T-51531.001 / 2290582_3
TO
: HONORABLE MAYOR AND CITY
COUNCIL
FROM: Susana Alcala-Wood,
City Attorney
SUBJECT: Workforce Housing & Fair
Housing Law
DATE: March 6, 2026
INFORMAT
ION
EXECUT
IVE SUMMARY
On February 24, 2026, (Council Agenda Item 8.5), the City Council adopted a resolution authorizing the Housing Director, or design ee, to negotiate and execute master-lease agreements and related documents to implement the pilot Low Income Voucher and Equity (“L.I.V.E.”) Program.1
Under the L.I.V.E program, the City of San José (“City”) will master-lease approximately 197 apartment units at the Reed and Mark et development. The approved program includes a preference for public employees (cit y, county, state or other public agencies) to receive first priority to apply for available units.
During the City Council deliberations, questions arose regarding t he legal distinction between:
A “set-aside”
A “preference”
“Prioritizing” or “specifying” 50 apartment units for San José Police Department (SJPD) personnel for recruitment and retention purposes City Council also requested legal guidance r egarding how federal and state fair housing laws apply to workforce housing programs, including the L.I.V.E. Program.
This Information Memorandum explains:
The legal distinction between a set-aside and a preference. How federal and state fair housing laws apply.
1 https://sanjose.legistar.com/LegislationDetail.aspx?ID=7873264&GUID=5561656A-94F2-40B9-A262- 2D239B498FBB
COUNCIL AGENDA: 4/7/2026
ITEM: 8.4
HONORABLE MAYOR AND CITY COUNCIL
March 6, 2026
Subject: Workforce Housing and Fair Housing Law
T-51531.001 / 2290582_3
Relevant case law addressing housing preferences and disparate impact. Legal considerations specific to workforce housing programs, including L.I.V.E.
In summary:
There are no federal or stat e statutes or court decisions that prohibit workforce housing programs.
A set-aside (exclusive reservation of units) presents higher legal risk under fair housing law than a preference (priority in application but no exclusion). Workforce housing programs can be structured to reduce legal risk through careful design, monitoring, and use of less restrictive alternatives. The L.I.V.E. program, which is structured as workforce housing and was approved by Council with a public employee preference, complies with applicable law. Amending the L.I.V.E. program to include a 50-unit set-aside for SJPD personnel would create additional legal risk than a preference, but is legally defensible with careful design, implementation, and monitoring.
ANALYSIS
A. Distinction Between a Set Aside and a Preference
A set-aside dedicates a specific number of housing units exclusively for occupancy by a defined group, to the exclusion of all others.
For example, if 50 units are set aside for SJPD personnel:
Only SJPD personnel could occupy those units.
Other income-qualified applicants would be ineligible for those units. If insufficient SJPD applicants apply, un its could remain vacant unless the restriction is lifted.
A preference gives a defined group priority in the application process, all other factors being equal, but does not exclude other applicants.
Accordingly, if 50 units carry a preference for SJPD personnel:
SJPD personnel would receive priority ranking (or early application access). If insufficient SJPD applicants apply, units would be offered to other income- qualified applicants.
All applicants would remain eligible.
A set-aside limits housing choice and restrict s eligibility, while a preference expands priority but preserves broader housing access.
HONORABLE MAYOR AND CITY COUNCIL
March 6, 2026
Subject: Workforce Housing and Fair Housing Law
T-51531.001 / 2290582_3
From a fair housing perspective:
Set-asides create greater legal risk because they restrict access. Preferences present lower legal risk because they maintain open eligibility.
B. Fair Housing Law
The Federal Fair Housing Act (“FHA”) prohibi ts discrimination in the rental, sale, financing, and other housin g-related transactions because of race, color, religion, sex, familial status, national origin, or handicap. 2 California’s Fair Employment and Housing Act (“FEHA”) expands these protections to gender , sexual orientation, marital status, ancestry, source of income, veteran/military status, or genetic information.3
FHA violations can be established by show ing either intentional discrimination , discriminatory impact, or refusal to make reasonable accommodations. 4 Intentional
discrimination is motivated by discriminatory intent. 5 However, even neutral policies or practices may violate the FHA if they cause discriminatory impact on a protected group.
A practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, relig ion, sex, handicap, familial status, or national origin. 6 Disparate impact may be permissible if there is a legally sufficient justification because the practice is necessa ry to achieve one or more substantial, legitimate, nondiscriminatory interests and there is no less discriminatory way to achieve that interest.7
C. Fair Housing Challenges to Housing Preferences
Tenant preferences have existed for decades to prioritize housing. While permissible, preferences are subject to fair housing law and disparate impact claims. For example, in 2002, the court in Langlois v Abington Housing Authority found discriminatory disparate impact in Section 8 rental assistance progr ams in eight Massachusetts suburban public housing authorities lo cated in predominantly white ar eas because nonresidents were disproportionately minorities and would have applied but for the local preference. 8 In 2016, Department of Housing and Ur ban Development (“HUD”) prohibited San Francisco from implementing a neighborhood preference in an affordable housing project in the Western Addition because it lim ited access to housing and perpetuates segregation.
9 HUD ultimately agreed to an anti-displacement preference.
2 42 U.S.C. § 3601; 42 U.S.C. § 3604(a).
3 California Government Code Section 12955
4 Anast v. Commonwealth Apartments, (1997) 956 F.Supp. 792. 5 Cal. Code Regs. Tit. 2, § 12041
6 Cal. Code Regs. Tit. 2, § 12060
7 24 CFR 100.500
8 Langlois v Abington Housing Authority (2002) 234 F.Supp.2d 33 9 27 J. Affordable Housing & Community Dev. L. 51
HONORABLE MAYOR AND CITY COUNCIL
March 6, 2026
Subject: Workforce Housing and Fair Housing Law
T-51531.001 / 2290582_3
New York City was recently challenged on its community preference ordinance giving a 50% set aside for neighborhood applicants. The Court found triable i ssues of fact on intentional discrimination and perpetuation of segregation, leading to the parties settling by reducing the community preference to only 15%.
These cases highlight that t enant preferences, while permissi ble, are subject to fair housing and may be challenged if they create disparate impacts on protected groups.
D. Workforce Housing
Workforce housing programs, like teacher housing, are an emerging recruitment and retention strategy. Whether by preference or a set aside, they should be designed and implemented to promote housing choice and fairness.
Under L.I.V.E.’s pilot program, approximately 197 apartment units will be available for rent to income-qualifying applicants giving pr eference to public empl oyees. All the units should be rented out to a diverse and repres entative segment of the income-qualifying population without inadvertently favoring or disfavoring any group that is protected under the law. San José’s population by race according to the 2024 American Community Survey data is 42% Asian, 30% Hispanic , 21% White, and 3% Black or African American.10
Under the disparate impact framework, a facially neutral policy such as L.I.V.E. may raise concerns in two ways: through a positive disparate effect or an adverse disparate effect.
If 50 of the 197 units are reserved for SJPD personnel, those units should not disproportionately benefit indivi duals of a particular protected class. For example, if a large majority of the applicant s who ultimately obtain the set-aside units are men or members of a single race, the program coul d be characterized as producing a positive disparate effect by dispropor tionately benefiting that group. Conversely, if the reserved units remain vacant or underutilized, thereby reducing access to the broader affordable housing pool, the policy could create an adverse disparate effect if the individuals otherwise benefiting from the program are disproportionatel y members of a protected class. In either scenario, members of a pr otected class who are disproportionately excluded from the housing opportunity may assert a disparate impact claim.
However, even if there is a claim of disparate impact agai nst members of a protected group, the City can assert t hat the program serves t he nondiscriminatory purpose of public safety by addressing one of the l eading causes of hiring and retaining SJPD personnel and that there is no less discriminatory alternative available.
Some ways to enhance the program’s goals wit hout limiting housin g choice are: 1) provide only a preference to SJPD personnel rather than a set aside so that the units are
10 https://censusreporter.org/profiles/16000US0668000-san-jose-ca/
HONORABLE MAYOR AND CITY COUNCIL
March 6, 2026
Subject: Workforce Housing and Fair Housing Law
T-51531.001 / 2290582_3
available for all income-qualifying applicants to apply and not limit their choice in housing; 2) initially reduce the number of units to a smaller pr oportion of housing and evaluate whether the units are rented and who is ta king advantage; and 3) consider other incentives and options to attract SJPD personnel to live and work in San José.
CONCLUSION
Workforce housing programs are not prohibited under federal or state law. However, the structure of the program affects legal risk.
A preference model presents lower risk and is strongly defensible. A set-aside model presents greater risk but may still be defensible if supported by legitimate governmental objectives and carefully implemented.
The L.I.V.E. Program, as approved by Council, is strongly defensible. A 50-unit set-aside for SJPD personnel would increase litigation exposure but is not inherently unlawful and still legally defensible with careful design, implementation, and monitoring.
The City Attorney’s Office remains available to assist in refining program design to minimize fair housing risk while advancing Council’s policy goals.
By_____/s/_______________
SUSANA ALCALA-WOOD
City Attorney
For questions, please contact Susana Alcala-Wood, City Attorney, at (408) 535-1900.