Facts: Low-income housing tax credits provided by the federal government are distributed by a state housing agency to encourage local housing investors to accommodate marginalized, low-income residents. The state agency enacted plans for the fair distribution of federal tax credits in accordance with the Fair Housing Act (the Act). A state housing agency allocated these credits according to occupants’ income levels and available state funds for housing developers. The agency’s allocation of the low-income housing tax credits mainly favored inner-city areas with predominantly minority populations over suburban areas with predominantly Caucasian populations.

Claim: A nonprofit organization which helps low-income families obtain affordable housing claims the state housing agency is causing a disparate impact since the agency’s allocation of tax credits contributes to greater segregated housing by allotting more credits to inner-city areas than suburbs, leading to a concentration of low-income housing in minority neighborhoods and perpetuating segregated housing patterns in violation of the Act.

Counterclaim: The state housing agency claims it is not liable for disparate impact resulting from their allocations since it did not intend to promote segregated housing patterns and its allocation of tax credits is not motivated by race but based on government interests.

Holding: The U.S. Supreme Court holds the state housing agency is liable for creating a disparate impact and needs to alter its allocation process since, intended or not, the agency’s allocation of tax credits concentrates low-income housing in minority neighborhoods which perpetuates segregated housing patterns in violation of the Act. [Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (June 26, 2015) ___ U.S. ___]

Disparate impact, housing patterns and the federal Fair Housing Act

The issue of disparate impact is brought to light by this US Supreme Court ruling that a state housing agency is liable for inadvertently magnifying segregated housing patterns in the above 2015 case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

Disparate impact is the perpetuation of segregated housing in a community caused by any agency’s actions, regardless of intent to discriminate.

The question answered by the Supreme Court’s decision is whether state agencies are liable for disparate impact under the Federal Fair Housing Act of 1968 (the Act). No explicit wording in the Act condemns agencies for unintentionally causing disparate impact; rather, the Court interpreted the Act’s provisions to include the consequences of an agency’s actions regardless of the agency’s intentions.

Unintended consequences under the Fair Housing Act

State agencies distribute federal tax credits to landlords, who are required to designate units for low-income housing in their communities. Low-income occupants – a protected class of tenants – are provided vouchers to obtain housing from landlords who receive those credits. Thus, when a state agency distributes federal tax credits unequally across a community, limiting low-income tenants to specific areas (a concept related to steering), the agency’s action creates a disparate impact.

The Court relies on two of the Act’s provisions:

  • “[It is unlawful] to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin” [Federal Fair Housing Act §804(a)]; and
  • “It shall be unlawful for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” [FFHA §805(a)]

The phrase “make unavailable” is the Court’s focus in these sections. The Court determined that phrase to equivocate disparate impact by encompassing the effects of an agency’s actions regardless of intent.

Perhaps the best parallel to disparate impact is implicit discrimination, which is defined as actions which are not openly discriminatory but in fact result in discriminatory effects. Implicit discrimination may occur if a lender offers financing only to qualified buyers (a legal practice), but those qualified buyers in turn populate what becomes a community of a sole demographic – the result being segregation, balkanization, ethnic enclaves and ghettos, you name it.

Disparate impact is a slippery slope

Disparate impact cases work to oppose the perpetuation of segregated housing. However, the nebulous terminology of the Act makes disparate impact a difficult disease to diagnose in agency activities.

Victims of disparate impact – segregation by implication – are required to file a complaint with the California Bureau of Real Estate (CalBRE) for any appropriate administrative discipline on guilty licensees (brokers and agents). Thus, the CalBRE evaluates any disparate impact consequences of the licensee’s behavior on a case-by-case basis.

Diversity quotas are the main concern for dissenters of the Court’s decision. How may an agency be certain it is not imposing disparate impact on a community unless it fills a specific diversity quota? Also, housing agencies may fear the Court’s disparate impact ruling which disregards discriminatory intent will subject them to judicial action despite active efforts to assist protected groups in the greatest need of funding or housing, as occurred in the Texas case.

Litigation is another fear for housing agencies. Disparate impact opens housing agencies to liability when tenants feel slighted by the adverse segregation result of a practice proper on its face. If housing agencies are not protected under the Act when legally allocating resources which eventually produce unintended tangential consequences of continuing segregation, how are they to defend against what may potentially be mobs of victims?

Such fears may foster paranoia and drive housing agencies to double-up their defenses. This may raise the cost of funding for those who are vulnerable and in need of financial assistance — the very class of people these agencies were created to protect. However, fear of litigation is a classic response to nearly all cases that protect members of the public from corporate or government action.

Disparate impact ruling is an opportunity for expansion

Excessive litigation will not be a problem for those housing agencies willing to expand their practices equally among all sections of the community to disseminate previously neglected populations – the low-income families. Many minority buyers and tenants are perceived as high-risk due to allegedly “unstable” circumstances, like working multiple jobs to make ends meet. If housing agencies, lenders and landlords kick their preferential penchant for single-income sources, chances are perceptions of their disparate impact will dissolve on their own.

For brokers, disparate impact liability is easy to eliminate by supporting equal treatment as an enduring real estate practice. Brokers who educate their agents on Fair Housing conduct will enjoy the unhindered business of equal opportunities provided to buyers of all demographics. All buyers want is shelter, and MLS brokers and agents provide access to shelter; a perfect match without the noise of archaic societal bias. Simple practices like thinking about and asking only questions pertinent to the housing transaction at hand will minimize brokers’ risk of liability.

The Act prohibits discrimination of any kind in:

  • the advertisement, sale or rental of a residential space;
  • brokerage services offered or performed;
  • the origination of mortgages to purchase, build, improve or repair a residence;
  • purchase-assist financing; and
  • real estate appraisals. [See first tuesday Fair Housing Chapter 1: The Federal Fair Housing Act]

Check your habits as an agent or broker. Confirm you are allowing an equal shot at buying or renting to all persons inquiring about satisfying their housing needs, and adjust your practice where necessary.

Disparate impact may seem like a shapeless threat, especially for licensees with deep-felt beliefs about different classes of protected individuals. But those beliefs only threaten those licensees desperate to conserve outdated social mores and perspectives, unwilling to expand their business into all demographics and enhance their potential to flourish.

Read the text of the case.