California Building Industry Ass'n v. City of San Jose (61 Cal. 4th 435, 2015)

Opinion

CANTIL-SAKAUYE, C. J.

Health and Safety Code section 50003, subdivision (a), currently provides: “The Legislature finds and declares that . . . there exists within the urban and rural areas of the state a serious shortage of decent, safe, and sanitary housing which persons and families of low or moderate income . . . can afford. This situation creates an absolute present and future shortage of supply in relation to demand . . . and also creates inflation in the cost of housing, by reason of its scarcity, which tends to decrease the relative affordability of the state’s housing supply for all its residents.”

This statutory language was first enacted by the Legislature over 35 years ago, in the late 1970s. (Stats. 1975, 1st Ex. Sess., ch. 1, § 7, pp. 3859-3861, adding Health & Saf. Code, former § 41003; Stats. 1979, ch. 97, § 2, p. 225, amending Health & Saf. Code, § 50003.) It will come as no surprise to anyone familiar with California’s current housing market that the significant problems arising from a scarcity of affordable housing have not been solved over the past three decades. Rather, these problems have become more severe and have reached what might be described as epic proportions in many of the state’s localities. All parties in this proceeding agree that the lack of affordable housing is a very significant problem in this state.

As one means of addressing the lack of a sufficient number of housing units that are affordable to low- and moderate-income households, more than 170 California municipalities have adopted what are commonly referred to as “inclusionary zoning” or “inclusionary housing” programs. (Non-Profit Housing Association of Northern Cal., Affordable by Choice: Trends in Cal. Inclusionary Housing Programs (2007) p. 3 (hereafter NPH Affordable by Choice).) As a 2013 publication of the United States Department of Housing and Urban Development (HUD) explains, inclusionary zoning or housing programs “require or encourage developers to set aside a certain percentage, of housing units in new or rehabilitated projects for low- and moderate-income residents. This integration of affordable units into market-rate projects creates opportunities for households with diverse socioeconomic backgrounds to live in the same developments and have access to [the] same types of community services and amenities . . . .” (U.S. Dept, of Housing and Urban Development, Inclusionary Zoning and Mixed-Income Communities (Spring 2013) Evidence Matters, p. 1, fn. omitted (hereafter 2013 HUD Inclusionary Zoning) [as of June 15, 2015].)

In 2010, after considerable study and outreach to all segments of the community, the City of San Jose (hereafter sometimes referred to as the city or San Jose) enacted an inclusionary housing ordinance that, among other features, requires all new residential development projects of 20 or more units to sell at least 15 percent of the for-sale units at a price that is affordable to low- or moderate-income households. (The ordinance is described in greater detail in pt. II., post.)

Very shortly after the ordinance was enacted and before it took effect, plaintiff California Building Industry Association (CBIA) filed this lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.” The complaint maintained that under the “controlling state and federal constitutional standards governing such exactions and conditions of development approval, and the requirements applicable to such housing exactions as set forth in San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643 [117 Cal.Rptr.2d 269, 41 P.3d 87], and Budding Industry Assn. of Central California v. City of Patterson (2009) 171 Cal.App.4th 886 [90 Cal.Rptr.3d 63]” the conditions imposed by the city’s inclusionary housing ordinance would be valid only if the city produced evidence demonstrating that the requirements were reasonably related to the adverse impact on the city’s affordable housing problem that was caused by or attributable to the proposed new developments that are subject to the ordinance’s requirements, and that the materials relied on by the city in enacting the ordinance did not demonstrate such a relationship. Although the complaint did not explicitly spell out the specific nature of its constitutional claim, CBIA has subsequently clarified that its challenge rests on “the unconstitutional conditions doctrine, as applied to development exactions” under the takings clauses (or, as they are sometimes denominated, the just compensation clauses) of the United States and California Constitutions. CBIA’s challenge is based on the premise that the conditions imposed by the San Jose ordinance constitute “exactions” for purposes of that doctrine. The superior court agreed with CBIA’s contention and issued a judgment enjoining the city from enforcing the challenged ordinance.

The Court of Appeal reversed the superior court judgment, concluding that the superior court had erred (1) in finding that the San Jose ordinance requires a developer to dedicate property to the public within the meaning of the takings clause, and (2) in interpreting the controlling constitutional principles and the decision in San Remo Hotel v. City and County of San Francisco, supra, 27 Cal.4th 643 (San Remo Hotel), as limiting the conditions that may be imposed by such an ordinance to only those conditions that are reasonably related to the adverse impact the development projects that are subject to the ordinance themselves impose on the city’s affordable housing problem. Distinguishing the prior appellate court decision in Building Industry Assn. of Central California v. City of Patterson, supra, 171 Cal.App.4th 886 (City of Patterson), the Court of Appeal held that the appropriate legal standard by which the validity of the ordinance is to be judged is the ordinary standard that past California decisions have uniformly applied in evaluating claims that an ordinance regulating the use of land exceeds a municipality’s police power authority, namely, whether the ordinance bears a real and substantial, relationship to a legitimate public interest. The Court of Appeal concluded that the matter should be remanded to the trial court for application of this traditional standard.

CBIA sought review of the Court of Appeal decision in this court, maintaining that the appellate court’s decision conflicts with the prior Court of Appeal decision in City of Patterson, supra, 171 Cal.App.4th 886, and that City of Patterson was correctly decided and should control here. We granted review to determine the soundness of the Court of Appeal’s ruling in this case.

