Challenge to Chicago affordable housing ordinance not affected by SCOTUS decision to not hear similar California case

By Katie Rucke | Mar 24, 2016

The U.S. Supreme Court’s decision last month to not hear a California case challenging the constitutionality of an inclusionary housing ordinance should not have any impact on a similar lawsuit pending in Cook County court against the city of Chicago.

“The decision by the U.S. Supreme Court not to hear a challenge of the California Supreme Court’s ruling upholding San Jose’s inclusionary housing ordinance has no direct legal impact on any ordinance outside of California, including Chicago’s ordinance,” Bryan Brown, special counsel at Katten Muchin Rosenman said in a statement to the Cook County Record.

In 2010, the city of San Jose, California, enacted a housing ordinance that requires developers of new residential development projects with 20 or more units to reserve a minimum of 15 percent of for sale units for low-income buyers. The units were required to be sold to low-income buyers at an "affordable housing cost"—a below-market price that cannot exceed 30 percent of these buyers' median income, according to court documents. Developers could opt-out of the requirement by paying a fee.

The California Building Industry Association sued the city, reasoning that the ordinance was an unconstitutional taking of property. A Santa Clara County judge ruled in favor of the CBIA, but an appeals court, and later the state Supreme Court, ruled in favor of the city.

In Chicago, home builder Hoyne Development and the Home builders Association of Greater Chicago filed a lawsuit in Cook County Circuit Court on Aug. 27, 2015. The plaintiffs asked a judge to declare that the city’s Affordable Requirements Ordinance was a violation of the Fifth Amendment for taking private property without just compensation and was unenforceable, as the Cook County Record previously reported.

Though the plaintiffs recognized Chicago’s need for more affordable housing, they argued that dedicating 10 percent of units in developments with 10 or more units as affordable housing or having to pay the city a $100,000 per unit fee, will slow new residential development and hurt developers and trade businesses alike.

Sixty percent of the fee payments go toward the Affordable Housing Opportunity Fund to support housing developments in Chicago, while the remaining 40 percent goes to the Chicago Low Income Housing Trust Fund and is used to write down rents or lower the cost of financing new developments, according to a report in the Nonprofit Quarterly.

On Feb. 29, Justice Clarence Thomas wrote that the Supreme Court would not hear the San Jose case. 

“Justice Thomas, however, suggested that the issue should be heard by the U.S. Supreme Court at another time,” Brown said.

Until the Supreme Court decides the issue, “property owners and local governments are left uncertain about what legal standard governs legislative ordinances and whether cities can legislatively impose exactions that would not pass muster if done administratively,” Thomas wrote in his decision.

While Thomas recognized the need to settle rules regarding housing ordinances that require new projects to reserve space for low-income buyers, he said the San Jose case didn’t present an opportunity for the Supreme Court to resolve the conflict throughout the U.S. because of the issues raised in lower courts and how the courts responded to those arguments.

“Thus, while the California Supreme Court decision stands for the time being, challenges to inclusionary housing ordinances based on Constitutional grounds likely will continue,” Brown said.

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City of Chicago Home Builders Association of Greater Chicago Katten Muchin Rosenman LLP U.S. Supreme Court

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