California’s Legislature Takes on the Housing Crisis, But is it Enough?

by Morrison & Foerster LLP

Morrison & Foerster LLP

At no time in recent history has the California Legislature passed more housing-related bills than it did late last month. On September 29, 2017, Governor Jerry Brown signed a package of 15 housing bills intended to bring some relief to the State’s current housing crisis. This effort should be viewed as a first step in correcting a number of impediments to producing adequate housing, but, despite the number of bills enacted, it still does not bring about change of such scale to significantly or quickly narrow the chronic gap between housing supply and demand.

The pressure for the Legislature to address California’s housing crisis in 2017 can be viewed through the historical lens of the State’s decades-long failures to adopt meaningful reform of the California Environmental Quality Act (“CEQA”) or regional planning, coupled with minimal consequences to cities and counties that have traditionally generated aspirational housing elements without actually meeting their stated housing goals. Overall, unions, affordable housing advocates, and certain residential builders willing to be subject to prevailing wages will find support in these new measures. Others, however, may not get much help. In particular, key bills require project developers to pay prevailing wages to qualify, which may be unworkable for many projects, particularly in an era when construction costs are already rising at a rapid rate. Further, one of the bills unwound the Palmer decision, meaning that cities will once again be able to require affordable units in rental projects. Depending on how cities use that new legal authority, onerous new affordable housing requirements may actually inhibit and reduce the production of new units.

The suite of 2017 statutory changes range from the ability of a local jurisdiction to approve affordable housing projects “by-right” without the need for environmental review under the CEQA, to limiting the reaches of CEQA through the creation of specific plan-level districts, to ensuring that a Housing Element’s land inventory is adequate for affordable housing for all income groups, and to strengthening the Housing Accountability Act.

Overall, the new bills place more onerous requirements on local jurisdictions when denying housing projects and remove some of the current limitations or roadblocks frustrating the growth of new housing developments. The bills also elevate California’s Department of Housing and Community Development’s (“HCD”) enforcement ability and role in local governments’ implementation of their housing programs. Ultimately, even if some streamlining provisions are not sufficiently attractive to many developers, the teeth the bills give to the existing housing element law and the threat of taking away some discretionary authority over other projects should motivate housing-resistant jurisdictions to reassess their current housing elements and regional housing needs allocation (“RHNA”) planning practices and kick-start affordable housing efforts.

We will continue to monitor potential opportunities and challenges for developers over the coming months as HCD reviews the new legislation and issues guidance documents with regard to specific implementation practices and policies.

Senate Bill 2 (Atkins) – The Building Homes and Jobs Act

In order to provide an ongoing funding source for affordable housing without the State incurring additional debt to do so, SB 2 imposes a $75 recording fee on real estate transaction documents, excluding property sales, and capped at $225 per transaction. The legislation is expected to generate between $200-300 million a year and create approximately 29,000 jobs annually for every $500 million spent. The bill is intended to provide a permanent source of funding to replace the approximately $1 billion a year in lost redevelopment agency funding. Funds generated in 2018 will be equally split between local and state housing programs to build affordable housing and make existing hours more affordable through updated planning and zoning regulations, and to fund homeless assistance programs, respectively. Starting in 2019, 70 percent of funds will be allocated to local governments and 30 percent will be directed to the state.

Senate Bill 3 (Beall) – Affordable Housing Bond Act of 2018

SB 3 authorizes the issuance of $4 billion in general obligation bonds to finance existing affordable housing programs. One billion dollars of this bond will be earmarked for California’s veteran’s home ownership program. Voters must decide next November 2018 whether to approve the bond. Voters haven’t approved a state housing bond since Proposition 1C in 2006.

Senate Bill 35 (Weiner) – Streamlining Infill Projects in Localities Failing to Meet Statewide Housing Goals

SB 35 provides a new streamlined, ministerial approval process for certain qualifying infill development projects located in local jurisdictions that are non-compliant in meeting their RHNA under state law for the current reporting period. Representative Scott Weiner, the author of SB 35, touts the legislation as a “state-level approach to housing.”

Although the state’s RHNA process requires every jurisdiction meet its “fair share” of regional housing needs, and Housing Element Law requires housing elements to identify a specific schedule of actions and a timeline for implementation, housing advocates have long asserted that the process lacks teeth in its enforcement and that there is no “stick” to incentivize jurisdictions to comply. SB 35 aims to add more accountability to the RHNA process by requiring local planning agencies to include detailed and specific information in an annual report to HCD related to new housing, including issued entitlements, building permits, and certificates of occupancy. The report is to be publicly posted on HCD’s website.

Projects are only eligible for streamlining under SB 35 if they meet specific “objective planning standards.” The following is a partial list of the key requirements:

  • Entail multi-family housing with more than two units;
  • Be located on an urban infill site, which is either zoned to permit residential or has a General Plan designation that does so, and at least two-thirds of the project’s square footage must be designated as residential;
  • Be located in a locality where HCD has determined that the number of units issued building permits is less than the share of the regional housing needs, by income category, for the current “reporting period” (defined as either the first or second half of the regional housing needs assessment cycle) and the development meets specific minimum percentages of below-market rate housing (percent depends on what type of units the locality is non-compliant in meeting);
  • Be consistent with “objective zoning standards and objective design review standards” in effect at the time development submitted for approval;
  • Not be located in specific types of sensitive sites, such as coastal zones, prime farmlands, wetlands, very high fire hazard severity zones, hazardous waste sites, earthquake fault zones, flood plains, conservation lands, protected species habitats, and the like;
  • Not result in the demolition of housing or historic structures; and
  • Certify that the developer will pay prevailing wages, and, under specific circumstances, use a skilled and trained workforce (the development is exempt from both requirements if the project contains less than 10 units and is not a public work as defined in the Labor Code).