For the reasons discussed below, we conclude that the Court of Appeal decision in the present case should be upheld. As explained hereafter, contrary to CBIA’s contention, the conditions that the San Jose ordinance imposes upon future developments do not impose “exactions” upon the developers’ property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution. Furthermore, unlike the condition that was at issue in San Remo Hotel, supra, 27 Cal.4th 643, and to which the passage in that opinion upon which CBIA relies was addressed — namely, an “in lieu” monetary fee that is imposed to mitigate a particular adverse effect of the development proposal under consideration — the conditions imposed by the San Jose ordinance at issue here do not require a developer to pay a monetary fee but rather place a limit on the way a developer may use its property. In addition, the conditions are intended not only to mitigate the effect that the covered development projects will have on the city’s affordable housing problem but also to serve the distinct, but nonetheless constitutionally legitimate, purposes of (1) increasing the number of affordable housing units in the city in recognition of the insufficient number of existing affordable housing units in relation to the city’s current and future needs, and (2) assuring that new affordable housing units that are constructed are distributed throughout the city as part of mixed-income developments in order to obtain the benefits that flow from economically diverse communities and avoid the problems that have historically been associated with isolated low-income housing. Properly understood, the passage in San Remo Hotel upon which CBIA relies does not apply to the conditions imposed by San Jose’s inclusionary housing ordinance.

Accordingly, we conclude that the judgment of the Court of Appeal in this case should be affirmed.

I. Statutory background

We begin with a brief summary of the California statutes that form the background to the San Jose ordinance challenged in this case.

Nearly 50 years ago, the California Legislature enacted a broad measure requiring all counties and cities in California to “adopt a comprehensive, long-term general plan for the physical development of the county or city.” (Gov. Code, § 65300 et seq., enacted by Stats. 1965, ch. 1880, § 5, pp. 4334, 4336, operative Jan. 1, 1967.) Each municipality’s general plan is to contain a variety of mandatory and optional elements, including a mandatory housing element consisting of standards and plans for housing sites in the municipality that “shall endeavor to make adequate provision for the housing needs of all economic segments of the community.” (Gov. Code, former § 65302, subd. (c), as amended by Stats. 1967, ch. 1658, § 1, p. 4033; see now Gov. Code, § 65580.)

A little more than a decade later, in 1980, declaring (1) that “[t]he availability of housing is of vital statewide importance . . . ,” (2) that “the early attainment of decent housing and a suitable living environment for every Californian ... is a priority of the highest order,” (3) that “[t]he early attainment of this goal requires the cooperative participation of government and the private sector in an effort to expand housing opportunities and accommodate the housing needs of Californians of all economic levels,” and (4) that “[l]ocal and state governments have a responsibility to use the powers vested in them to facilitate the improvement and development of housing to make adequate provision for the housing needs of all economic segments of the community” (Gov. Code, § 65580, subds. (a), (b), (d), italics added), the Legislature enacted a separate, comprehensive statutory scheme that substantially strengthened the requirements of the housing element component of local general plans (Gov. Code, §§ 65580-65589, enacted by Stats. 1980, ch. 1143, § 3, pp. 3697-3703). The 1980 legislation — commonly referred to as the “ ‘Housing Element Law’ ” (see, e.g., Fonseca v. City of Gilroy (2007) 148 Cal.App.4th 1174, 1179 [56 Cal.Rptr.3d 374]) — sets forth in considerable detail a municipality’s obligations to analyze and quantify the locality’s existing and projected housing needs for all income levels, including the locality’s share of the regional housing need as determined by the applicable regional “ ‘[c]ouncil of governments’ ” (Gov. Code, § 65582, subd. (b)), and to adopt and to submit to California’s Department of Housing and Community Development a multiyear schedule of actions the local government is undertaking to meet these needs. (Id., §§ 65583-65588.) In particular, the legislation requires a municipality, “[i]n order to make adequate provision for the housing needs of all economic segments of the community, . . . [to] [¶] . . . [i]dentify actions that will be taken to make sites available during the planning period with appropriate zoning and development standards and with services and facilities to accommodate that portion of the city’s or county’s share of the regional housing need for each income level . . .” (Gov. Code, § 65583, subd. (c)(1)) and to “[a]ssist in the development of adequate housing to meet the needs of extremely low, very low, low-, and moderate-income households.” (Id., subd. (c)(2).)

In addition to adopting the Housing Element Law, the Legislature has enacted a variety of other statutes to facilitate and encourage the provision of affordable housing, for example, prohibiting local zoning and other restrictions that preclude the construction of affordable housing units (see, e.g., Gov. Code, §§ 65913.1 [least cost zoning law], 65589.5 [Housing Accountability Act]), and requiring local governments to provide incentives, such as density bonuses, to developers who voluntarily include affordable housing in their proposed development projects (Gov. Code, § 65915). Furthermore, with respect to two geographic categories — redevelopment areas and the coastal zone — the Legislature has enacted statutes explicitly directing that new residential development within such areas include affordable housing units. (See Health & Saf. Code, § 33413, subd. (b)(1), (2)(A)(i) [redevelopment areas]; Gov. Code, § 65590, subd. (d) [coastal zone].)

Although to date the California Legislature has not adopted a statewide statute that requires every municipality to adopt a mandatory inclusionary housing ordinance if needed to meet the municipality’s obligations under the Housing Element Law, in recent decades more than 170 California cities and counties have adopted such inclusionary housing ordinances in an effort to meet such obligations. (See generally NPH Affordable by Choice, supra, pp. 3, 40 [listing cities and counties with inclusionary policies as of 2006]; Nat. Housing Conference, Inclusionary Zoning: The Cal. Experience (Feb. 2004) vol. 3, No. 1, NHC Affordable Housing Policy Review; Calavita & Grimes, Inclusionary Housing in Cal.: The Experience of Two Decades (1998) 64 J. Am. Planning Assn. 150, 158-164.) The provisions and legislative history of the affordable housing statutes make it clear that the California Legislature is unquestionably aware of these numerous local mandatory inclusionary housing ordinances and that the existing state legislation is neither inconsistent with nor intended to preempt these local measures.

II. Background and description of challenged San Jose inclusionary housing ordinance

It is within the context of the foregoing statutory framework that San Jose began considering the need and desirability of adopting an inclusionary housing ordinance. As noted, the statewide Housing Element Law places responsibility upon a city to use its powers to facilitate the development of housing that makes adequate provision for all economic segments of the community, in particular extremely-low-, very-low-, lower- and moderate-income households, including the city’s allocation of the regional housing need as determined by the applicable regional council of governments. (Gov. Code, §§ 65580, subd. (d), 65583, 65584.)

