Justices uphold Minneapolis Section 8 housing ordinance

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Fletcher Properties and other Minneapolis landlords challenged a city ordinance prohibiting them from refusing to rent to tenants based on participation in public assistance programs like Section 8. The Minnesota Supreme Court upheld the ordinance, ruling it does not constitute an unconstitutional taking.

“Minneapolis has an affordable housing crisis. We absolutely agree. And there is a strong desire to fix this crisis, and that’s an admirable goal,” said Tamara O’Neill Moreland, a shareholder at Larkin Hoffman who represented Fletcher Properties. “But we find ourselves here with Minneapolis attempting to place the public burden of affordable housing on the backs of a very small selection of private property owners.”

The dearth of affordable housing in Minneapolis is a known crisis. Over the past decade, rental housing in Minneapolis has become increasingly competitive and expensive, with vacancy rates for units affordable to very low-income families falling below 1%.

In 2015, the Minneapolis City Council began to address this by pursuing an amendment to its civil rights ordinance to prohibit housing discrimination based on receipt of public assistance, including Section 8 vouchers. The city formally amended the ordinance in 2017 to make it unlawful for landlords to refuse to rent based on public assistance program requirements. The amendment also established an affirmative defense for landlords who can show that participation would impose an undue hardship, defined by specific financial and operational factors.

“The city of Minneapolis passed an amendment that balances the need to protect housing choice voucher holders in their quest for housing with the economic interests of rental property owners,” said Kristin Sarff, assistant Minneapolis city attorney. “This, of course, came after years of public hearings and research that showed that there was a mass experience of property holders rejecting voucher holders.”

In 2017, Fletcher Properties filed a lawsuit challenging the Minneapolis ordinance on several grounds, including substantive due process and equal protection. Affirming the Court of Appeals, the Minnesota Supreme Court found that the ordinance did not violate substantive due process or equal protection. Fletcher also alleged a takings claim under the Minnesota Constitution, but the district court granted summary judgment to the city, which the Court of Appeals affirmed.

Fletcher appealed, arguing that the ordinance was a physical taking because it required landlords to suffer an invasion of their property. Fletcher claimed that the ordinance forces landlords to rent to Housing Choice Voucher holders in a way that amounts to a “total and complete” physical invasion of their property. They also claim that required inspections under the program constitute temporary invasions by allowing unauthorized entry into their units.

The court disagreed. “Minneapolis landlords voluntarily rent their properties to tenants,” Justice Anne McKeig wrote. “Once a landlord makes this voluntary decision, the city does not compel them to continue doing so. To the contrary, landlords are free to change the use of their land with proper notice.”

Similarly, the court found that landlords’ properties are subject to inspection only because they are voluntarily rented out to tenants.

Nor did the court find that the ordinance constituted a regulatory taking. The court pointed to reports that showed that properties that accepted vouchers had higher effective gross incomes than those that rejected vouchers. But even if accepting vouchers reduced property value, the court pointed to federal courts that have concluded that regulations causing significant diminution of value are nevertheless constitutionally valid.

“Even assuming these valuation reductions would occur upon enforcement of the ordinance, they fall short of the economic loss needed to establish a regulatory taking under Penn Central,” McKeig explained. “This is especially true given that the ordinance is related to the promotion of the general welfare.”

(In Penn Central Transportation Co. v. City of New York, the U.S. Supreme Court in 1978 balanced three factors: the economic impact of the regulation, its interference with reasonable investment-backed expectations, and the character of the government action.)

The court had previously confirmed the permissibility of the ordinance’s purposes: to increase housing opportunities, address housing denial, and prohibit prejudice-based discrimination against voucher holders. It found that the Court of Appeals did not err in affirming the district court’s finding that the ordinance did not effect a regulatory taking.