On Thursday, the Supreme Court ruled 5-4 in Texas Department of Housing and Community Affairs v. Inclusive Communities Project that the Fair Housing Act authorizes lawsuits to challenge housing policies that have a disparate impact on racial minorities, even in the absence of discriminatory intent. As Justice Alito’s dissenting opinion explained, the Court’s holding is not supported by the text of the Fair Housing Act. Justice Alito also dissected the systematic vagueness of the Court’s holding, which would give a pass to policies that have a disparate impact if they are “necessary” to achieve “legitimate” and “substantial” purposes. Pointing to lower-court decisions that have used the disparate-impact theory, he further noted that the holding may unleash lawsuits that could impede low-income housing construction and allow low-income families to be victimized by housing code violations.
It’s possible that some form of disparate-impact liability could play a useful role in combating the entrenched housing segregation that exists in this country. But, any such policy should be adopted by Congress rather than the Court and should include specific safeguards to avert the potentially harmful effects of the Court’s holding.
In ruling that disparate-impact claims can be brought under the Fair Housing Act, the Court did not decide the merits of the particular case before it. But, that case vividly illustrates the contradictions built into current federal policies. The lawsuit alleged that a Texas housing authority had contributed to housing segregation and violated the Fair Housing Act by disproportionately allocating federal low-income housing tax credits to construction in predominantly black inner-city areas. Yet, as the Court acknowledged on page 2 of its opinion, Congress has mandated, in Internal Revenue Code section 42(m)(1)(B)(ii)(III), that states’ low-income housing tax credit allocations give preference to construction in census tracts with high poverty rates.
Before recognizing an ill-defined disparate-impact liability under the Fair Housing Act, we should change federal housing policies that promote economic and racial segregation. In a 2010 Tax Notes article, Amy Roden, who was then a Jacobs Associate and program manager for economic studies at AEI, summarized the extensive evidence of the harmful effects of poverty concentration and explained how features of the low-income housing tax credit program reinforce that phenomenon. She pointed out that the program favors construction in high-poverty census tracts, as mentioned above, and that it favors predominantly low-income buildings over mixed-income buildings. Roden proposed reforms that would reorient the program to combat the concentration of poverty.
As the federal government searches for ways to reduce segregation, it should start by examining its own tax credit policies and considering Roden’s reform proposals.
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