In December 2008, the Association of Bay Area Governments (ABAG), the regional council of governments within whose jurisdiction the City of San Jose falls (see Gov. Code, § 65588, subd. (e)(1)(B)), calculated San Jose’s share of the regional need for new housing over the 2007 to 2014 planning period as approximately 34,700 units, of which approximately 19,300 units — or about 60 percent of the new housing units in San Jose — would be needed to house moderate-, low-, very-low-, and extremely-low-income households. As of February 2009, however, San Jose had met only a small percentage of its regional need allocation for moderate- or lower-income households (6 percent of the need for moderate-income households, 2 percent for lower-income households, 16 percent for very-low-income households, and 13 percent for extremely-low-income households, respectively).

Prior to the adoption of the challenged citywide ordinance in 2010, San Jose’s experience with a mandatory inclusionary housing policy was limited to residential development projects that were undertaken within the redevelopment areas of the city. (At that time, redevelopment areas comprised almost 20 percent of the city’s territory and included one-third of the city’s population.) As noted, redevelopment areas were one of the two types of locations within which the Legislature had directed that any new residential development must include some affordable housing units. Under the applicable statute, at least 15 percent of all new or substantially rehabilitated dwelling units in a redevelopment project undertaken by a public or private entity other than the redevelopment agency were required to be made available at an affordable housing cost and to be occupied by persons and families of low or moderate income. (Health & Saf. Code, § 33413, subd. (b)(2)(A)(i).) Between-1999 and 2009, more than 10,000 affordable housing units had been built in the redevelopment areas of San Jose under the city’s redevelopment inclusionary housing policy.

In part as a result of this experience with a mandatory inclusionary housing requirement in its redevelopment areas, the city began considering the feasibility of adopting a citywide inclusionary housing policy. Out of concern for the potential economic impact of such a citywide requirement on developers, however, the city retained a private consulting firm to conduct an economic feasibility study of a citywide inclusionary housing policy. The very extensive 300-page study, prepared by the consulting firm with input from developers, affordable housing advocates, community organizations and others, concluded that inclusionary housing could be economically feasible with certain developer incentives and under improved economic conditions.

After reviewing the study, the city council directed city staff to obtain further input from affected stakeholders and the community generally and then to bring a draft policy to the council for its consideration. Between June and December 2008, officials at the city housing department held more than 50 meetings with community members, developer and labor associations, affordable housing advocates and community organizations, and presented a draft policy to the council. In December 2008, after discussion, the city council directed staff to draft an inclusionary housing ordinance that would meet specified requirements agreed upon by the council. A draft ordinance was written and released for public review in July 2009, and between July and October 2009 nine public meetings were held throughout the city to discuss the draft ordinance. On January 26, 2010, the city council adopted the citywide inclusionary housing ordinance at issue in this case. (San Jose Ord. No. 28689, amending San Jose Mun. Code, tit. 5, to add new ch. 5.08 adopting a “citywide inclusionary housing program”; San Jose Mun. Code, §§ 5.08.010-5.08.730.)

We summarize the principal provisions of the lengthy ordinance, which runs 57 pages.

The ordinance begins with a list of findings and declarations, detailing the steady increase in the cost of housing in San Jose generally and the substantial need for affordable housing for extremely-low-, very-low-, lower-, and moderate-income households to meet the city’s regional housing needs allocation as determined by ABAG. The findings note that “[Requiring affordable units within each development is consistent with the community’s housing element goals of protecting the public welfare by fostering an adequate supply of housing for persons at all economic levels and maintaining both economic diversity and geographically dispersed affordable housing.” (S.J.M.C., § 5.08.010 F.) The findings further observe that requiring builders of new market rate housing to provide some housing affordable to low- and moderate-income families “is also reasonably related to the impacts of their projects, because; [¶] 1. Rising land prices have been a key factor in preventing development of new affordable housing. New market-rate housing uses available land and drives up the price of remaining land. New development without affordable units reduces the amount of land development opportunities available for the construction of affordable housing. [¶] 2. New residents of market-rate housing place demands on services provided by both public and private sectors, creating a demand for new employees. Some of these public and private sector employees needed to meet the needs of the new residents earn incomes only adequate to pay for affordable housing. Because affordable housing is in short supply in the city, such employees may be forced to live in less than adequate housing within the city, pay a disproportionate share of their incomes to live in adequate housing in the city, or commute ever increasing distances to their jobs from housing located outside the city. These circumstances harm the city’s ability to attain employment and housing goals articulated in the city’s general plan and place strains on the city’s ability to accept and service new market-rate housing development.” (Ibid.)

The next section, setting forth the purposes of the ordinance, explains that a principal purpose is to enhance the public welfare by establishing policies requiring the development of housing affordable to low- and moderate-income households in order to meet the city’s regional share of housing needs and implement the goals and objectives of the city’s general plan and housing element. A further purpose is to provide for the residential integration of low- and moderate-income households with households of market rate neighborhoods and to disperse inclusionary units throughout the city where new residential development occurs. In addition, the ordinance is intended to alleviate the impacts that would result from the use of available residential land solely for the benefit of households that are able to afford market rate housing and to mitigate the service burden imposed by households in new market rate residential developments by making additional affordable housing available for service employees. Finally, the ordinance provides residential developers with a menu of options from which to select alternatives to the construction of inclusionary units on the same site as market rate residential developments. (S.J.M.C., § 5.08.020.)

The substantive provisions of the ordinance follow. The requirements contained in the ordinance apply to all residential developments within the city that create 20 or more new, additional, or modified dwelling units. (S.J.M.C., § 5.08.250 A.) With regard to such developments, the ordinance’s basic inclusionary housing requirement specifies that 15 percent of the proposed on-site for-sale units in the development shall be made available at an “affordable housing cost” to households earning no more than 120 percent of the area median income for Santa Clara County adjusted for household size. (Id., §§ 5.08.400 A.l; see id., § 5.08.130.) The ordinance generally defines affordable housing cost by reference to the definition set forth in Health and Safety Code section 50052.5 (S.J.M.C., § 5.08.105), which in turn defines affordable housing cost as 30 percent of the area median income of the relevant income group (i.e., extremely low, very low, lower and moderate income). (Health & Saf. Code, § 50052.5, subd. (b)(1), (2), (3), (4).)

