Roughly three months ago, President Biden signed an executive order that, among other things, directed HUD to reevaluate earlier agency decisions perceived to weaken the Fair Housing Act. In response to this directive, HUD has submitted draft rules to the Office of Management and Budget that would roll back two significant changes made by the Trump-era HUD. First, HUD has submitted a proposed rule aimed at reinstating its previous standard for disparate impact discrimination claims. Second, HUD has submitted an interim final rule related to the Affirmatively Furthering Fair Housing (AFFH) rule, an Obama-era regulation requiring that certain municipalities perform assessments related to desegregation. The review period for the two rules is limited to 90 days by executive order, so the substance of these rules should be made public by July of this year.

Disparate Impact

HUD’s first proposed rule relates to the Trump administration’s October 2020 final rule implementing a revised standard for disparate impact discrimination claims. This rule, which we discussed in this space, eliminated a 2013 regulation codifying HUD’s long-standing view that the Fair Housing Act banned housing practices that disparately impact protected classes of individuals. Additionally, the 2013 rule established a three-part burden shifting test in order to establish a housing discrimination claim.

The Trump administration’s 2020 disparate impact rule replaced this three-part test with a new burden-shifting framework where a plaintiff must establish, as a threshold matter, that a specific policy or practice caused the discriminatory effect, and that the policy or practice was “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.” Once the plaintiff meets this threshold, the burden then shifts to the defendant to “identify a valid interest or interests which the challenged policy or practice serves…” Once the defendant makes that identification, the burden shifts back to the plaintiff to establish four additional elements.

The more stringent 2020 burden-shifting framework was never to be realized: The day after HUD issued its final disparate impact rule, the United States District Court for the District of Massachusetts entered a preliminary injunction staying the final rule and enjoining its enforcement. Although HUD’s current proposal is not yet public, we anticipate that the Biden administration will seek to reinstate the three-part burden-shifting analysis from HUD’s 2013 final rule.

Affirmatively Furthering Fair Housing

HUD’s second proposed rule – an interim final rule that will take effect once published in the Federal Register – relates to the Obama-era AFFH rule. Specifically, AFFH required cities and towns to analyze local housing data for discriminatory patterns and submit to HUD plans to address those patterns in order to continue receiving federal funds.

In January 2018, HUD effectively suspended AFFH by issuing a notice delaying the requirement that municipalities submit to proposed plans to HUD until after October 31, 2020. Then, in mid-2020, HUD replaced AFFH with the “Preserving Community and Neighborhood Choice” rule, which defined fair housing much more broadly as “affordable, safe, decent, free of unlawful discrimination, and accessible under civil rights laws.” Moreover, and perhaps more importantly, this new rule allowed affected municipalities to self-certify compliance.

As is the case with the HUD’s new disparate impact proposed rule, HUD’s new AFFH rule is not yet public. However, we anticipate that the new provision will represent a return to HUD’s 2015 iteration of AFFH. We will continue to monitor HUD for developments related to these two proposed rules or any additional rules or guidance.