The Fair Housing Act (FHA) prohibits lenders, brokers, landlords or any other person from discriminating against a person seeking to rent, purchase or secure financing on a home. The FHA specifically prohibits discrimination on the basis of race, color, national origin, religion, sex, familial status and disability.1 Recently, the Supreme Court decided whether the FHA imposes liability for disparate impact against people in protected classes.

Disparate treatment of a protected class is clearly prohibited under the FHA. Disparate treatment is when a person is treated differently than another who is similarly situated based on a protected characteristic. Disparate-impact liability, on the other hand, "punishes practices that are not intended to discriminate but in fact have a disproportionately adverse effect on [a protected class]."2

On June 25, 2015, the Supreme Court issued its 5-4 opinion in Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 192 L.Ed.2d 514 (U.S. 2015), written by Justice Kennedy and joined by Justices Ginsburg, Breyer, Sotomayor and Kagan. Under federal law, the government provides low-income tax credits to developers of affordable housing and sets forth various criteria such developers must meet.3 In Texas, the Texas Department of Housing and Community Affairs (Department) distributes these tax credits. The Inclusive Communities Project (ICP) is a non-profit organization that helps low-income families obtain affordable housing. The ICP brought this case against the Department, claiming that the Department’s distribution of the tax credits was disproportionately allocated by granting too many credits in predominately black inner-city neighborhoods and significantly less in predominately white suburban communities. The issue before the Supreme Court was whether the Department could be held liable for this disparate impact, absent the Department’s intention to discriminate against any protected class.

To determine Congress’s intent regarding disparate-impact liability under the FHA, the Supreme Court compared the FHA to other antidiscrimination statutes, specifically Title VII of the Civil Rights Act (Title VII) and the Age Discrimination in Employment Act of 1967 (ADEA). Well-established case law shows that disparate-impact liability is cognizable under both Title VII and the ADEA. The Court compared the language of those two statutes to that of the FHA and found similar provisions regarding antidiscrimination. Further, 1988 amendments to the FHA specifically added exemptions from liability for certain exclusionary practices, in part due to specific criminal convictions that are correlated with sex and race. For example, the FHA exempts from disparate-impact liability a landlord who prohibits tenants who have prior drug convictions, despite any disproportionate impact this may have on minorities seeking housing. The Supreme Court reasoned that when Congress made exceptions to disparate-impact liability in the 1988 amendment, Congress must have intended that such liability could be imposed absent such an enumerated exception.

Thus, after reviewing the amendments to the FHA, similar statutes and case law, the Supreme Court held that the FHA imposes disparate-impact liability. As such, the FHA "permits plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment."

The Court noted, however, that disparate-impact claims should brought cautiously, and each instance of statistical disparity should not result in such liability. "Disparate-impact liability mandates the removal of artificial, arbitrary and unnecessary barriers, not the displacement of valid governmental policies." Proper limitation should give housing authorities and private developers the opportunity "to maintain a policy if they can prove it is necessary to achieve a valid interest." Further, a plaintiff must produce statistical evidence demonstrating a causal connection to a certain policy to make a prima facie case for disparate-impact liability.

The Court emphasized that lower courts must not interpret "disparate-impact liability to be so expansive as to inject racial considerations into every housing decision," and all such decisions must be consistent with the Constitution.

While the majority ruled that disparate-impact liability is available under the FHA, Justice Alito, along with Justices Thomas, Scalia and Chief Justice Roberts dissented, arguing that Congress did not intend to impose this liability into the statute, and as such, the Court should not rewrite the law. The dissent further argued that housing programs, such as low-income tax credit programs, are designed to support the poor and thus, disparate-impact liability has very different effects under the FHA than under ADEA or Title VII. Justice Alito used Gallagher v. Manger, 629 F. 3d 823 (2010) as an example. In Manger, the City of St. Paul, Minnesota tried to remediate rodent infestation and other deplorable conditions in lower-income neighborhoods by forcing landlords to make the requisite repairs. As a result of being forced to make such repairs, the landlords increased the rent in these neighborhoods. Because there were more minorities in these lower-income neighborhoods, the court found that there was a disparate impact on the effect of such mandate. According to the dissent, such disparate-impact claims "thus threaten a whole range of tax, welfare, public service, regulatory and licensing statutes." This case, they say, opens the door for numerous housing authorities and developers to be sued for potential statistical discrepancies while trying to improve blighted neighborhoods.

The effects of this important decision on the development of affordable housing projects remain to be seen. The Court’s discussion of proper limitations on disparate-impact liability was clearly an effort to stem the potential tide of claims that could have the unintended consequences the dissent warned about. On the other hand, by imposing such liability, the Court seeks to advance the "Fair Housing Act’s continuing role in moving the Nation towards a more integrated society."

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142 U.S.C. §§ 3601-3619
2Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 192 L.Ed.2d 514, 548 (U.S. 2015) (Alito, J., dissenting) (internal quotations omitted).
326 U.S.C. § 42