As an alternative to providing the required number of for-sale inclusionary units on the same site as the market rate units, the ordinance affords a developer a number of compliance options. At the same time, as an apparent incentive to encourage developers to choose to provide on-site inclusionary units, the ordinance provides that when a developer chooses one of the alternative compliance options, the inclusionary housing requirement increases to no less than 20 percent of the total units in the residential development, as contrasted with the no less than 15 percent requirement that applies to on-site inclusionary units. (S.J.M.C., § 5.08.500 B.) The alternative compliance options include (1) constructing off-site affordable for-sale units (id., §5.08.510 A.), (2) paying an in lieu fee based on the median sales price of a housing unit affordable to a moderate-income family (id., § 5.08.520), (3) dedicating land equal in value to the applicable in lieu fee (id., § 5.08.530), or (4) acquiring and rehabilitating a comparable number of inclusionary units that are affordable to low- or very low-income households (id., § 5.08.550).

As additional incentives to encourage developers to comply with the ordinance by providing affordable units on site, the ordinance permits a developer who provides all of the required affordable units on the same site as the market rate units to apply for and obtain a variety of economically beneficial incentives, including (1) a density bonus that meets the requirements of Government Code section 65915 et seq., (2) a reduction in the number of parking spaces otherwise required by the San Jose Municipal Code, (3) a reduction in minimum set-back requirements, and (4) financial subsidies and assistance from the city in the sale of the affordable units. (S.J.M.C., § 5.08.450.)

The ordinance also addresses the characteristics of the affordable units to be constructed on site. The ordinance requires that such units have the same quality of exterior design and comparable square footage and bedroom count as market rate units (S.J.M.C., § 5.08.470 B, F), but permits some different “unit types” of affordable units (for example, in developments with detached single-family market rate units, the affordable units may be attached single-family units or may be placed on smaller lots than the market rate units) (id., § 5.08.470 E.), and also allows the affordable units to have different, but functionally equivalent, interior finishes, features, and amenities, compared with the market rate units (id., § 5.08.470 C).

The ordinance additionally contains a number of provisions intended to ensure that the number of affordable housing units required by the ordinance is not lost upon resale of an affordable unit. To this end, the ordinance requires that the guidelines to be adopted by city officials to implement the ordinance “shall include standard documents ... to ensure the continued affordability of the inclusionary units approved for each residential development.” (S.J.M.C., § 5.08.600 A.) Such documents may include, but are not limited to, “inclusionary housing agreements, regulatory agreements, promissory notes, deeds of trust, resale restrictions, rights of first refusal, options to purchase, and/or other documents,” and shall be recorded against the residential development, all inclusionary units, and any site subject to the provisions of the ordinance. (Ibid.) The ordinance further provides that such documents shall include “subordinate shared appreciation documents permitting the city to capture at resale the difference between the market rate value of the inclusionary unit and the affordable housing cost, plus a share of appreciation realized from an unrestricted sale in such amounts as deemed necessary by the city to replace the inclusionary unit.” (Ibid.) The ordinance specifies that all inclusionary units “shall remain affordable to the targeted income group for no less than the time periods set forth in California Health and Safety Code Sections 33413(c)(1) and (2)” (id., § 5.08.600 B), and that “all promissory note repayments, shared appreciation payments, or other payments collected under this section” shall be deposited in the City of San Jose affordable housing fee fund (S.J.M.C., § 5.08.600 C), from which funds may be expended exclusively to provide housing affordable to extremely-low-, very-low-, lower- and moderate-income households (S.J.M.C., § 5.08.700 B).

The ordinance further contains a waiver provision, declaring that the ordinance’s requirements may be “waived, adjusted, or reduced” by the city “if an applicant shows, based on substantial evidence, that there is no reasonable relationship between the impact of a proposed residential development and the requirements of this chapter, or that applying the requirements of this chapter would take property in violation of the United States or California Constitutions.” (S.J.M.C., § 5.08.720 A.) This section goes on to provide that “[t]he waiver, adjustment or reduction may be approved only to the extent necessary to avoid an unconstitutional result, after adoption of written findings, based on substantial evidence, supporting the determinations required by this section.” (Id., § 5.08.720 E.)

Finally, although the ordinance was adopted in January 2010, the city council, in recognition of the significant disruption in the local housing market that had accompanied the nationwide recession, provided that the ordinance would not become operative until the earlier of (1) six months following the first 12-month consecutive period in which 2,500 residential building permits had been issued by the city, with a minimum of 1,250 permits issued for dwelling units outside the San Jose redevelopment area, or (2) January 1, 2013. (S.J.M.C., § 5.08.300.)

III. Lower court proceedings

On March 24, 2010, just two months after the ordinance was enacted, CBIA filed the underlying lawsuit in this proceeding in superior court, seeking invalidation of the ordinance. The complaint alleged that the ordinance was invalid on its face because at no time prior to the adoption of the ordinance had the city provided substantial evidence “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.” The complaint maintained that the city’s actions in enacting the ordinance were “unlawful, unconstitutional, and in violation of controlling state and federal constitutional standards governing such exactions and conditions of development approval, and the requirements applicable to such housing exactions as set forth in San Remo Hotel L.R v. City & County of San Francisco[, supra,] 27 Cal.4th 643, and Building Industry Association of Central California v. City of Patterson[, supra,] 171 Cal.App.4th 886.” The complaint sought a judicial declaration that the ordinance is invalid, and injunctive relief prohibiting the city from enforcing the ordinance.

Six nonprofit affordable housing organizations and a low-income resident of San Jose sought leave to intervene in support of the challenged ordinance. Although CBIA opposed the motion, the trial court granted the motion and permitted intervention.