Streamlined projects are not required to obtain conditional use permits. In addition, a locality is limited in the parking standards it may impose on a project subject to SB 35 and any design review by its commissions or council must be objective and “strictly focused” on confirming compliance with identified objective criteria and design standards.

If a project applies for streamlining under SB 35, the locality must provide notification within 60 to 90 days (depending on the circumstances) as to whether the development conflicts with any of the above objective standards. Otherwise, the development is deemed in compliance. The project approval does not expire if the project includes investment in housing affordability and otherwise expires automatically after three years, subject to a one-time, one-year extension.

Senate Bill 166 (Skinner) and Assembly Bill 1397 (Low) – “No Net Loss Bills”

SB 166 and AB 1397 require local governments to continually assess sites identified in their housing inventory to ensure that, as development occurs, an on-going supply of suitable sites remain available for residential development or adjustments to zoning are made. The two bills also establish more rigorous standards for housing inventory sites.

Senate Bill 167 (Skinner), Assembly Bill 678 (Bocanegra), and Assembly Bill 1515 (Daly) – Strengthening the Housing Accountability Act

SB 167, AB 678, and AB 1515 all serve to strengthen the Housing Accountability Act (“HAA”), often coined the “Anti-NIMBY Law,” and confront NIMBY challenges that often prevent affordable housing from being built.

Specifically, SB 167 and AB 678 (identical bills) make it more difficult for local jurisdictions to deny low- and moderate-income housing projects by increasing the required standard of proof from substantial evidence to preponderance of evidence. The bills also provide for awards of attorneys’ fees to housing advocates and project applicants who prevail in challenges to local disapprovals and permits courts to vacate local disapprovals and impose hefty $10,000 fees per housing unit for HAA violations.

AB 1515 allows housing projects to be afforded protections of the HAA, so long as the project is in line with local planning rules. The bill also directs courts to give less deference to local jurisdiction determinations of project consistency with local planning and zoning requirements than would otherwise be the case.

SB 540 (Roth) – Streamlining Environmental Review

SB 540 streamlines the environmental review for housing projects within local government-identified “Workforce Housing Opportunity Zones” (“WHOZ”) containing between 100 to 1,000 residential units. A specific plan and environmental impact report (“EIR”) under CEQA would be prepared for the WHOZ, and the resulting environmental review and project streamlining would be valid for a period of five years. Future proposed projects within the WHOZ could avail themselves of this streamlining and shortened environmental review process – no separate EIR or negative declaration would be required and a local jurisdiction may not deny a project that conforms with specific criteria laid out in the bill. To qualify for this CEQA streamlining within the WHOZ projects must, among other things, pay prevailing wages and restrict at least 50 percent of the units to lower income households. The local jurisdiction must also take action on any project application within 60 days.

Assembly Bill 72 (Santiago, Chiu) and Assembly Bill 879 (Grayson) – Housing Element Compliance

AB 72 strengthens HCD’s ability to enforce laws that require the assistance of local jurisdictions to accomplish housing goals. It requires HCD to review any action or failure to act by a local jurisdiction that it determines inconsistent with an adopted housing element and authorizes HCD to revoke a jurisdiction’s housing element compliance.

AB 879 requires local jurisdictions to provide additional information about housing development applications and approvals on an annual basis and directs HCD to conduct a study recommending how to reduce housing development fees.

Assembly Bill 73 (Chiu) – Housing Sustainability Districts

AB 73 provides incentives to local jurisdictions to establish housing on infill sites near public transportation. The bill authorizes jurisdictions to establish Housing Sustainability Districts (“HSDs”) that meet specified requirements, including authorizing residential use by ministerial permit. An EIR would be prepared when designating HSDs, and housing projects developed within an HSD and meeting specific requirements would be exempted from further environmental review. The bill also authorizes developers to proceed with projects in HSDs in accordance with existing land use approval procedures as an alternative. An HSD ordinance is effective for no more than 10 years, though this may be renewed by the local jurisdiction for up to an additional 10 years. All development is subject to prevailing wages and a skilled workforce.

Assembly Bill 571 (Garcia) – Farmworker Housing

AB 571 eases qualifications for the State Treasurer’s Office Farmworker Housing Assistance Tax Credit Program to encourage the development of migrant farmworker housing. The changes help leverage underutilized federal tax-exempt bonds and four percent low income housing tax credits.

Assembly Bill 1505 (Bloom) – Overturning Palmer and Authorizing Inclusionary Policies for Rental Units

AB 1505 authorizes local governments to adopt inclusionary policies for new residential rental projects in order to create affordable housing, thereby overturning the Palmer case, which found that inclusionary housing ordinances specific to rental housing conflicted with and were preempted by the Costa-Hawkins Act (see Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009) 175 Cal.App.4th 1396). The bill would also authorize HCD to review local government ordinances (within 10 years of their adoption) that require projects to include more than 15 percent affordable units. As part of this review, HCD may request a local jurisdiction to provide an economic feasibility study to evidence that the ordinance does not “unduly constrain” housing development projects.

Assembly Bill 1521 (Bloom) – Strengthening California’s Preservation Notice Law

AB 1521 strengthens the state’s affordable housing Preservation Notice Law by mandating that owners of expiring affordable rental properties first offer the units for sale at market value to qualified preservation entities. The intent of this legislation is to conserve affordable homes at risk of conversion, thus reducing displacement of low-income residents and maintaining the current quantity of affordable rental housing. The bill requires HCD to monitor compliance and provides legal recourse to tenants and local jurisdictions in enforcing the law.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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