“Disparate Impact”and Housing

Partially buried in the Supreme Court’s thicket of end-of-term decisions last week was a case that could be even more important than homosexual marriage or Obamacare. In Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, a sharply divided Court held that the legal doctrine of “disparate impact” could definitively be applied to federal anti-discrimination housing laws. This is the first time the Supreme Court has sanctioned the doctrine in the area of housing, and although its implications for home sales and leasing practices are not yet clear, the Court’s decision could force this controversial concept into yet more areas of society.

The legal theory of disparate impact, created by the Supreme Court in the 1971 case of Griggs v. Duke Power, allows for claims of racial discrimination when a policy or procedure leads to racially disproportionate results even if that policy or procedure was established without discriminatory intent.

In 1955, the Duke Power Company, a North Carolina utility, established a rule that required applicants for certain jobs be high school graduates or score at the level of the average high school graduate on an intelligence test and a mechanical comprehension test. No one ever argued that the intent of this rule was to exclude blacks, but its result was to exclude more black than white applicants. The Supreme Court ruled that requiring a high school diploma or certain test scores had a “disparate impact” on blacks, since they were less likely to be high school graduates and tended to get lower scores on the tests. This was therefore illegal discrimination.

Some “disparate impact” is necessary and therefore permissible, however. Requiring that truck drivers have a truck operator’s licence has a “disparate impact” on blacks who want to be truck drivers because blacks are less likely than whites to have such licences. However, having the license is what courts have called a “bona fide occupational qualification” or BFOQ; you have to have a license in order to drive a truck. Thus, requiring a licence has disparate impact but is legal.

In Griggs, the Court ruled that test scores or a high school diploma were not BFOQs–they were not directly related to the jobs in question. Qualifications for jobs therefore had to be very tightly related to jobs, and determining what was or was not a BFOQ became an exotic and highly litigated question.

It is still being litigated. Recent high-profile cases have involved discrimination claims successfully brought against police and fire departments because standardized, color-blind tests had the “disparate impact” of weeding out more black than white applicants.

The complainant in last week’s Supreme Court decision, the Inclusive Communities Project (ICP), is a Dallas non-profit that tries to move tenants of Section 8 housing into that city’s mostly white suburbs. The defendant, the Texas Department of Housing and Community Affairs, was alleged to have kept low-income housing projects away from white neighborhoods by allocating “too many” federal tax credits to low-income housing developers building low-rent units in non-white neighborhoods.

The Texas housing department argued that in distributing those credits to developers it was merely following a federal formula that requires, among other things, that developers rent to tenants whose income is at a certain percentage of the area’s median income. This tends to push subsidized housing into lower-income, majority non-white areas, and ICP claimed that this result alone justified a claim of discrimination. The Supreme Court agreed. No matter what the housing department’s intention may have been, putting low-income housing in non-white neighborhoods had the effect of discrimination because it meant the largely non-white occupants would suffer from living in less desirable, non-white neighborhoods.

Entirely aside from the question of what this ruling means for how “disparate impact” doctrine will be used in housing markets in the future, there was debate as to whether the statute on which the Supreme Court’s opinion was based, the 1968 Fair Housing Act, even permits claims based on disparate impact. The doctrine was first expressly codified in the area of employment law, through legislation sponsored by Ted Kennedy and passed by Congress in 1991. That congressional action, an amendment to Title VII of the 1964 Civil Rights Act, provided that, in addition to discrimination that was intentional (so-called “disparate treatment”), employers could be penalized for policies that had a discriminatory “effect.” This “effect” language is enough to create disparate impact claims and it is found in other statutes, such as the Age Discrimination in Employment Act.

The Federal Housing Act (FHA) lacks that language. On its face it prohibits only actions involving discriminatory intent. If Congress wanted to encourage disparate impact suits it could have changed the law, but it never did. In last week’s decision, Justice Anthony Kennedy, accompanied by the four liberal justices of the Court, held that that didn’t matter. He came up with several loose justifications to support his decision, including interpretations of the act by lower courts, Congress’s “implicit ratification” of those decisions, and the fact that “vestiges of racial segregation . . . remain today.”

Justice Kennedy did confirm that there are equivalents to BFOQs in housing. Just as an employer can set job qualifications that have a disparate impact if those qualifications are essential to doing the job, a defendant in housing litigation could rebut a disparate impact claim by demonstrating the “necessity” of the policy. As in employment law, if there is no such defense, the only way to avoid disparate impact liability would be to set racial quotas that would give results that mirror applicant demographics. Such naked use of quotas, however, is barred under the Fourteenth Amendment’s equal protection clause–at least for now–and is the kind of race-based decision-making the Civil Rights Act expressly prohibited. But just like BFOQs, a defendant’s “necessity” defense will be subject to expensive litigation and the whims of a judge and jury.

Presumably a policy requiring tenants to pay rent is a “necessity,” and therefore legal, even though at any given level of rent, blacks are less able to pay and therefore suffer “disparate impact.” But is a policy of requiring tenants to have a reasonable credit score a “necessity” or, because blacks have lower credit scores, is it illegal discrimination?

