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The Disparate Impacts of Texas v. The Inclusive Communities Project & The Future Of Multi-Family

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Mid Atlantic Real Estate Journal - April 8, 2015

By: Steve Williams & Alex Barth

A pending US Supreme Court decision in Texas Department of Housing and Community Affairs, et al. v. The Inclusive Communities Project could bring some significant changes to the interpretation of the Fair Housing Act, particularly for investors and developers of multi-family low-income housing. At stake in this case? Potentially millions of dollars in tax credits that enable multi-family owners and developers to build low-income housing in blighted areas around the country. More generally, the outcome of this decision may require owners and landlords to take a close look at their own housing policies. 

The Fair Housing Act of 1968 (“the Act”) has been interpreted to prohibit both “disparate treatment” and “disparate impact” in housing. “Disparate treatment” is intentional discrimination based on a person’s inclusion in a protected class such as race, sex or disability. “Disparate impact,” unlike disparate treatment, has nothing to do with intent. Rather, disparate impact occurs when a policy that appears to be neutral on its face is discriminatory against a protected class when it is applied. It is this provision of the law that’s disputed in Texas v. The Inclusive Communities Project. 

The US Department of Housing and Urban Development has long interpreted the language of the Act to prohibit regulations that would have a disparate impact on minorities or protected classes—it recently issued a ruling that made this long-held position official. Eleven of the thirteen US Circuit Courts have interpreted the Act to provide for disparate impact claims. On two prior occasions the US Supreme Court has heard appeals on the question of whether the Act permits disparate impact claims (Twp. Of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. and Mager v. Gallagher). However, both of these cases were settled before the Supreme Court could issue a decision. 

In Texas v. The Inclusive Communities Project, one of the key questions before the Supreme Court was whether specific tax credits provided by Texas for the construction and development of low-income housing in blighted areas may have a disparate impact on minorities. Inclusive Communities argued that the tax credits issued by the state, while not intentionally discriminatory, result in concentrating low-income housing units in predominantly poor, blighted and minority neighborhoods. As such, these tax credits have the effect or “impact” of denying low-income housing residents the opportunities that arise in higher income neighborhoods such as access to better schools.

In January, the Supreme Court’s questions for both sides focused on the plain language interpretation of the Act: Do the Act’s amendments make sense if claims of disparate impact are not covered? Does reversing years of judicial decisions that have recognized disparate impact claims under the Act make sense? Justice Scalia thoroughly questioned both sides, inquiring whether Texas’ plain language argument might fail to recognize that the Court should look at the entire Act, and its amendments, to determine what result makes sense. He was equally critical of Inclusive Communities, questioning whether racial disparity and racial discrimination are equal, and whether racial disparity is enough to render a policy, such as state tax subsides, unlawful under the Act. 

The Court’s decision in this matter could impact thirty five years of consistent judicial acknowledgment that the Act applies to seemingly race neutral policies that have a negative effect on minorities and protected classes. A ruling for Texas would remove the specter of disparate impact claims from housing cases and affirm state tax and subsidy policies that encourage multifamily owners and developers to invest in blighted areas. A ruling for Inclusive Communities would legitimize the many court decisions prohibiting disparate impact discrimination— a laudable public policy goal with a potentially negative impact for development of low-income and blighted areas if these same subsidies are considered discriminatory under the Act. 

If this case does not settle as prior cases have, a decision is expected late spring or early summer of 2015. Stayed tuned for more information as we follow this case; we predict a flurry of legislative activity either way this case is decided.

Published in the Mid Atlantic Real Estate Journal, March 27 - April 9, 2015.