In their pretrial briefs, both the city and interveners took issue with CBIA’s contention that a passage in this court’s opinion in San Remo Hotel, supra, 27 Cal.4th 643, should properly be interpreted to apply to the San Jose affordable housing ordinance at issue. Contrary to CBIA’s claim that under San Remo Hotel such an ordinance is valid only if the requirements that the ordinance imposes are reasonably related to the adverse effects or impacts that are caused by or attributable to the developments upon which the requirements are imposed, the city and interveners maintained that the ordinance’s validity is properly evaluated under the ordinary standard of review applicable to legislative land use regulations, namely, simply that the regulation’s requirements must be reasonably related to the municipality’s interest in promoting the health, safety, and welfare of the community. The city and interveners argued that under this ordinarily applicable standard the challenged affordable housing ordinance was unquestionably valid.

After extensive briefing, the superior court agreed with CBIA’s legal contentions, concluding that the ordinance was constitutionally invalid and enjoining its enforcement. In its order, the court rejected the city’s position that the inclusionary ordinance did not require a developer to dedicate or convey property, and struck down the ordinance. The court determined that the city had failed to show that there was evidence in the record “demonstrating the constitutionally required reasonable relationships between the deleterious impacts of new residential developments and the new requirements to build and to dedicate the affordable housing or pay the fees in lieu of such property conveyances.”

The Court of Appeal reversed the superior court judgment. Initially, the appellate court rejected CBIA’s contention that the ordinance requires a developer seeking a permit to “ ‘dedicate or convey property (new homes) for public purposes,’ or alternatively, pay a fee in lieu of ‘such compelled transfers of property,’ ” concluding that the ordinance “does not prescribe a dedication.” The appellate court then went on to agree with the city and interveners that the ordinance’s inclusionary housing requirements must properly be evaluated under the standard ordinarily applicable to general, legislatively imposed land use regulations, namely whether the ordinance’s requirements bear a real and substantial relation to the public welfare. The Court of Appeal determined that the matter should be remanded to the trial court to permit that court to review CBIA’s challenge under the proper legal standard.

In the course of its opinion, the Court of Appeal rejected CBIA’s reliance upon the San Remo Hotel, supra, 27 Cal.4th 643, and City of Patterson, supra, 171 Cal.App.4th 886, decisions. The Court of Appeal concluded that the passage in San Remo Hotel relied upon by CBIA was intended to apply only to development mitigation fees that are intended to mitigate the deleterious impact of a proposed development, and that the passage does not apply to the affordable housing requirements imposed by the challenged San Jose ordinance because those requirements were not enacted for the purpose of mitigating the adverse impact of new development but rather to enhance the public welfare by promoting the use of available land for the development of housing that would be available to low- and moderate-income households. The Court of Appeal similarly found the City of Patterson decision inapposite, noting that the city in that case did not propose or advocate any test different from the San Remo Hotel test, and that the City of Patterson court did not analyze the issue by reference to the city’s stated general objective in imposing its affordable housing in lieu fee.

After the Court of Appeal decision, CBIA sought review in this court, maintaining that the appellate opinion in this case directly conflicted with the Court of Appeal decision in City of Patterson, supra, 171 Cal.App.4th 886, and that City of Patterson was correctly decided. We granted review to determine the soundness of the appellate court’s ruling in this case.

In analyzing this question, we first consider an initial point that divided the lower court decisions in this case — whether the conditions imposed by the San Jose ordinance constitute “exactions” for purposes of the federal and state takings clauses and thus trigger the applicability of the unconstitutional conditions doctrine. (See pt. IV, post.) Thereafter, we consider whether the passage in this court’s decision in San Remo Hotel, upon which CBIA relies, applies to the conditions imposed by the challenged inclusionary housing ordinance. (See pt. V, post.)

IV. Does the San Jose inclusionary housing ordinance, in requiring new residential developments to sell some of the proposed new units at an affordable housing price, impose an “exaction” on developers’ property under the takings clauses of the federal and California Constitutions, so as to bring into play the unconstitutional conditions doctrine?

We begin with the well-established principle that under the California Constitution a municipality has broad authority, under its general police power, to regulate the development and use of real property within its jurisdiction to promote the public welfare. (Cal. Const., art. XI, § 7; Big Creek Lumber Co. v. County of Santa Cruz (2006) 38 Cal.4th 1139, 1151-1152 [45 Cal.Rptr.3d 21, 136 P.3d 821].) The variety and range of permissible land use regulations are extensive and familiar, including, for example, restrictions on the types of activities for which such property may be used (commercial or residential, or specific types of commercial ventures or specific types of residential developments — single family, multiunit), limitations on the density and size of permissible residential development (permissible lot size, number of units per lot, minimum or maximum square footage of units, number of bedrooms), required setbacks, aesthetic restrictions and requirements, and price controls (for example, rent control). As a general matter, so long as a land use restriction or regulation bears a reasonable relationship to the public welfare, the restriction or regulation is constitutionally permissible. (See, e.g., Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 604-607 [135 Cal.Rptr. 41, 557 P.2d 473] (City of Livermore); Miller v. Board of Public Works (1925) 195 Cal. 477, 490 [234 P. 381]; Schad v. Mount Ephraim (1981) 452 U.S. 61, 68 [68 L.Ed.2d 671, 101 S.Ct. 2176]; Euclid v. Ambler Co. (1926) 272 U.S. 365 [71 L.Ed. 303, 47 S.Ct. 114, 4 OhioLawAbs. 816] (Euclid).)

