In major decision, California Supreme Court upholds inclusionary housing ordinance as valid exercise of police power and not an exaction

Today, the California Supreme Court upheld an inclusionary housing ordinance adopted by the City of San Jose in California Building Industry Association v. City of San Jose.  In upholding the inclusionary housing ordinance, the Supreme Court concluded that the adoption of the ordinance was a valid exercise of the City's police power and not an exaction subject to the constitutionally-based reasonable relationship standard.  Lots of Nollan/Dolan / Koontz for you exactions-case lovers.  See Slip Op. 25 et seq.  After laying out the Nollan / Dolan / Koontz line of reasoning, the Court refused to apply it to the inclusionary housing ordinace, instead noting:

In the present case, contrary to CBIA‘s contention, the San Jose inclusionary housing ordinance does not violate the unconstitutional conditions doctrine [of Nollan / Dolan / Koontz] because there is no exaction — the ordinance does not require a developer to give up a property interest for which the government would have been required to pay just compensation under the takings clause outside of the permit process. As summarized above, the principal requirement that the challenged ordinance imposes upon a developer is that the developer sell 15 percent of its on-site for-sale units at an affordable housing price. This condition does not require the developer to dedicate any portion of its property to the public or to pay any money to the public. Instead, like many other land use regulations, this condition simply places a restriction on the way the developer may use its property by limiting the price for which the developer may offer some of its units for sale. (See, e.g., Yee v. Escondido (1992) 503 U.S. 519, 532 (Yee) [describing mobilehome park rent control ordinance as ―a regulation of [the mobilehome park owners‘] use of their property‖].) Contrary to CBIA‘s contention, such a requirement does not constitute an exaction for purposes of the Nollan/Dolan line of decisions and does not trigger application of the unconstitutional conditions doctrine.

Rather than being an exaction, the ordinance falls within what we have already described as municipalities‘ general broad discretion to regulate the use of real property to serve the legitimate interests of the general public and the community at large. For example, municipalities may designate certain areas of a city where only residential units may be built and other areas where only commercial projects are permitted. (See, e.g., Euclid, supra, 272 U.S. 365; Lockard v. City of Los Angeles (1949) 33 Cal.2d 453, 460.) If a municipality finds that it is in the public interest, it may specify where certain types of retail establishments may be operated and other areas where they may not. (See, e.g., Hernandez v. City of Hanford (2007) 41 Cal.4th 279, 296-298 & fn. 10.) If a municipality concludes that the city already has a sufficient number of a specific type of business in a particular neighborhood — for example, adult entertainment businesses — it may prohibit other property owners from using their property in that area for such businesses. (See, e.g., Young v. American Mini Theatres (1976) 427 U.S. 50; Renton v. Playtime Theatres, Inc. (1986) 475 U.S. 41.) Similarly, if a municipality determines that a particular neighborhood or the community in general is in special need of a specific type of residential development or business establishment — such as a multiunit residential project or a retail shopping center — it may adopt land use regulations to serve such a need. (See, e.g., Ensign Bickford Realty Corp. v. City Council (1977) 68 Cal.App.3d 467, 477-478.) In addition, of course, a municipality may impose land use limitations on the height of buildings, set-back requirements, density limits (lot size and number of units per lot), bedroom requirements and a variety of other use restrictions. (See, e.g., Griffin Development Co. v. City of Oxnard (1985) 39 Cal.3d 256, 265-266.)

Slip Op. at 31-32.  The decision is a huge win for California cities.