Supreme Court Upholds Disparate Impact Liability, With Note of Caution

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The U.S. Supreme Court decided to uphold disparate impact liability under the Fair Housing Act, a legal theory that prohibits neutrally-applied practices with a disproportionate impact on minority groups protected by the law, even without proving an intent to discriminate. The 5-4 decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. also emphasized limitations on the policy, stating that neutrally-applied practices should not fail on disparate impact grounds unless they are “artificial, arbitrary and unnecessary.”

NAA/NMHC are conducting a detailed analysis of the Supreme Court’s decision and will continue to seek further clarification on disparate impact liability.

NAA/NMHC and six other real estate trade associations weighed-in on the issue by jointly submitting an amicus brief to the Supreme Court in November. We argued that disparate impact liability could trigger discrimination claims for conducting resident criminal history and credit screenings, among other business practices, despite no intention of singling out a particular group protected by the Fair Housing Act.

The multifamily industry supports the Fair Housing Act and is committed to providing quality rental housing without regard to race, religion, color, sex, handicap, familial status or national origin. In addition, we support enforcement against bad actors who intentionally discriminate and damage the industry’s reputation.

Importantly, the majority opinion highlighted limitations on disparate impact liability to allow “practical business choices and profit-related decisions that sustain the free-enterprise system.” Leeway must be given to housing providers to explain the validity of their policies. Further, a disparate impact claim is not demonstrated by statistical disparity alone. A claim must show that a challenged practice actually caused a disparate impact on a protected group, and the availability of an “alternative practice that has less disparate impact” to serve legitimate business needs.

The case originated when the Inclusive Communities Project, a Dallas-based group that advocates for integrated housing, sued the Texas Department of Housing. The suit alleged that Texas disproportionately approved tax credits in minority neighborhoods, therefore reinforcing housing segregation and violating the Fair Housing Act.

Provided by NMHC as part of the NAA/NMHC Joint Legislative Program