Developers Knock Out Local Zoning Hurdle

On July 11, 2013, in Latinos Unidos del Valle de Napa y Solano v. County of Napa (A135094), the First District held that Napa County's restrictive density bonus ordinance impermissibly conflicts with the State Density Bonus Law ["DBL"] (Gov. Code § 65915). In particular, the appellate court held that the ordinance improperly requires a developer to dedicate a larger percentage of its units to affordable housing than what is required by the DBL. This decision addresses an issue that has been disputed for years regarding the application of the DBL to projects that are also subject to local inclusionary zoning requirements.

The DBL, enacted in 1979, is one of several California statutes designed to implement “an important state policy to promote the construction of low-income housing and to remove impediments to the same.” (Bldg. Indus. Ass’n v. City of Oceanside (1994) 27 Cal. App. 4th 744, 770.) As recognized by California courts, “the Density Bonus Law ‘reward[s] a developer who agrees to build a certain percentage of low-income housing with the opportunity to build more residences than would otherwise be permitted by the applicable local regulations.’” (Friends of Lagoon Valley v. City of Vacaville (2007) 154 Cal. App. 4th 807, 824.)

The DBL has three distinct primary components: density bonuses; incentives/concessions; and development standard waivers. Local governments must provide a density bonus (the component at issue in this case) when a developer agrees to construct any of the following: (1) 10% of the total units within the project for lower income households; (2) 5% of total units for very low income households; (3) a senior citizen housing development or mobilehome park restricted to older persons; or (4) 10% of units in a common interest development for moderate-income families or persons. (Gov. Code § 65915(b)(1)(A)-(D).) Once a project meets one of the minimum thresholds, the size of the density bonus is governed by the amount of affordable units the project will provide. Developers agreeing to construct a minimum of 10% of units for low-income households are eligible for a 20% density bonus, and each percentage increase in the number of low-income units increases the bonus by 1.5%, up to a maximum bonus of 35%. (Id. § 65915(f)(1).) For example, providing 10% low-income units yields a 20% bonus, while providing 11% low income units yields a 21.5% bonus, and so on.

An unresolved issue regarding the implementation of the DBL relates to the threshold requirement that the DBL applies when a developer "seeks and agrees to construct a housing development" that proposes the requisite number of affordable units. (Gov. Code § 65915(b)(1).) Some have argued that the “seeks and agrees” phrase limits the DBL's application to housing developments that are not otherwise required to provide affordable units pursuant to an inclusionary zoning ordinance. Indeed, this issue was the subject of a 2005 debate in the Legislature concerning the intent of SB 1818 and SB 435, which were proposed amendments to the DBL.

This issue came to the fore in Latinos Unidos. Napa County's amended density bonus ordinance provided that density bonuses would apply when the applicant provided affordable units in addition to the affordable units required by the County Code's inclusionary requirements, which required that up to 20% of new dwelling units be made available to moderate income households. The effect of Napa's "in addition to" requirement was that a project would qualify under the DBL only if it provided at least 22% of its units to lower income households, instead of the 10% (in this case) threshold established in the DBL. During the litigation, Napa County asserted if a project is already required to provide affordable units under a local inclusionary ordinance, then those units must not count when determining if the project meets the threshold number of affordable units to qualify under the DBL.

In the published portion of the opinion, the appellate court rejected the County's arguments, explaining that "allowing the county to increase the number of affordable units required for a density bonus would conflict with subdivision (f) of section 65915, which bases the amount of density bonus on the percentage of affordable housing units in the project." The Court then held that to "the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by section 65915, the ordinance is void."

Use of the DBL is increasing by developers throughout California as a means to increase the financial feasibility of multifamily projects. Meanwhile, local agencies' use of inclusionary zoning requirements is likely to accelerate as a result of the recent Sixth District decision in CBIA v. City of San Jose (H038563) and if legislation such as AB 1229, which seeks to overturn the Palmer/Sixth Street decision, becomes law. Latinos Unidos provides important protection to multifamily developers and those who support the development of affordable housing units by eliminating a potentially significant local impediment to qualifying such projects under the DBL.