We review challenges to the exercise of such power deferentially. “In deciding whether a challenged [land use] ordinance reasonably relates to the public welfare, the courts recognize that such ordinances are presumed to be constitutional, and come before the court with every intendment in their favor.” (City of Livermore, supra, 18 Cal.3d at pp. 604-605.) Accordingly, a party challenging the facial validity of a legislative land use measure ordinarily bears the burden of demonstrating that the measure lacks a reasonable relationship to the public welfare. (See, e.g., Goldblatt v. Hempstead (1962) 369 U.S. 590, 596 [8 L.Ed.2d 130, 82 S.Ct. 987]; Building Industry Assn. of Central California v. County of Stanislaus (2010) 190 Cal.App.4th 582, 591 [118 Cal.Rptr.3d 467].) Nonetheless, as this court explained in City of Livermore, supra, 18 Cal.3d at p. 609, although land use regulations are generally entitled to deference, “judicial deference is not judicial abdication. The ordinance must have a real and substantial relation to the public welfare. [Citation.] There must be a reasonable basis in fact, not in fancy, to support the legislative determination. [Citation.] Although in many cases it will be ‘fairly debatable’ [citation] that the ordinance reasonably relates to the regional welfare, it cannot be assumed that a land use ordinance can never be invalidated as an enactment in excess of the police power.” (See McKay Jewelers, Inc. v. Bowron (1942) 19 Cal.2d 595, 600-601 [122 P.2d 543]; Skalko v. City of Sunnyvale (1939) 14 Cal.2d 213, 215-216 [93 P.2d 93].)

In the present case, however, CBIA contends that this traditional standard of judicial review is not applicable and that the conditions that the ordinance imposes upon a proposed new development are valid only if those conditions bear a reasonable relationship to the amount of the city’s need for affordable housing that is attributable to the proposed development itself, rather than that the ordinance’s conditions bear a reasonable relationship to the public welfare of the city and region as a whole. It also contends that the city, rather than the party challenging the ordinance, bears the burden of proof regarding the validity of the ordinance.

As already noted, although the precise nature and source of CBIA’s constitutional claim was somewhat opaque in earlier stages of this litigation, in its briefing in this court CBIA has clarified that its facial constitutional challenge rests upon the takings clauses of the United States and California Constitutions (U.S. Const., 5th & 14th Amends.; Cal. Const., art. I, § 19), and, more specifically, on the claim “that the Ordinance violates the unconstitutional conditions doctrine, as applied to development exactions.” As we shall explain, however, there can be no valid unconstitutional conditions takings claim without a government exaction of property, and the ordinance in the present case does not effect an exaction. Rather, the ordinance is an example of a municipality’s permissible regulation of the use of land under its broad police power.

As a general matter, the unconstitutional conditions doctrine imposes special restrictions upon the government’s otherwise broad authority to condition the grant of a privilege or benefit when a proposed condition requires the individual to give up or refrain from exercising a constitutional right. (See, e.g., Perry v. Sindermann (1972) 408 U.S. 593, 597-598 [33 L.Ed.2d 570, 92 S.Ct. 2694]; Pickering v. Board of Education (1968) 391 U.S. 563, 568 [20 L.Ed.2d 811, 88 S.Ct. 1731].) In the takings context, the special limitations imposed by the unconstitutional conditions doctrine upon which CBIA relies derive from the United States Supreme Court’s decisions in Nollan v. California Coastal Comm’n (1987) 483 U.S. 825 [97 L.Ed.2d 677, 107 S.Ct. 3141] (Nollan) and Dolan v. City of Tigard (1994) 512 U.S. 374 [129 L.Ed.2d 304, 114 S.Ct. 2309] (Dolan).

In both Nollan, supra, 483 U.S. 825, and Dolan, supra, 512 U.S. 374, the high court considered the validity of ad hoc administrative decisions regarding individual land use permit applications that required a property owner, as a condition of obtaining a sought-after permit, to dedicate a portion. of the property to public use. In Nollan, the California Coastal Commission had conditioned its grant of a permit to allow the property owner to demolish a small beachfront bungalow and construct a three-bedroom residence upon the owner’s agreement to grant an easement to the public to enter and cross the owner’s beachfront property near the water’s edge. In Dolan, the city had conditioned its grant of a permit to allow the property owner to substantially increase the size of its existing retail business upon the owner’s agreement to give a strip of the property to the city for use as part of a public flood-control greenway and bike path.

In Nollan, supra, 483 U.S. 825, in explaining why the takings clause justified special scrutiny of the coastal commission’s imposition of the challenged permit condition at issue in that case, the high court began its analysis by observing: “Had California simply required the Nollans to make an easement across their beachfront available to the public on a permanent basis in order to increase public access to the beach, rather than conditioning their permit to rebuild their house on their agreeing to do so, we have no doubt there would have been a taking.” (Nollan, at p. 831.) Similarly, in Dolan, the high court noted that “had the city simply required petitioner to dedicate a strip of land ... for public use, rather than conditioning the grant of her permit to redevelop her property on such a dedication, a taking would have occurred.” (Dolan, supra, 512 U.S. at p. 384.) Because under the takings clause a property owner has the right to be paid just compensation when the government takes his or her property for public use, the court in Nollan declared that special scrutiny of a governmental action is warranted “where the actual conveyance of property is made a condition for the lifting of a land-use restriction, since in that context there is heightened risk that the [government’s] purpose is avoidance of the compensation requirement, rather than the stated police-power objective” upon which the condition is ostensibly based. (Nollan, at p. 841, italics added.) Thereafter, the Nollan and Dolan decisions proceeded to explain and describe the nature and extent of the special scrutiny that is called for under the takings clause when the government conditions the grant of a land use permit on the property owner’s agreement to dedicate a portion of its property for public use without the payment of just compensation. Under Nollan and Dolan, the government may impose such a condition only when the 'government demonstrates that there is an “essential nexus” (Nollan, at p. 837) and “ ‘rough proportionality’ ” (Dolan, at p. 391) between the required dedication and the projected impact of the proposed land use. (See Nollan, at pp. 837-840; Dolan, at pp. 388-395.)

