Housing market discrimination: Analysis of impact case and its effect on builders/developers - by Andrew Richards

Andrew Richards, Kaufman Dolowich Voluck

Shortly after Martin Luther King, Jr. was assassinated in 1968, former President Lyndon Johnson signed the Fair Housing Act (FHA) into law.  In general, the FHA makes it unlawful to “[r]efuse to sell or rent ...or otherwise make unavailable or deny, a dwelling to a person because of race” or “to discriminate against any person in” making certain real estate transactions “because of race” or other protected characteristics.  As a result, the federal government offers low-income housing tax credits to developers through designated state agencies which are directed to develop plans identifying selection criteria for distributing these credits.  Consequently, the distribution of tax credits has favored the development of housing units in low-income areas as opposed to higher-income areas.   

In June 2015, the supreme court of the United States was confronted with a major civil rights case out of Texas which posed the question: Are disparate-impact claims cognizable under the FHA?  “Disparate impact” is a legal theory applicable to anti-discrimination statutes such as the FHA. To establish disparate impact, a moving party need only prove that their opponent’s practices have a disproportionally adverse “effect” on a protected class as opposed to an “intended” bias or discrimination.  In a 5-4 decision, the supreme court ruled that the FHA prevents more than just intentional discrimination in the housing market.  It also prohibits seemingly race-neutral policies that disproportionately harm minorities and other protected groups whether or not there is evidence of discriminatory intent.  In doing so, however, the court limited when disparate impact claims will be successful, especially with respect to builders and developers.

Megan Yllanes, Kaufman Dolowich Voluck

In essence, the supreme court held that builders and developers will not be constrained by the FHA and therefore subject to a disparate impact claim if they are simply attempting to revitalize rundown and dilapidated housing areas.  In making this point, the supreme court said, “[a]n important and appropriate means of ensuring that disparate-impact liability is properly limited is to give housing authorities and private developers leeway to state and explain the valid interest their policies serve...It would be paradoxical to construe the FHA to impose onerous costs on actors who encourage revitalizing dilapidated housing in the nation’s cities merely because some other priority might seem preferable.  A disparate-impact claim relying on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.”

Moreover, the supreme court held that the availability of disparate impact should be used by private developers “to vindicate the FHA’s objectives and to protect their property rights by stopping municipalities from enforcing arbitrary and, in practice, discriminatory ordinances barring the construction of certain types of housing units.”  In fact, the court further stated that a disparate impact claim brought against a builder “challenging the decision of a private developer to construct a new building in one location rather than in another will not easily be able to show that this is a policy causing a disparate impact because such a one-time decision may not be a policy at all.”

Accordingly, the supreme court’s decision suggests that builders and developers should not be subject to disparate impact claims for simply providing low income housing to inner city areas: “it seems difficult to say as a general matter that a decision to build low-income housing in a blighted inner-city neighborhood instead of a suburb is discriminatory, or vice versa.”  Thus, “disparate impact” liability is now limited so that regulated entities such as builders and developers are able to make practical business choices and profit-related decisions that uphold free enterprise. “[B]efore rejecting a business justification—or, in the case of a governmental entity, an analogous public interest,” the court wrote, “a court must determine that a plaintiff has shown that there is ‘an available alternative…practice that has less disparate impact and serves the [entity’s] legitimate needs.’”

In the housing context, there are many cases based on disparate impact against developers, builders, agencies, lenders, and insurance companies.  Now that all doubt has been removed in connection with the viability of disparate impact liability under the FHA, more litigation in this context is likely to occur.  However, liability is against builders and developers will be limited so long as their business decisions to provide low income housing to inner city areas are not based on a disparity causing policy.

KDV has extensive experience representing property owners, developers, general contractors, construction managers, subcontractors of all trades, architects, engineers, and other design professionals in both the construction law and employment law context. Our well-staffed, experienced attorneys are equipped to provide you with advice and guidance on how to comply with the FHA and avoid disparate impact claims in connection with development decisions and the use of tax credits.

Andrew Richards, Esq., is a partner and Megan Yllanes is an associate at Kaufman Dolowich Voluck, Woodbury, N.Y.