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In Pennell v. City of San Jose,37 the U.S. Supreme Court reviewed a constitutional challenge to a San Jose rent control ordinance based on a provision that permitted the City to consider "hardship to a tenant" when setting rents but did not require a reduction. The Court held that the provision was not unconstitutional absent any evidence of its actual impact. Pennell appears to stand for the proposition that price controls cannot be challenged on their face unless they actually deny an owner a fair return. However, inclusionary provisions could be subject to rate of return analysis if viewed as price controls. Whether a court would review the rate of return for only the inclusionary units (likely negative) or for the entire project (likely positive) is unknown, since no court in California has applied such an analysis to a development project. Conflicts with Other Statutes. The Palmer decision potentially conflicts with the Mello Act,38 which requires that every new housing development in the coastal zone. "where feasible," provide housing affordable to low and moderate income households and also requires that all housing demolished in the coastal zone and formerly occupied by low and moderate income households be replaced within three years (subject to certain exceptions) or that the developer pay an in-lieu fee. Developers of new rental housing in the coastal zone will certainly argue that, given Palmer, it is no longer "feasible" for them to be required to provide affordable housing, and those who need to pay an in-lieu fee may argue that it is tainted by an on-site rent-controlled alternative. Although the issue was raised in the briefs, the Palmer court ignored it. In addition, Government Code Section 65589.8 specifically allows developers who are required to provide inclusionary units to use rentals to provide all or some of the units: 37 485 U.S. 1 (1988). 38 Government Code Section 65590-65590.1. 14 990051A1A720372.3 8/72009