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Disparate Impact

Analysis of Disparate Impact Case Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project

On June 25, 2015, the United States Supreme Court decided Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project. The question before the court was whether "disparate impact" claims are cognizable under the Fair Housing Act (FHA). The Fair Housing Act makes it unlawful to discriminate in the sale or rental of housing on the basis of race, color, religion, national origin, sex, disability or familial status (i.e., protected classes). “Disparate impact” is a legal theory applicable to anti-discrimination statutes. In contrast to an intentional discrimination, under disparate impact a plaintiff needs only prove that the defendant’s practices/policy has a disproportionally adverse effect on a protected class.

The Court determined that plaintiffs may bring disparate impact claims under the Fair Housing Act. In light of NAHB's recent Fair Housing Act Resolution, which was adopted during the 2015 Spring Board meeting, it is fair to say that Texas Dept. of Housing and Community Affairs is a positive ruling for builders.

Case History

This case began when the Inclusive Communities Project (ICP) brought an FHA lawsuit against the Texas Department of Housing and Community Affairs (TDHCA). ICP claimed that TDHCA caused segregated housing patterns by disproportionally allocating tax credits for housing in predominantly minority inner-city areas while allocating fewer tax credits in suburban white neighborhoods. ICP’s statistics showed a 12% disparity in the allocations between the inner-city versus the suburban areas. Based on these statistics, the District Court held that ICP had proven its case and that TDHCA failed to provide a reason that it could not have granted the tax allocations in a less discriminatory manner. 

On appeal, the United States Court of Appeals for the Fifth Circuit held that disparate impact claims are allowed under the FHA, but that the District Court should have required ICP (instead of TDHCA) to prove that the allocations could have been made in a less discriminatory manner. TDHCA appealed to the U.S. Supreme Court.

The U.S. Supreme Court Weighs In

The Supreme Court, while finding that disparate impact claims are cognizable under the FHA, limited when those claims will be successful, especially with respect to builders and developers. For example, the Court explained:

  • That the free-market spirit of builders and developers should not be constrained by the FHA. In particular, the Court noted that home builders and developers who are simply trying to revitalize areas with housing should not be subject to a disparate impact claim. The Court stated that “[i]t would be paradoxical to construe the FHA to impose onerous costs on actors who encourage revitalizing dilapidated housing in our Nation’s cities merely because some other priority might seem preferable. Entrepreneurs must be given latitude to consider market factors.” (Op. at 19). Further, the Court stated that private developers should not be put “in a double bind of liability, subject to suit whether they choose to rejuvenate a city core or to promote new low-income housing in suburban communities.” (Id.)
  • That disparate impact claims targeting illegal government action, not developer action, “reside at the heartland of disparate-impact liability.” The Court provided examples of unlawful housing restrictions, including “zoning law[s] preventing construction of multifamily rental units” and “multifamily dwellings.” In particular, the Court noted 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.” (Op. at 17). And even in a situation where a plaintiff brings a disparate impact claim against a builder, the Court noted that a lawsuit “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.” (Op. at 20).
  • Noted that disparate impact claims that rely on statistical disparity alone “must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.” The Court suggested, “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.”  (Op. at 20). This statement by the Court certainly suggests that developers should not be subject to disparate impact claims for providing low income housing opportunities in the inner city.

Next Steps for the TDHCA Case

The Supreme Court has now sent the case back to the Fifth Circuit for further proceedings. The Fifth Circuit may simply send the case back to the District Court, which would then have to analyze the facts in light of the Supreme Court's decision. In that instance, TDHCA would likely have stronger arguments to combat a claim of disparate impact than it did when ICP first filed complaint in the District Court.

NAHB’s legal staff will continue to stay on top of this case as it moves back down through the courts, and if possible provide NAHB's view of the issues at hand.