United States Supreme Court Rules In Fair Housing Act (FHA) Case That Disparate Impact On Housing Opportunities Is Prohibited: Developers Beware

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On June 25, 2015, the U.S. Supreme Court ruled in the case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project Inc. (ICP), that lawsuits based on complaints that a law or policy has a disparate impact on housing opportunities resulting in discrimination of minorities, whether or not intentional, are lawful under the FHA, and may create liability for the offender.

In ICP, federal low income tax credits were distributed to the state of Texas, who in turn distributed the credits based on a point system. ICP, a non-profit, alleged that the state perpetuated segregation by its disproportionate allocation of tax credits, in granting too many for housing in predominantly black inner city neighborhoods and too few in predominantly white suburban areas. Under the FHA, it is unlawful to deny a dwelling to any person because of race. A HUD regulation had interpreted the FHA to encompass disparate impact liability and established a burden shifting structure for adjudicating disparate impact claims. This could be established statistically without any proof of intent and the “effect” was enough to establish a violation of the law. The Fifth District Court of Appeal held that a claim could be made based on disparate impact under the FHA and that the remedy would be for the elimination of the offending practice to eliminate racial disparities through race neutral means. The case was then appealed to the Supreme Court by the state.

The significance of this case is that lawsuits involving housing decisions under the FHA can be based on claims of disparate impact without showing intent, which is no longer necessary to establish disparate treatment and a violation of the FHA. Thus, local governments and real estate developers must be cognizant of the methods they use to encourage racial diversity in their housing efforts, which not only include funding, but policies relating to zoning laws, land use controls, and often housing restrictions.

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