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Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.
The recently effective state housing laws are also summarized below.
Governor Newsom approved multiple state housing bills passed by the State Assembly and Senate during the last legislative session. The following is an abbreviated summary of a few of the key bills that are expected to benefit mixed-income multifamily housing developers, with a more detailed summary available in our prior legal alert.
SB 423 (Wiener) extends the sunset provision for and makes other substantive changes to SB 35. As explained in our prior legal alert, SB 35 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects in local jurisdictions that have not made sufficient progress towards their state-mandated Regional Housing Needs Allocation (RHNA), as determined by the California Department of Housing and Community Development (HCD).
SB 423 made the following key amendments to SB 35:
Removed skilled and trained workforce requirements for projects below 85 feet in height and imposes modified skilled and trained workforce requirements, as specified, for projects at least 85 feet in height. In exchange, projects with 50 or more dwelling units and using construction craft employees to meet apprenticeship program requirements and provide health care expenditures for each employee, as specified.
Please see our prior legal alert for information about other SB 35 amendments made by SB 423, including San Francisco-specific amendments.
AB 1287 (Alvarez) amended the State Density Bonus Law (Government Code § 65915) by incentivizing the construction of housing units for both the “missing middle” and very-low-income households by providing for an additional density bonus, and incentive/ concession for projects providing moderate-income units or very-low-income units.
The project must provide the requisite percentage of on-site affordable units to obtain the maximum density bonus (50%) under prior law: 15% very-low-income units, or 24% low-income units, or 44% moderate-income (ownership only) units (the Base Bonus). To qualify for an additional density bonus (up to 100%) and an additional incentive/concession under AB 1287, the project must provide additional on-site affordable units, as specified (the Added Bonus). The Added Bonus may be obtained by adding moderate-income units to either a rental or ownership project, but that is capped at a total maximum of 50% moderate-income units.
AB 1633 (Ting) closed a loophole in the Housing Accountability Act (HAA) (Government Code section 65589.5 et seq.) by establishing when a local agency’s failure to exercise its discretion under CEQA, or abuse of its discretion under CEQA, constitutes a violation of the HAA.
To qualify under AB 1633, the project must be a “housing development project” under the HAA and meet other specified requirements, as summarized in our prior legal alert. Under AB 1633, the following circumstances constitute “disapproval” of the project, in which case the local agency could be subject to enforcement under the HAA:
AB 1633 includes a limited exception to enforcement where a court finds that the local agency acted in good faith and had reasonable cause to disapprove the project due to the existence of a controlling question of law about the application of CEQA or the CEQA Guidelines as to which there was a substantial ground for difference of opinion at the time of the disapproval.
AB 1485 (Haney) granted the California Attorney General the “unconditional right to intervene” in lawsuits enforcing state housing laws, whether intervening in an independent capacity or pursuant to a notice of referral from HCD. Under prior law, the Attorney General and HCD were required to petition the court to be granted intervenor status and join a lawsuit, which can be a “lengthy and onerous process.”
Various state housing bills are currently making their way through the State Legislature that are expected to benefit mixed-income multifamily housing developers. AB 2243 (Wicks) would amend AB 2011 (the Affordable Housing and High Road Jobs Act of 2022). AB 1893 (Wicks) and AB 1886 (Wicks and Alvarez) would amend Builder’s Remedy provisions under the HAA. AB 2560 (Alvarez) and SB 951 (Wiener) would help facilitate housing development in the coastal zone. AB 3068 (Haney) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses. SB 1227 (Wiener) would help facilitate middle-income housing and other projects in the San Francisco Downtown Revitalization Zone.
The following summaries reflect the status of the legislation as of May 15, 2024. The legislative process is ongoing and future amendments are expected.
AB 2243 (Wicks) would amend AB 2011 (operative as of July 1, 2023). As explained in our prior legal alert, AB 2011 provides for “by right” streamlined ministerial (i.e., no CEQA, no discretion) approval of qualifying mixed-income and affordable housing development projects along commercial corridors in zoning districts where office, retail, and/or parking uses are principally permitted.
As currently proposed, AB 2243 would:
AB 2243 would make important clarifications in advance of the to-be-provided HCD guidance document on the implementation of AB 2011. The bill would make important amendments to the prior freeway and oil/natural gas facility proximity prohibitions by instead requiring installation of air filtration media, consistent with Senate Bill 4 (Affordable Housing on Faith and Higher Education Lands Act of 2023). The bill would also help facilitate AB 2011 projects in specified coastal zone areas. Under existing law, a qualifying AB 2011 project would be subject to streamlined ministerial approval at the local level, but not by the Coastal Commission, which could separately trigger a discretionary (i.e., CEQA) review and approval process. AB 2243 partially addresses that, but only in qualifying coastal zone areas (pursuant to SB 423, as modified) that are subject to a certified local coastal program or certified land use plan, which excludes various coastal zone areas.
