding county achieved 71 percent of their needs, according to the most recent planning document of the city. Monday’s decision will make it easier for San Jose to start catching up with its neighbors, and allow the other 170 municipalities in California that use inclusionary zoning to breathe easier.

Any development that will create 20 or more new homes for sale in San Jose must now commit to make 15 percent of the new units available at below-market rates that will allow people making less than 120 percent of the median income in the area to purchase them. It’s a common approach to incentivizing affordable housing, but the trade group had argued that the city lacked the proper authority to impose the rule. The builders won an initial trial, lost on appeal, and had that appellate loss upheld by the state’s top judges Monday.

San Jose officials estimate the city missed out on a minimum of 100 to 125 affordable for-sale homes that would have been built during the six-year delay caused by the CBIA lawsuit. And because the law was designed not just to encourage increased capacity in the affordable sector of the housing market, but geographic desegregation through the building of mixed-income developments, it is safe to say that the city’s housing market is both more expensive and more socioeconomically divided than it would otherwise have been.

The city gave builders multiple off-ramps from the affordable construction requirement for companies that really didn’t want to build the units, and provided financial incentives to reward companies that complied. Those positive incentives effectively negate any economic argument against the zoning rules that developers could make, according to University of San Francisco Law School professor Tim Iglesias.

“If they do build the housing, the city gives them all kinds of economic goodies, density bonuses, fast-track permitting, all kinds of things that defray the cost of building the additional units,” Iglesias, who filed an amicus brief in the case on behalf of San Jose, told ThinkProgress. “If a developer decides to pay the in-lieu fee, that’s their choice. But if they build the units, it’s kind of an economic wash for the builder.”

San Jose’s ordinance wasn’t born out of frivolity or short-term populism. The law was a response to a decades-long project at the state level to bake affordable housing into the pie of city planning. Many years before the 2010 ordinance vote, state legislators passed a series of measures requiring that cities present plans for building housing that would meet the current and projected needs of their populations. At the end of 2008, San Jose was already failing to meet the projected housing needs of its moderate- and low-income families. It had built 13 percent of the units would need over the coming five years for people with incomes below 30 percent of the median earnings in the area, 16 percent of the projected need for those earning below 50 percent of the median, and far lower percentages for the other groups that are subject to affordable housing policy in the state. The decision to expand inclusionary zoning from targeted “redevelopment zones” to the whole city came in response to that shortfall, and the city held 9 separate public meetings on the rules before finalizing them, the Supreme Court’s decision noted.

Monday’s decision only applies to housing construction intended to be sold. Renters are out in the cold, thanks to a separate lower-court decision ruling inclusionary zoning illegal for rental projects. Lawmakers sought to override that rental decision in 2013, but Gov. Jerry Brown (D) vetoed the bill in part because he “would like the benefit of the Supreme Court’s thinking” on the San Jose case “before we make adjustments in this area.” The governor’s office declined an opportunity to comment Tuesday on how the decision might have affected Brown’s thinking.

Recent real estate market research illustrates the need for inclusionary zoning policies and other developer incentives. It isn’t just that builders ignore the poor if left to their own devices. They also ignore essentially all non-rich renters or prospective homeowners. Of all new housing built in more than 50 metropolitan areas since 2012, more than 80 percent was luxury housing intended to be rented or sold at prices far above the median for the area.

As the seat of Silicon Valley, San Jose is an epicenter of housing policy failure. It is the largest city in Santa Clara County, which has collectively spent over half a billion dollars each year over the past six on locking up and hospitalizing more than 100,000 homeless individuals. This failure to house people adequately overlaps with one of the most rapid periods of growth in the history of the tech industry that’s rooted in the county. Facebook and Google have made more than a few millionaires in the area over the same time span that the area’s destitute have been allowed to fall through the economic cracks.