Disparate Impact: What it Means to Fair Housing Law - By Phil Querin

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The Fair Housing Act (“FHA”) was passed in 1968, and has been an important fixture in the law ever since. Essentially, its purpose was to prohibit discrimination in the sale and rental of housing. At the time, there were five major protected classes, i.e. groups of persons entitled to the protection of the Act. Those classifications were race, color, religion, sex, and national origin.  In 1988, it was amended to include two additional protected classifications: disability and familial status.[1]

Below is a synopsis of the heart of the Act, found at Sec. 804. [42 U.S.C. 3604], sans the legalese.  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, national origin, handicap or familial status. 
     
  • To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, national origin, handicap or familial status
     
  • To make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, national origin, handicap or familial status, or an intention to make any such preference, limitation, or discrimination.                                        
     
  • To represent to any person because of race, color, religion, sex, national origin, handicap or familial status, that any dwelling is not available for inspection, sale, or rental when such dwelling is in fact so available.                    
     
  • For profit, to induce or attempt to induce any person to sell or rent any dwelling by representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race, color, religion, sex, national origin, handicap or familial status, to discriminate in the sale or rental, or to otherwise make unavailable or deny, a dwelling to any buyer or renter because of a handicap[Note, this proscription is much more detailed.]

 

The underscored words and phrases in bold and italicized, have one thing in common; through the use of verbs, they connote intentional or purposeful action.  Based upon this interpretation, it would seem that the drafters of the Act believed that there must be evidence of an intent to commit the proscribed activity.  Ergo, it would seem impossible to violate the FHA unintentionally.

However, there has been a theory, or interpretation, held by many – especially in the current administration, that the Act may be violated unintentionally. Thus, so the argument goes, even though an action is facially neutral, if it adversely impacts one protected class more than others outside the class, it violates the fair housing laws. This is the premise underlying the principle of “disparate impact.” 

According to Daniel Fisher, writing for Forbes:

Congress was well aware of disparate-impact theories but didn’t add the Title VII language in a 1988 revision to the FHA.

 

As explained by the American Bankers Association (“ABA”), in Mr. Fisher’s article:

Down-payment requirements, debt-to-income requirements, loan-to-value requirements, and other neutral, risk-based underwriting requirements can all affect various racial and ethnic groups differently,” the ABA says. ***

For example, the median wealth of white households is 17.5 times that of African-American households and 14 times Latino households, according to the Census Dept. It is persistent statistical disparities like that that make it hard for lenders to serve low-income markets without either lowering underwriting standards — and risking claims of predatory lending –or risking discrimination suits.

The disparate impact case of Township of Mount Holly v. Mount Holly Township Citizens in Action, Inc.[2] [which was settled late last year, before being heard by the U.S. Supreme Court] was based upon the following facts as described by Cornell University Law School’s Legal Information Institute:

Mt. Holly Gardens (“Gardens”) is a thirty-acre neighborhood in Burlington County, New Jersey. Comprised of housing built in the post-WWII period, the Gardens is a community of predominately African-American and Latino residents, with statistically lower incomes than the area’s median. Gardens residents sought to fix various problems in the community, including overcrowding, drainage issues, and higher-than-average crime rates. In 2000, Petitioner Township of Mount Holly (“the Township”) launched a study to determine whether to redevelop the Gardens; the Township ultimately concluded that the neighborhood’s blight warranted significant intervention. Later that year, the Township started to purchase properties in the Gardens and commissioned redevelopment plans. From 2003 to 2008, the Township considered several plans, culminating with a 2008 plan to construct up to 520 new homes. The plan did not, however, include improvements to existing housing.

On Oct 12, 2014 the U.S. Supreme Court agreed to hear another disparate impact case, Texas Dept. of Housing vs. Inclusive Communities.  If it is not first settled, it will represent the first time the issue of “disparate impact“ under the Fair Housing Act will have been heard by the high court. Until that occurs, there is an open question whether conduct that is facially neutral – i.e. there was no intent to discriminate – can be held unlawful because statistically, it may adversely impact members of a protected class.

Here is how the issue was described in the Forbes article referenced above:

Inclusive Communities, a Dallas non-profit, sued the Texas Dept. of Housing in 2008, accusing it of awarding subsidies for the construction of afffordable (sic) housing more frequently in minority neighborhoods. Under state and federal laws, developers get subsidies for building projects that accept tenants paying with Section 8 vouchers. Inclusive Communities found that the housing board approved credits for 49.7% of the units proposed for majority-minority census tracts, versus 34.7% for neighborhoods that were 90% white.

The organization said its mission is to spur the development of affordable housing in white neighborhoods and the Texas housing department’s actions made it spend more money pursuing that goal.

A district court agreed that Inclusive Communities had made a prima facie case of disparate impact and the Fifth Circuit upheld, imposing a detailed set of injunctions requiring it to allocate the credits more evenly. But Texas appealed, saying those injunctions require it to choose between two incompatible requirements: Avoiding discrimination based on race, while allocating credits on the same basis. *** [Emphasis mine.~PCQ]

 

To put a fine point on the conundrum, the Texas Department of Housing argues that it is on the horns of a dilemma: On the one hand it was required not to discriminate based on race, and on the other, it was required to issue housing credits which disproportionally [albeit unintentionally] benefitted neighborhoods with large minority populations.

 

Thus, the theory of disparate impact has created a perverse incentive for businesses, lenders, and municipalities to subtly engage in a form of “reverse discrimination” i.e. benefiting certain protected classes, in order to avoid disparate impact claims.

 

According to a recent online Reuters article here, in a recent case, American Insurance Association v. United States Department of Housing and Urban Development, U.S. District Judge Richard Leon didn’t mince words about his view of these disparate impact theories.  He ruled the Fair Housing Act:

 

…allows for only direct discrimination claims and not those based on so-called disparate impact allegations. Leon wrote that the (Obama) administration's view that the language of the Fair Housing Act assumes that disparate impact claims are permitted "appears to be nothing more than wishful thinking on steroids."

 

The ruling was a win for the American Insurance Association and other business groups that oppose disparate impact claims, which allow for a broad range of business decisions related to housing to be subject to civil rights litigation.

 

As an example of such a claim, the National Fair Housing Alliance sued Allstate Corp in 2012 for refusing to insure flat-roofed houses in Delaware, claiming the practice had a discriminatory effect on poor minorities most likely to live in such buildings.

 

Conclusion. Where do we go from here?  This is one of those issues that perhaps neither side wants to know the answer to. Accordingly, as with prior disparate impact cases headed for the U.S. Supreme Court, there is good reason to believe the matter will be settled in a manner that gives both sides some – but not all – of the bragging rights.  

 


[1] Per the Oregon Fair Housing Council : "Familial status" means having a child under age 18 in the household, whether living with a parent, a legal custodian, or their designee. It also covers a woman who is pregnant, and people in the process of adopting or gaining custody of a child/children.

[2] Note that the Township of Mount Holly appears first in the case citation.  To some that may suggest they brought the case. In fact, they were the defendants. But having lost in the lower court, they filed a writ of certiorari, asking that the Supreme Court decide the matter.  Thus, as the “Petitioner” before the Supreme Court, their name appears first in the case citation. 

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