More recently, in Koontz v. St. Johns River Water Mgmt. Dist. (2013) 570 U.S. _ [186 L.Ed.2d 697, 133 S.Ct. 2586] (Koontz), the high court held that the Nollan/Dolan test applies not only when the government, conditions approval of a land use permit on the property owner’s dedication of a portion of the property for public use but also when it conditions approval of such a permit upon the owner’s payment of money. In Koontz, the property owner applied for a permit to develop a portion of an undeveloped parcel of land, most of which was classified as wetlands by the state. In his application, the owner agreed to dedicate a portion of the property to the local public water management district as a conservation easement, but the district considered the size of the property owner’s proposed conservation easement to be inadequate and instead proposed that the property owner either dedicate a larger portion of the property as a conservation easement or, alternatively, pay for the improvement of other district-owned wetlands within several miles of the owner’s property. The property owner refused to accede to the district’s proposal, and brought an action in Florida state court against the district, contending among other matters that the district’s proposal that he pay a sum of money as an alternative to dedicating an additional portion of his property was itself subject to the Nollan/Dolan test and thus that the district was required to show that the amount of money in question satisfied the “essential nexus” and “rough proportionality” requirements set forth in those decisions. The Florida Supreme Court rejected the property owner’s contention on the ground that a permit condition that requires a property owner to pay or spend money, as contrasted with a condition that requires the owner to give the public a tangible interest in real property, does not provide a basis for a takings claim, and thus was not subject to the Nollan/Dolan test.

In Koontz, supra, 570 U.S. at pages___-___[186 L.Ed.2d at pp. 712-717], a majority of the United States Supreme Court disagreed with the Florida Supreme Court’s conclusion on this point. The majority began its analysis of this issue by noting “as an initial matter that if we accepted this argument [that the Nollan/Dolan test does not apply to a permit condition that requires the property owner to pay money] it would be very easy for land-use permitting officials to evade the limitations of Nollan and Dolan. Because the government need only provide a permit applicant with one alternative that satisfies the nexus and rough proportionality standards, a permitting authority wishing to exact an easement could simply give the owner a choice of either surrendering an easement or making a payment equal to the easement’s value. . . . For that reason and those that follow, we reject respondent’s argument and hold that so-called ‘monetary exactions’ must satisfy the nexus and rough proportionality requirements of Nollan and Dolan.” (Id. at p._ [186 L.Ed.2d at p. 713].)

It is clear from the decision in Koontz, supra, 570 U.S. _ [186 L.Ed.2d 697], that the Nollan/Dolan standard applies to the type of “so-called ‘monetary exactions’ ” (Koonz, at p. _ [186 L.Ed.2d p. 713]) involved in Koontz itself — that is, a monetary payment that is a substitute for the property owner’s dedication of property to the public and that is intended to mitigate the environmental impact of the proposed project. However, the full range of monetary land use permit conditions to which the Nollan/Dolan test applies under the Koontz decision remains at least somewhat ambiguous. Nonetheless, the Koontz decision explicitly acknowledges that “[a] predicate for any unconstitutional conditions claim is that the government could not have constitutionally ordered the person asserting the claim to do what it attempted to pressure that person into doing.” (Koontz, supra, at p._ [186 L.Ed.2d at p. 712].) Or, in other words, the condition is one that would have constituted a taking of property without just compensation if it were imposed by the government on a property owner outside of the permit process. (Id. at p. _ [186 L.Ed.2d at pp. 712-713, 714]; see Lingle v. Chevron U.S.A. Inc. (2005) 544 U.S. 528, 547 [161 L.Ed.2d 876, 125 S.Ct. 2074] (Lingle) [Nollan and Dolan both involved “dedications of property so onerous that, outside the exactions context, they would be deemed per se physical takings”].) Nothing in Koontz suggests that the unconstitutional conditions doctrine under Nollan and Dolan would apply where the government simply restricts the use of property without demanding the conveyance of some identifiable protected property interest (a dedication of property or the payment of money) as a condition of approval. It is the governmental requirement that the property owner convey some identifiable property interest that constitutes a so-called “exaction” under the takings clause and that brings the unconstitutional conditions doctrine into play. (See Lingle, supra, at pp. 546-547; Monterey v. Del Monte Dunes at Monterey, Ltd. (1999) 526 U.S. 687, 702 [143 L.Ed.2d 882, 119 S.Ct. 1624] [“[W]e have not extended the rough-proportionality test of Dolan beyond the special context of exactions — land-use decisions conditioning approval of development on the dedication of property to public use.”].)

In the present case, contrary to CBIA’s contention, the San Jose inclusionary housing ordinance does not violate the unconstitutional conditions doctrine because there is no exaction — the ordinance does not require a developer to give up a property interest for which the government would have been required to pay just compensation under the takings clause outside of the permit process. As summarized above, the principal requirement that the challenged ordinance imposes upon a developer is that the developer sell 15 percent of its on-site for-sale units at an affordable housing price. This condition does not require the developer to dedicate any portion of its property to the public or to pay any money to the public. Instead, like many other land use regulations, this condition simply places a restriction on the way the developer may use its property by limiting the price for which the developer may offer some of its units for sale. (See, e.g., Yee v. Escondido (1992) 503 U.S. 519, 532 [118 L.Ed.2d 153, 112 S.Ct. 1522] (Yee) [describing mobilehome park rent control ordinance as “a regulation of [the mobile-home park owners’] use of their property”].) Contrary to CBIA’s contention, such a requirement does not constitute an exaction for purposes of the Nollan/Dolan line of decisions and does not trigger application of the unconstitutional conditions doctrine.

