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Disparate dangerous nonsense

6 min read

The year was 2081, and everybody was finally equal. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General. – Kurt Vonnegut, Harrison Bergeron, October, 1961 

Even as tax reform looms on the horizon, the LIHTC is under a different mortal threat, one from an unlikely source – the Obama Administration and its judicially questionable but so-far politically effective blunderbuss known as disparate impact.  If not struck down in a case just argued in the Supreme Court, then we might as well kiss goodbye states’ autonomy to set their own QAPs and to make binding awards, and say sayanora to the LIHTC production pipeline as we know it.

The factual case at issue. The Inclusive Communities Project (ICP) is a Texas non-profit (advocacy and services group) that wants to “redress policies and practices that perpetuate the harmful effects of discrimination and segregation.”  Among its services is support for worthy low-income Texan households with mobile Housing Choice Vouchers in search of apartments to rent.  Many conventional landlords in better neighborhoods won’t accept voucher recipients, but LIHTC landlords are obligated to do so.  So ICP scrutinized TDHCA’s recent awards and discovered, to its shock and horror, that of the applications TDHCA received in predominantly white (90-100% Caucasian) neighborhoods, 49.7% were approved, while in predominately non-white (9-10% Caucasian) neighborhoods only 37.4% were approved.

The imaginative claim of disparate impact.  Under the theory of disparate impact, anything discriminatory in its effect is ipso facto unconstitutional. Rules, procedures, and motives do not matter; if the result of a standard is racially disproportionate in any direction, no matter how racially blind it may be, why, then, it is discriminatory and must be set aside. Ergo, claims ICP, TDHCA’s QAP has disparate impact and the QAP is unconstitutional.

Why is disparate impact a mortal threat to LIHTC?  Simply put, with disparate impact no QAP can be written that is proof against an after-the-fact challenge.  Thus no LIHTC award can ever be final against the threat of litigation, and no state can establish its own housing policy.

Equally convoluted from a real estate perspective is the ICP’s legal reasoning. Even if we accept that ICP wants TDHCA to create more properties in white neighborhoods so that non-white voucher holders can move into those neighborhoods – the eggs demanding that more chickens be created to hatch their fellows – that goal is inherently incapable of satisfaction. Under any QAP, no one can know which properties will win awards until all applications are scored; further, no state agency can compel developers to apply. Hence the disparate impact ratios on which ICP hangs its legal hat can be calculated only after all the awards have been made, and based entirely on luck-of-the-draw results. Disparate impact lets every viewer at home sue to overturn an on-the-field ruling long after the game is ostensibly over.

It was then that Diana Moon Glampers, the Handicapper General, came into the studio with a double-barreled ten-gauge shotgun. She fired twice.

Why disparate impact is legal nonsense in Fair Housing. Despite the Administration’s hand-waving, the 1968 Fair Housing Act gives the doctrine no textual basis; it makes into unlawful discrimination an owner’s actions “to refuse to sell or rent … or otherwise make unavailable or deny a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” Every phrase in the Act bespeaks intention by a discriminating actor, not statistical under-weighting as a byproduct outcome.

Moreover, eliminating rules or motives and judging solely by results makes a mockery of the concept of federal laws applying uniformly. Precisely the same QAP requirements might have no disparate impact on Texans in 2014 but be invalid for Arkansans in 2015. The very same QAP that doesn’t have disparate impact on blacks might have such an impact on Latinos – or if not in a broad socioeconomic category, disparate impact may lurk in a narrower one (Guatemalans versus Cubans).

How disparate impact would sabotage LIHTC production. With such hair splitting always a threat, LIHTC production would plummet due to endless ex-post-facto wrangling over who got an award and who did not.  Development costs would rise due to delay and uncertainty.  The net production drop would be much worse for the voucher holders than anything TDHCA could possibly do now.  I doubt ICP has thought of any of this.

In life, everything has disparate impact because no two people are identical.  There is no such thing as perfect equality of outcome – never was and never will be. Indeed, if one wanted to promote racial or ethnic division in America, disparate impact would be the subversive tool of choice, because it makes anyone who got “under-shared” legally aggrieved.

What’s going to happen. The Administration has shown it likes the threat of law more than the law itself. For five years, it has used disparate impact claims to compel banks that made dodgy loans to cough up big sums for benefit of damaged borrowers, and it has zealously avoided having its pet theory challenged in court. Twice before (St. Paul, MN and Mount Holly, NJ), just as cases were reaching the Supreme Court, the Administration intervened to concede or collapse them and clear the docket. Not so this time – TDHCA has already been argued. A decision will be forthcoming.

For the sake of LIHTC development, affordable housing, and the creation of housing opportunities for under-served people, disparate impact needs to be struck down with respect to housing. I think the Supreme Court will do so.

Diana Moon Glampers loaded the gun again. She aimed it at the musicians and told them they had ten seconds to get their handicaps back on.

It was then that the Bergerons’ television tube burned out.

David A. Smith is Chairman of Recap Real Estate Advisors, a Boston-based real estate services firm that optimizes the value of clients’ financial assets in multifamily residential properties, particularly affordable housing. He also writes Recap’s free monthly essay State of the Market, available by emailing dsmith@recapadvisors.com.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at dsmith@affordablehousinginstitute.org.