When resolving the question of whether disparate impact is a proper theory on which to bring a Federal Fair Housing Act (FHA) claim, the third time may be the charm.  Last year, we reported on Township of Mount Holly v. Mount Holly Gardens Citizens in Action, which was the second Supreme Court case in two years raising the question of whether disparate impact should be recognized under the FHA.  That case, like Magner v. Gallagher in 2012, was settled out of court and never got to oral argument.  The Supreme Court finally got a bite at the disparate impact apple on January 21 of this year, when it heard oral argument in the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

“Disparate impact,” when used in the context of civil rights litigation, means that a neutral policy or action, whether public or private, has a differential effect on at least one protected group as compared with others.  As we described last year,

The FHA prohibits discrimination among and against certain “protected classes,” including race, religion, sex, national origin, familial status, or disability.  All eleven federal courts of appeals have determined that FHA violations can occur by facial or intentional discrimination, or by policies or actions which—although facially neutral as to protected classes—may negatively affect [a] protected class.  The dispute over the availability of disparate impact analysis in FHA claims arises because of language differences between the FHA and other civil rights laws which more clearly permit disparate impact analysis.

The subject of Inclusive Communities is the Federal Low Income Housing Tax Credit program.  These tax credits are made available through state agencies to developers of affordable housing.  Each state is responsible for determining how the limited supply of tax credits is to be allocated among affordable housing projects.  The Texas Department of Housing and Community Affairs (TDHCA) applies an eleven-factor test, which looks at items such as income levels and the financial feasibility of the project, to make this determination.  The Inclusive Communities Project’s mission is to encourage the integration of affluent, white suburban neighborhoods through placement of low-income residents in affordable housing projects in the Dallas suburbs.  Asserting that the eleven-factor test encouraged the location of affordable housing in low-income and predominantly minority areas, ICP filed suit against TDHCA on a disparate impact theory.  ICP believed that the method for allocating tax credits had differentially impacted minority residents’ ability to freely obtain housing in white areas and increased racial concentrations in low-income areas.  The district court and the Fifth Circuit Court of Appeals found in ICP’s favor.

In the subsequent petition for writ of certiorari, the Supreme Court was asked to answer two questions: is disparate impact cognizable under the FHA?  And if disparate impact is available, what is the proper standard of review in disparate impact cases?  As we noted last year, “[f]air housing advocates, including the Obama administration, have sought to prevent the FHA disparate impact issue from reaching the Supreme Court due to predictions that the Court’s conservative majority would treat disparate impact review unfavorably, which would also potentially affect fair lending laws.”

As usual, it is difficult to determine from oral argument how the Supreme Court will decide the case.  However some observers have noted with surprise that Justice Scalia was at times hostile toward the anti-disparate impact position, which may indicate a ray of hope for fair housing advocates.  In any event, an outcome in favor of ICP would benefit affordable housing developers and fair housing advocates, while a victory for TDHCA would put state and local governments on much stronger ground in enacting and applying facially netural land use regulations.  An opinion in the case is expected in June.

For more information on the relationship between the FHA and local zoning—particularly with respect to housing for people with disabilities—readers should check out the recent publication Group Homes: Strategies for Effective and Defensible Planning and Regulation, available from ABA.