Rather than being an exaction, the ordinance falls within what we have already described as municipalities’ general broad discretion to regulate the use of real property to serve the legitimate interests of the general public and the community at large. For example, municipalities may designate certain areas of a city where only residential units may be built and other areas where only commercial projects are permitted. (See, e.g., Euclid, supra, 272 U.S. 365; Lockard v. City of Los Angeles (1949) 33 Cal.2d 453, 460 [202 P.2d 38].) If a municipality finds that it is in the public interest, it may specify where certain types of retail establishments may be operated and other areas where they may not. (See, e.g., Hernandez v. City of Hanford (2007) 41 Cal.4th 279, 296-298 [59 Cal.Rptr.3d 442, 159 P.3d 33] & fn. 10.) If a municipality concludes that the city already has a sufficient number of a specific type of business in a particular neighborhood — for example, adult entertainment businesses — it may prohibit other property owners from using their property in that area for such businesses. (See, e.g., Young v. American Mini Theatres (1976) 427 U.S. 50 [49 L.Ed.2d 310, 96 S.Ct. 2440]; Renton v. Playtime Theatres, Inc. (1986) 475 U.S. 41 [89 L.Ed.2d 29, 106 S.Ct. 925].) Similarly, if a municipality determines that a particular rieighborhood or the community in general is in special need of a specific type of residential development or business establishment — such as a multiunit residential project or a retail shopping center — it may adopt land use regulations to serve such a need. (See, e.g., Ensign Bickford Realty Corp. v. City Council (1977) 68 Cal.App.3d 467, 477-478 [137 Cal.Rptr. 304].) In addition, of course, a municipality may impose land use limitations on the height of buildings, setback requirements, density limits (lot size and number of units per lot), bedroom requirements and a variety of other use restrictions. (See, e.g., Griffin Development Co. v. City of Oxnard (1985) 39 Cal.3d 256, 265-266 [217 Cal.Rptr. 1, 703 P.2d 339].)

As a general matter, so long as a land use regulation does not constitute a physical taking or deprive a property owner of all viable economic use of the property, such a restriction does not violate the takings clause insofar as it governs a property owner’s future use of his or her property, except in the unusual circumstance in which the use restriction is properly found to go “too far” and to constitute a “regulatory taking” under the ad hoc, multifactored test discussed by the United States Supreme Court in Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104 [57 L.Ed.2d 631, 98 S.Ct. 2646] (Penn Central). (See Lingle, supra, 544 U.S. at pp. 538-539.) Where a restriction on the use of property would not constitute a taking of property without just compensation if imposed outside of the permit process, a permit condition imposing such a use restriction does not require a permit applicant to give up the constitutional right to just compensation in order to obtain the permit and thus does not constitute “an exaction” so as to bring into play the unconstitutional conditions doctrine. (See, e.g., Powell v. County of Humboldt (2014) 222 Cal.App.4th 1424, 1435-1441 [166 Cal.Rptr.3d 747].)

As noted, the legislative history of the ordinance in question establishes that the City of San Jose found there was a significant and increasing need for affordable housing in the city to meet the city’s regional share of housing needs under California’s Housing Element Law and that the public interest would best be served if new affordable housing were integrated into economically diverse development projects, and that it enacted the challenged ordinance in order to further these objectives. The objectives of increasing the amount of affordable housing in the city to comply with the Housing Element Law and of locating such housing in economically diverse developments are unquestionably constitutionally permissible purposes. (See, e.g., Santa Monica Beach, supra, 19 Cal.4th at p. 970; Home Builders Assn. v. City of Napa (2001) 90 Cal.App.4th 188, 195 [108 Cal.Rptr.2d 60] (City of Napa).) CBIA does not argue otherwise.

There are a variety of conditions or restrictions that a municipality could impose on new residential development in an effort to increase the community’s stock of affordable housing and promote economically diverse residential developments. For example, a municipality might attempt to achieve these objectives by requiring all new residential developments to include a specified percentage of studio, one-bedroom, or small-square-footage units, on the theory that smaller units are more likely to be affordable to low- or moderate-income households than larger units. Although such use restrictions might well reduce the value of undeveloped property or lessen the profits a developer could obtain in the absence of such requirements, CBIA cites no authority, and we are aware of none, suggesting that such use restrictions would constitute a taking of property outside the permit process or that a permit condition that imposes such use restrictions on a proposed development would constitute an exaction under the takings clause that would be subject to the Nollan/Dolan test.

Here,, the challenged ordinance seeks to increase the city’s stock of affordable housing and promote economically diverse residential projects by placing controls on the sales price of a portion of a developer’s on-site for-sale units rather than by placing restrictions on the size or other features of a portion of the for-sale units. But the fact that the ordinance imposes price controls rather than other use restrictions in order to accomplish its legitimate purposes does not render such price controls an exaction or support application of a constitutionally based judicial standard of review that is more demanding than that applied to other land use regulations. The governing federal and state authorities plainly establish that price controls, like other forms of regulation, are, as a general matter, a constitutionally permissible means to achieve a municipality’s legitimate public purposes. (See, e.g., Nebbia v. New York (1934) 291 U.S. 502, 539 [78 L.Ed. 940, 54 S.Ct. 505] [“Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty.”]; Permian Basin Area Rate Cases (1968) 390 U.S. 747, 768 [20 L.Ed.2d 312, 88 S.Ct. 1344] [“It is plain that the Constitution does not forbid the imposition, in appropriate circumstances, of maximum prices upon commercial and other activities. A legislative power to create price ceilings has, in ‘countries where the common law prevails,’ been ‘customary from time immemorial ....’” (italics added)]; accord, Pennell v. San Jose (1988) 485 U.S. 1, 11-14 [99 L.Ed.2d 1, 108 S.Ct. 849] (Pennell); Yee, supra, 503 U.S. at pp. 528-530; Santa Monica Beach, supra, 19 Cal.4th at p. 967; Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761, 771-777 [66 Cal.Rptr.2d 672, 941 P.2d 851] (Kavanau); Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 816 [258 Cal.Rptr. 161, 771 P.2d 1247] (Calfarm); Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 165 [130 Cal.Rptr. 465, 550 P.2d 1001] (Birkenfeld).)

Furthermore, as we explained in Santa Monica Beach, supra, 19 Cal.4th 952, the United States Supreme Court has held that one of the constitutionally permissible purposes that justifies the imposition of limits on the rent a landlord may charge his or her tenants is “that of ‘ “preventing] excessive and unreasonable rent increases” caused by the “growing shortage of and increasing demand for housing” ’ within a municipality.” (Id. at p. 969, quoting Pennell, supra, 485 U.S. at p. 12.) There is no reason that a municipality’s comparable interest in combatting the excessive sale prices of housing that are caused by the growing shortage of and increasing demand for housing, and that denying moderate- and lower-income families the opportunity to reside within the