Only a few weeks after the U.S. Supreme Court announced its decision upholding disparate impact as basis for liability under the Fair Housing Act (the Act; for further discussion of the case, see our blog posts here and here), the U.S. Department of Housing and Urban Development (HUD) promulgated a new rule implementing the Act.  The rule aims to give more teeth to the duty imposed by the Act to affirmatively further fair housing using federal funds.  The new rule requires recipients of some HUD funds to analyze extensive amounts of data—provided by HUD and supplemented by the community participation process—to identify patterns of discrimination and segregation, and to draft a template-based assessment of the results.  Whereas the previous regulatory framework did not require that the assessment go much further than the desk of the person who prepared it, the new rule requires HUD program participants to submit their assessments to HUD for review.

The new rule responds to concerns, highlighted particularly in litigation related to the use of HUD funding in Westchester County, New York, that the previous regulatory framework did not effectively further the Act’s objective of addressing barriers to fair housing.  Under the previous regulations, recipients of HUD funds certified that they would affirmatively further fair housing.  However, that phrase was not defined.  Furthermore, the analysis of impediments (AI) to fair housing that some program participants were required to prepare was not submitted to HUD for review or comment.  A 2010 report published by the U.S. Government Accountability Office concluded that as a result of HUD’s limited guidance and oversight, a vast majority of AIs were outdated or completed in a cursory manner.

The new rule emphasizes a more data-driven assessment and planning process and requires more systematic HUD oversight.  Specific changes under the new rule are as follows:

  • To clarify the duty of program participants and the significance of the certification required under the rule, the new rule provides a definition of “affirmatively furthering fair housing.”
  • An Assessment of Fair Housing (AFH) is required. Jurisdictions and public housing agencies (PHAs) that administer Community Development Block Grants (CDBG), Emergency Solutions Grants (ESG), HOME Investment Partnerships (HOME), Housing Opportunities for People With Aids (HOPWA) and PHAs receiving Section 8 or 9 funds will conduct and submit an AFH, replacing the AI. At a minimum, the AFH analyzes fair housing data, assesses fair housing issues and contributing factors and identifies fair housing priorities and goals.
  • Templates, referred to as “Assessment Tools” in the new rule, will be provided by HUD for completing AFHs. HUD will provide multiple templates, each one tailored to the roles and responsibilities of the various program participants.
  • AFHs will be subject to HUD’s review and acceptance.  An AFH will be deemed accepted after 60 days after HUD’s receipt of the AFH unless HUD notifies the program participant otherwise.
  • HUD will provide data to facilitate completion of the Assessment Tool. Program participants will supplement the HUD-provided data with local data and local knowledge, including information obtained from the community participation process.
  • Joint or regional AFHs are permitted. Recognizing that some fair housing goals may be more effectively addressed from a broader perspective, the new rule facilitates collaboration between certain program participants by permitting those participants to develop and submit a single joint or regional AFH.
  • Phased implementation allows extra time for some participants. The first AFHs are due to HUD 270 days after the applicable program year that begins on or after January 1, 2017, but a phased-in approach provides additional time for certain program participants, such as those receiving a CDBG grant of $500,000 or less and qualified PHAs, to submit their first AFH.
  • Until program participants are required to submit an AFH under the final rule, the program participant is required to conduct an analysis of impediments in accordance with prior HUD regulations.

The practical impact of the new rule is significant, since more data and analysis are required than under the previous rule.  Some required analysis, such as the statistical analysis of local data, may be beyond the capacity of a local government, requiring those entities to engage third party consultants to a greater extent than before.  HUD estimates that the increased compliance costs for program participants resulting from the new rule will total $25 million annually in the aggregate; however, HUD notes that the net change in burden on specific program participants will depend on the extent to which they complied with previous planning requirements.

In addition to increased compliance costs, program participants may also face greater liability exposure under the new rule  By defining what it means to affirmatively further fair housing, HUD and relators in qui tam actions have a clearer basis to challenge certifications made under the new rule.  Furthermore, the new rule’s requirement to submit AFHs to HUD for review will likely result in increased scrutiny by HUD of existing policies and practices.  As a result, local governments may need to amend their zoning and other regulations in order to continue receiving federal funds.

The new rule may have unintended consequences with respect to the policy goals of the Act and the rule itself, as it could discourage some local governments from participating in HUD programs due to the increased analytical requirements and costs imposed in connection with receipt of HUD funds, and the increased federal sensitivity over matters of local planning and zoning.  Although it is too soon to tell whether the changes set forth in the new rule will result in greater achievement of the Act’s fair housing objectives, it is clear that the rule is controversial—supporters, such as HUD Secretary Julian Castro, hope that the new rule will “expand access to opportunity,” while critics argue that the rule is an  “assault on freedom” because it puts zoning and housing policies (matters of local concern) more squarely in the hands of the federal government.  We will likely hear more about the rule as a talking point in the presidential campaign.