The Supreme Court has agreed to hear a much-anticipated case involving the low-income housing tax credit (LIHTC) program in Texas.

A lawsuit filed by the Inclusive Communities Project (ICP) claimed that the Texas Department of Housing and Community Affairs (TDHCA) discriminated based on race by disproportionately approving LIHTC developments in predominantly minority neighborhoods and disproportionately denying LIHTC developments in predominantly Caucasian neighborhoods.

The top court will decide whether the disparate impact theory can be used in claims made under the Fair Housing Act.

In general, disparate impact is when a policy that may appear to be neutral has a discriminatory effect on a group based on race, sex, age, or disability.

It’s a theory of liability in which statistics are used to show that a group is harmed by policies, says Michael W. Skojec, a partner at the Ballard Spahr law firm. No intentional discrimination has to be proven.

The Supreme Court granted TDHCA’s request to review the case, which was filed earlier this year after the U.S. Court of Appeals for the Fifth Circuit recognized the disparate impact theory.

This would be the third time since 2012 that the Supreme Court is set to decide whether disparate impact is a viable theory under the Fair Housing Act, says Skojec. The earlier cases were settled before oral arguments.

The ICP case comes with high stakes.

If the conservative court rules against ICP and disparate impact, it would be a blow to civil rights organizations that use the method as a way to fight practices that do not directly discriminate yet have a discriminatory effect.

It’s also a nervous time for the LIHTC industry because a ruling that supports ICP’s claims could have a major impact on how and where housing credits are allocated.

“It changes the whole dynamic of the policies behind where do we want to put affordable housing and how do we maximize the number of people who get affordable housing,” Skojec says.

The case raises concerns that poorer or minority neighborhoods that need and want affordable housing would not be able to build new LIHTC developments or renovate existing properties because there would be an emphasis on building LIHTC properties in more affluent areas.

This could have a chilling effect on development in neighborhoods that fall under question.

“There are a lot of development proposals that could be percolating or moving further along, but people are very gun-shy about moving those forward, especially in Texas but also other places,” says Sharon Wilson Geno, partner and team leader of the government-assisted housing team at Ballard Spahr.

ICP also recently filed suit against the Treasury Department and the Office of the Comptroller of the Currency, claiming the agencies violated their duties to further fair housing under the Fair Housing Act.

Oral arguments will likely be heard early next year, with a decision coming around the end of June.

Connect with Donna Kimura, deputy editor of Affordable Housing Finance, on Twitter @DKimura_AHF.