AB 2560 (Alvarez) would amend the State Density Bonus Law to partially address coastal zone projects. Currently, the State Density Bonus Law explicitly provides that it “does not supersede or in any way alter or lessen the effect or application of the California Coastal Act of 1976” (Public Resources Code § 30000 et seq.). As currently proposed, AB 2560 would revise that provision to instead provide that any density bonus, concessions, incentives, waivers, or reductions of development standards, and (reduced) parking ratios to which an applicant is entitled under the State Density Bonus Law “shall be permitted notwithstanding the California Coastal Act of 1976” but only if the development is not located on a site that is any of the following:
AB 2560 should help facilitate density bonus projects in coastal zone areas, but the coastal zone area would need to be subject to a certified local coastal program (versus either that or a certified land use plan pursuant to SB 423). Again, that excludes various coastal zone areas.
SB 951 (Wiener) would amend the State Housing Element Law (Government Code § 65580 et seq.). Existing law requires rezoning by a local government, including adoption of minimum density and development standards (as specified), when the local government’s Housing Element site inventory does not identify adequate sites to accommodate the applicable state mandated RHNA. As currently proposed, SB 951 would require local governments in the coastal zone to make “any necessary local coastal program updates” to meet the applicable RHNA.
SB 951 would also amend the California Coastal Act to target the City and County of San Francisco. Existing law provides that approval of a coastal development permit by a “coastal county” with a certified local coastal program may be appealed to the California Coastal Commission under specified circumstances, including where the approved use is not “the principal permitted use” under the local zoning ordinance or zoning map. As currently proposed, SB 351 would provide that for purposes of that provision, “coastal county” does not include a local government that is both a city and county.
SB 951 would effectively require consistency between local coastal programs and any upzoning or rezoning required under State Housing Element Law. The appealability of coastal zone permits approved by the City and County of San Francisco would also be limited by the bill, which could help facilitate new housing development projects.
As explained in our prior legal alert, the Builder’s Remedy applies when a local jurisdiction has not adopted an updated Housing Element in compliance with State Housing Element Law (Gov. Code § 65580, et seq.), in which case the local jurisdiction cannot deny a qualifying housing development project even if it is inconsistent with the local general plan and zoning ordinance (subject to limited exceptions).
To qualify for the Builder’s Remedy, the project must currently (i) fall under the definition of a “housing development project” under the HAA (i.e., a project consisting of residential units only, mixed-use developments consisting of residential and non-residential uses with at least two-thirds of the square footage designated for residential use, or transitional or supportive housing) and (ii) dedicate at least 20% of the dwelling units in the project as lower income (or 100% of the units as moderate income), as defined in the HAA.
As currently proposed, AB 1893 would (i) reduce the required percentage of affordable units for mixed-income Builder’s Remedy projects from 20% lower income to 10% very low-income; (ii) impose new size and location guardrails on Builder’s Remedy projects; and (iii) authorize local jurisdictions to require compliance with other specified objective development standards so long as they do not reduce the “allowed” residential density or result in an increase in “actual costs.” AB 1893 would also eliminate the affordability requirement for Builder’s Remedy projects consisting of 10 units or fewer, so long as the project site is smaller than one acre with a minimum density of 10 units per acre.
AB 1893 would significantly amend the most controversial component of the Builder’s Remedy, which is that a local jurisdiction without a substantially compliant Housing Element (“Non-Compliant Jurisdiction”) cannot deny a qualifying Builder’s Remedy project unless specified findings are made, which are intended to create a high threshold for denial by local jurisdictions.
As currently proposed, AB 1893 would newly authorize a Non-Compliant Jurisdiction to deny a qualifying Builder’s Remedy project if the project fails to meet any of the following “objective” standards. In other words, Builder’s Remedy projects would need to meet all the following new requirements (unless the project is “grandfathered” as explained below):
AB 1893 would provide that in no case may the local agency apply any objective development standards that will (i) have the effect of physically precluding the construction of the project at the “allowed” residential density (see above) or (ii) result in an increase in “actual costs.” The local agency would bear the burden of proof under these circumstances.
