## Facts

- The City of San Jose adopted an inclusionary housing ordinance applicable to new for-sale residential developments with 20 or more units.
- The ordinance generally required developers to make at least 15% of the units affordable to low- or moderate-income households by restricting sale price and eligible purchasers, with long-term affordability limits.
- The ordinance provided compliance alternatives, including in-lieu fees, off-site construction, and land dedication.
- A statewide builders’ trade association brought a facial challenge, arguing the ordinance imposed an unconstitutional exaction under the state and federal Takings Clauses and therefore required heightened scrutiny under Nollan and Dolan.
- The trial court enjoined enforcement, treating the ordinance as an exaction lacking the required connection to project impacts; the Court of Appeal reversed.
- The California Supreme Court affirmed the Court of Appeal and upheld the ordinance; the U.S. Supreme Court denied certiorari, with a concurrence noting uncertainty over applying Nollan/Dolan to legislatively imposed conditions.

## Issues

1. Whether the inclusionary housing requirement is an exaction triggering Nollan/Dolan “essential nexus” and “rough proportionality” review.
2. If not an exaction, whether the ordinance is evaluated as a generally applicable land-use regulation under deferential police-power standards.
3. Whether the ordinance is facially invalid as a taking because it allegedly requires below-market sales without compensation in all or nearly all applications.

## Decision

- The California Supreme Court upheld the ordinance against the facial takings challenge.
- The court held the ordinance was not an exaction subject to Nollan/Dolan because it did not require a compelled conveyance of a property interest to the public or a payment to the city.
- The ordinance was treated as a land-use regulation that restricts the use and pricing of a portion of units, reviewed under a deferential reasonable-relationship standard.
- The court concluded the challenger failed to show the ordinance necessarily effects an uncompensated taking in all or nearly all circumstances.
- The U.S. Supreme Court denied certiorari, leaving the judgment intact.

## Legal Principles

- Nollan/Dolan heightened scrutiny generally applies when government conditions approval on surrendering a property interest (such as an easement, dedication, or comparable conveyance) as the price of a permit.
- A generally applicable inclusionary zoning requirement framed as a restriction on the use and sale price of units may be analyzed as an ordinary land-use regulation under the police power, not as an exaction.
- Under deferential land-use review, a regulation is typically valid if reasonably related to a legitimate public purpose and not confiscatory.
- A facial takings challenge requires showing the law is unconstitutional in all or virtually all of its applications; reduced profitability, without more, does not establish a taking.
- The existence of alternative compliance mechanisms can weigh against a claim that the law necessarily compels an uncompensated taking.

## Conclusion

The court sustained San Jose’s inclusionary housing ordinance as a permissible land-use regulation rather than an exaction, applied deferential review, and rejected a facial claim that mandatory below-market set-asides effect an uncompensated taking; the denial of certiorari left that result in place while a broader federal question about legislative conditions remained unresolved.


Cal. Bldg. Indus. Ass’n v. City of San Jose, 61 Cal. 4th 435 (Cal. 2015), cert. denied, 136 S. Ct. 928 (2016)