The United States Supreme Court, in a five-to-four decision in June, brought housing discrimination law ever-so-slightly more in line with Title VII of the Civil Rights Act of 1964 (“Title VII”) by holding that claims of disparate impact are cognizable under the Fair Housing Act (“FHA”). The court took great pains, however, to limit the impact of the holding as well as putting a substantial onus on a plaintiff to prove causal connections between challenged policies and alleged disparities.

“Disparate treatment” has been the standard under the FHA until the June holding and requires the plaintiff to show that the defendant had a discriminatory intent.   “Disparate impact” describes a scenario where a challenged practice has a disproportionate and adverse effect on minorities. It is a much lower standard for a plaintiff to prove, as direct evidence of discriminatory intent is difficult to come by, and it has been a cornerstone of Title VII case law for decades. In the case Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., the Supreme Court adopted the disparate impact standard but blunted its effect.

In Inclusive Communities, the Texas Department of Housing and Community Affairs (“Department”) distributed federal tax credits to developers as part of a program to encourage the construction of low-income housing. The Inclusive Communities Project, a nonprofit that assists low-income families with affordable housing, sued the Department, showing that 92.29% of the units allocated the tax credits were in census tracts with less than 50% Caucasian residents. The approval rate of these credits was also far higher in areas with very low white populations, decreasing dramatically in areas with 90% to 100% Caucasian residents. Both the trial and appellate courts held in favor of Inclusive Communities, recognizing the disparate impact claim under the FHA.

The Supreme Court upheld the disparate impact claim in Inclusive Communities, but it set limits to how courts can approach the matter to protect against potential abuses under the FHA. The court held that racial imbalance without more is not enough to prove a claim of disparate impact. The plaintiff also has a significant burden to establish a truly robust connection between the challenged practice and the disparate impact alleged. Defendants can justify their policies so long as they are not “artificial, arbitrary, and unnecessary barriers.” Plaintiffs must then show that there is an available alternative that will serve the defendant’s legitimate needs and has less disparate impact. The court finally held that any remedial orders under a disparate impact theory must focus on “the elimination of the offending practice” using “race-neutral means.”

Ostensibly, the Inclusive Communities case is a win for the disparate impact theory in FHA cases, but the Supreme Court really does split the difference in trying to limit the availability of the remedy. The court set strictures to reign in the application of disparate impact claims, giving defendants more breathing room under the FHA for implementation of “valid governmental policies.” Still, housing authorities and governmental entities should cautiously review plans with an eye toward disparate impact claims under the FHA.