July 01, 2015

Developers: Beware of Disparate Impact After Supreme Court Ruling

Following the Supreme Court’s decision in Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, state agencies and real estate developers should carefully consider the effects of their low-income housing allocation decisions on minority communities and be prepared to justify their actions in a racial context. In the case, the United States Supreme Court held, in a 5-4 decision, that disparate impact claims may be brought under the Fair Housing Act (FHA).

 

Fair Housing Act

 

FHA §804(a) provides that it shall be unlawful:

“To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise to make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin” (emphasis added).

And FHA §805(a) provides:

“It shall be unlawful for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin” (emphasis added).

 

The Question of Disparate Impact

 

Although the Supreme Court long ago ruled that a 14th Amendment Equal Protection Clause claim requires a showing of discriminatory intent, the Court had not addressed the question of whether a claim can be brought under the FHA on the basis of “disparate impact,” namely to challenge practices that have a “disproportionately adverse effect on minorities” and are otherwise unjustified by a legitimate rationale.

In TDHCA v. ICP, ICP alleged that low-income housing tax credit (LIHTC) allocation decisions by TDHCA, the state credit allocating agency, caused continued segregated housing patterns by allocating too many LIHTCs for housing in predominantly black, inner-city areas and too few for housing in predominantly white, suburban neighborhoods. ICP contended that TDHCA must change its LIHTC allocation selection criteria to encourage the construction of low-income housing in suburban communities. Even though such suburban housing would be available for general public use and not be “race-favored,” by promoting a deconcentration of poverty it presumably would assist in desegregating housing and providing housing and other opportunities for protected classes.

The Court, which focused on statutory interpretation (e.g., “to make available” and “because of”) and on cases in the employment and age discrimination areas, held that the FHA allows disparate impact claims.

 

Implications for Low-Income Housing Development

 

Importantly, the Court’s decision acknowledges that race may need to be considered in some circumstances to comply with the FHA. Although the Court noted that remedial orders in disparate impact cases should be designed, when possible, to eliminate racial disparities through race-neutral means, it also acknowledged that “race may be considered in certain circumstances” and that awareness of race in attempting to address the ills of racial segregation does not “doom that endeavor at the outset.” This acknowledgement eliminated concerns that the Court would declare disparate impact analysis unconstitutional under the Fourteenth Amendment.

The Court also stated that disparate impact liability is limited in key respects, and that housing authorities and private developers have leeway to explain the valid interests served by their policies: “The FHA does not decree a particular vision of urban development and it does not put housing authorities and private developers in a double bind of liability, subject to suit whether they choose to rejuvenate a city core or to promote new low-income housing in suburban communities.”

It is important to note that TDHCA v. ICP held only that disparate impact can be the basis of a FHA claim, and not that any particular action must be taken by anyone. The Court does, however, highlight the need for agencies and developers to consider the effects of allocation decisions on minority communities and to justify their actions in a racial context.

The case now will proceed to settlement or to a trial on the issue of whether there were less discriminatory alternatives for allocating LIHTCs, in which the burden of proof is on the plaintiff. The Court may also re-examine whether ICP made a case of disparate impact and whether federal LIHTC law concerning allocations tied TDHCA’s hands such that there is no liability.

Some of the issues concerning LIHTCs and geographic desegregation were discussed in Callison, “Achieving Our Country: Low-Income Housing Tax Credits and Geographic Desegregation,” published in the Southern California Journal of Law & Social Justice in 2010.

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