If an apartment building requires that none of its prospective tenants be convicted felons, and such a policy disproportionately excludes blacks, can the building’s managers have discrimination charges laid against them based on disparate impact? Many communities have occupancy limits on housing–no more than two or three people per bedroom, for example. Will these regulations be found illegal because the people most likely to be inconvenienced by them are Hispanic illegal immigrants? What is “necessity” in the context of housing? It is likely to be as hotly litigated as the concept of BFOQs.

Although the Supreme Court’s decision conclusively sanctions the use of disparate impact, many lower courts have been treating it as if it applied to FHA cases as well as other areas–indeed both the district and circuit court in this case had sided with the plaintiffs. Also, the Obama administration has been very aggressive in applying the doctrine. For example, it has been used to pressure certain school districts into keeping discipline rates more equal among the races, and to push banks into making risky loans to non-creditworthy minority borrowers.

Some of the decision’s effects may be the reverse of what the Court intended. It is likely that some developers of low-income housing will get out of this line of business for fear of disparate impact liability. Justice Kennedy mentioned this prospect in his probably ineffective warning to lower courts not to entertain “abusive” disparate impact claims. One man’s abuse is another man’s social justice.

Another area Justice Kennedy fretted over was the possibility that governments may hesitate to pursue such “legitimate interests” as enforcing housing codes. In 2012, the Supreme Court agreed to hear a case in which the city of St. Paul, Minnesota, had started a campaign to make slum lords bring their properties up to code by correcting such things as “rodent infestation” and “inadequate sanitation.” The land lords countered by claiming that they would have to raise rents if they met code, and that since most of their tenants were non-white, this would be “disparate impact” and therefore illegal. A lower court actually sided with the land lords.

The Justice Department worked out a shady quid pro quo deal with the city to keep the case from going to the Supreme Court. DOJ was afraid the justices would throw out the very concept of “disparate impact” in housing, given that it was being used to refuse improvements to shoddy housing. Now that “disparate impact” is formally enshrined in the federal housing law, cities with “aggressive” housing codes are scrambling to make sense of the decision for fear of being hit with claims.

In his dissent, Justice Samuel Alito noted further possible rogue applications of disparate impact doctrine. He compared what he called the majority’s “twisted” reading of the FHA to a federal law that could increase the minimum wage. If employers simply eliminate a certain number of jobs rather than pay the higher minimum wage, that could have an illegal “disparate impact” because a disproportionate number of the people losing their jobs would be black or Hispanic. He also asked, given that minorities are overrepresented in the NFL draft, whether the NFL could be using illegal job qualification standards that discriminate against whites.

Certain federal agencies will probably be emboldened by the decision. Bureaucrats at more ideological agencies, such as the Consumer Financial Protection Bureau (CFPB), may issue stronger directives to lenders in the auto financing market, for example, to ensure that interest rates charged to minorities are the same as those charged to whites even if there are broad differences in creditworthiness and therefore risk to the lender. Indeed, the Equal Credit Opportunity Act, which expressly prohibits intentional racial discrimination by lending institutions and is administered by the CFPB, has been treated by some courts as permitting disparate impact claims, despite lacking any “effects” language. Lawsuits in this area are now on firmer ground.

Multicultural groups have stated that last week’s decision will also “protect” voter rights. A lawyer for something called the Advancement Project, Kathy Culliton-Gonzalez, called the decision “very helpful,” telling the Center for American Progress:

These days it’s very, very hard to prove intent . . . . [W]e don’t always find state legislators saying, ‘We’re going to suppress the African American vote or the Latino vote.’ But there are things that are quite discriminatory in voting that occur on a regular basis.

In other words, by reading grounds for “disparate impact” litigation into a law that contains no such language, the Supreme Court has enshrined it everywhere.

A defendant in disparate impact litigation has never used race-based IQ research to show that racial differences rather than anything that could be called “discrimination” cause the disparity in question, and that such results are therefore entirely natural. Such an attempt would at the very least bring media attention to an area of study that is generally ignored.

Intelligence testing is used by some courts in capital punishment cases, in which lawyers claim on behalf of the defendant that he is mentally incompetent and therefore protected from execution under the “cruel and unusual punishment” clause of the Eighth Amendment. The argument commonly made elsewhere–that IQ tests are biased against non-whites and that their actual intelligence is higher than their test results–can therefore backfire. Blacks and Hispanics may have their scores boosted, which can put them above the mentally incompetent fault line and into the permissible range for execution.

Whatever its effects outside the area of housing, this new Supreme Court decision will unquestionably make it easier for non-whites to claim illegal discrimination in the face of regulations that are both reasonable and that had no discriminatory intent. It is impossible to know how fantastic or absurd the consequences will be. What will be the equivalent in housing law of throwing out the results of firefighters’ promotion tests simply because not enough blacks and Hispanics passed it? Often those who failed due to “disparate impact” are hired and given back pay. What compensation can successful housing plaintiffs expect?

One thing we can say with certainty is that last week the Supreme Court decided that poor non-whites living in subsidized housing paid for by the public nevertheless suffered illegal discrimination because they were not living in a white neighborhood. In other words, we must not only pay for non-whites (and whites) to live in housing they can’t afford, but we must pay for non-whites to live in white neighborhoods they can’t afford. Anything less would be unconstitutional.

Congress could change the law, of course, and explicitly ban suits based on “disparate impact.” And Al Sharpton could pay his back taxes.