The Lawletter Vol 45 No 1
A survey conducted in Minneapolis, Minnesota, indicated that barely half of the residential rental listings surveyed were affordable for persons receiving vouchers from the federal government's "Section 8" program, and only about a quarter of those affordable properties were willing to accept such vouchers. The backdrop was a vacancy rate in the city for low-income households of only about 2%.
Citing this data and its desire to broaden housing opportunities for residents receiving the federal vouchers, the City enacted an ordinance that made it an unlawful discriminatory practice for a landlord to use "any requirement of a public assistance program as a motivating factor" to refuse to sell, rent, or lease real property. While voucher holders must meet the landlords' other requirements that are unrelated to Section 8 participation, landlords cannot avoid the ordinance just by citing business reasons for not wanting to participate in the Section 8 program. On the other hand, under some circumstances, mostly related to the landlords' costs and finances stemming from Section 8, landlords can assert an "undue hardship" defense. Some classes of rental properties are exempted from the ordinance, including rooms in owner-occupied, single-family dwellings and units in owner-occupied duplexes.
A company that rented residential properties mounted a two-pronged constitutional challenge to the ordinance in state court. The action succeeded before a trial court, but that decision was reversed by Minnesota's Court of Appeals. Fletcher Props., Inc. v. City of Minneapolis, 931 N.W.2d 410 (Minn. Ct. App. 2019). Under Minnesota law, the party challenging the constitutionality of legislation must meet the very heavy burden of demonstrating beyond a reasonable doubt that the legislation is unconstitutional.
When a fundamental right is implicated in a substantive due process or equal protection claim—the two parts of a landlord's challenge—the reviewing court applies a strict-scrutiny analysis, which requires more of the government if the law is to be upheld. When a fundamental right is not implicated, a more deferential rational-basis analysis is used. In Fletcher Properties, the court decided this threshold question in the City's favor. The ordinance did not implicate a fundamental right. There was no historical practice or nationwide acceptance of recognizing the right to rent property as a fundamental right, nor was that right implicit in the concept of "ordered liberty," such that neither liberty nor justice would exist if it were sacrificed. Id. at 419-20.
Legislation allegedly violating substantive due process rights will fail rational basis review only when it rests on grounds irrelevant to the achievement of a plausible governmental objective. Rational basis analysis requires only that the act serve to promote a public purpose of satisfying substantive due process, not that the legislature identified a specific public purpose when it passed the challenged law. In Fletcher Properties, increasing housing opportunities for federal Section 8 housing choice voucher holders was a plausible public purpose served by the ordinance, and the City had identified increasing housing opportunities as a goal that also served the public purpose of reducing prejudice-based discrimination. Id. at 421-22. Although the public housing authority for the City had a high placement rate for voucher holders, about 250 voucher families were searching for housing in the City at any given time, and increasing housing opportunities further was a valid goal.
The ordinance was not an unreasonable, capricious, or arbitrary interference with the landlord's private interest. Also weighing in the City's favor was the fact that the City reduced the degree of interference by providing a significant time to adjust to the new law, creating the hardship defense, and creating an incentive fund to address property-damage issues. Nor was the court persuaded by an argument by the landlord that increased costs to landlords because of the ordinance could actually have the unintended effect of reducing housing opportunities by necessitating rent increases. The court rejected this point as "conjecture." Id. at 423.
As for the equal protection argument, the landlord claimed unsuccessfully that treating it and others like it differently from the exempted landlords was not justified. The court determined that the classifications of rental properties created in the ordinance had genuine and substantial distinctions relative to the public purpose of increasing housing availability for voucher holders. The exempted properties involving a single unit in a dwelling currently or recently owner-occupied were but a small part of the housing market. Treating such landlords as an exempted class allowed the City to focus its resources on landlords with multiple units who provided the vast majority of the housing market.
In addition, the difference in the City's treatment of exempt and nonexempt landlords was made less stark by virtue of the fact that the ordinance’s exemptions do not allow the exempted landlords to discriminate against tenants based on their status with regard to public housing assistance, because such discrimination is prohibited by a separate statute having state-wide application. The ordinance at issue goes further than state law by prohibiting most landlords from discriminating on the basis of the requirements of a public-assistance program. Creating such a prohibition, while exempting a class of properties that supplies only a small portion of the housing market, is a legitimate means to increase housing opportunities for voucher holders. Id. at 429.