As currently proposed, the foregoing new requirements would not apply to Builder’s Remedy applications that are “deemed complete” on or before April 1, 2024. Under existing law, “deemed complete” is defined to mean that the applicant has submitted a SB 330 preliminary application or, if that has not been submitted, a complete development application (as defined) has been submitted. AB 1893 would add that the local agency shall bear the burden of proof in establishing that the applicable application is not complete.
AB 1893 is an attempt to “modernize” the Builder’s Remedy by providing clarity to developers, local jurisdictions, and courts to avoid the “legal limbo” described by Attorney General Rob Bonta. As part of that compromise, significant new requirements would be imposed on Builder’s Remedy projects, including a new “cap” on residential density where no codified limit currently exists. In return, the clarifications made by AB 1893 and the reduced affordability requirement for mixed-income projects could help facilitate Builder’s Remedy projects in Non-Compliant Jurisdictions.
A recent Builder’s Remedy lawsuit exposed some ambiguity regarding when a Housing Element is deemed “substantially compliant“ with State Housing Element Law. Opposing sides of the litigation disputed where (retroactive) self-certification by the local jurisdiction was sufficient. The court ruled that it was not. See our prior legal alert for our coverage of this ruling, which appears to be the impetus for the amendments proposed under AB 1886 (Alvarez and Wicks).
As currently proposed, AB 1886 would:
AB 1886 would make it clear that a local jurisdiction cannot “self-certify” its Housing Element. Rather, an affirmative determination must be granted by HCD or, if a local jurisdiction adopts its Housing Element notwithstanding HCD’s determination to the contrary, a court of competent jurisdiction would need to agree with the local jurisdiction, notwithstanding the “rebuttable presumption” in favor of HCD’s non-compliance determination, where applicable.
AB 3068 (Haney, Quirk-Silva, and Wicks) would provide for the streamlined ministerial (i.e., no CEQA) approval of qualifying adaptive reuse projects involving the conversion of an existing building to residential or mixed-uses, as specified. Qualifying adaptive reuse projects would be deemed “a use by right” regardless of the applicable zoning district, with the exception of any proposed non-residential uses.
As currently proposed, the following requirements would need to be met:
Adaptive Reuse projects would be exempt from all development impact fees “that are not directly related to the impacts resulting from the change of use of the site from nonresidential to residential or mixed-use” and any development impact fees charged must be “proportional to the difference in impacts caused by the change of use.” The project sponsor may also request that payment of development impact fees be deferred to the date that the certificate of occupancy is issued, subject to a written agreement to pay the development impact fees at that time.
A qualifying Adaptive Reuse project “may include the development of new residential or mixed-use structures on undeveloped areas and parking areas on the parcels adjacent to the proposed adaptive reuse project site” if specified requirements are met.
AB 3068 would be another tool in the growing toolbox available to real estate developers to encourage the adaptive reuse of underutilized commercial buildings, including office buildings. Financial feasibility is likely to remain an issue due to high interest rates and construction costs. There are well-documented design challenges associated with the conversion of existing buildings to residential use due to required compliance with the strict provisions of the California Building Code, the California Residential Code, and local amendments to those codes. Even if alternate buildings standards are available for adaptive reuse projects (see the directive under AB 529), it not clear yet whether alternative standards would be available for required seismic upgrades, which are often cost-prohibitive.
Financial feasibility would be partially addressed by AB 3068, which would authorize local agencies to establish an Adaptive Reuse Investment Program funded by ad valorem property tax revenues (as specified), which could be transferred to the owners of qualifying Adaptive Reuse projects for the purpose of subsidizing the on-site affordable housing units required by AB 3068. The bill would also “align program requirements to encourage the utilization of existing programs such as the Federal Historic Tax Credit, the newly adopted California Historic Tax Credit, the Mills Act, and the California Historical Building Code.”
SB 1227 (Wiener) aims to speed the recovery of downtown San Francisco by creating a new CEQA exemption for qualifying student housing and mixed-use residential projects (along with commercial and institutional projects) in the Downtown Revitalization Zone, which includes the Financial District, Union Square, Eastern SOMA, Mid-Market, and Civic Center neighborhoods. Projects that do not meet all the requirements for the new CEQA exemption could qualify for the new CEQA streamlining process proposed under the bill. SB 1227 would also create a new property tax exemption for moderate-income housing in the Downtown Revitalization Zone.
As currently proposed, the following threshold requirements would need to be met:
As currently proposed, the following additional requirements would need to be met to qualify for the new CEQA exemption:
As currently proposed, San Francisco Downtown Revitalization Zone projects that meet the threshold requirements above, but not all of the additional requirements for the new CEQA exemption, could instead pursue CEQA streamlining whereby the project could be certified by the Governor prior to certification of an EIR for the project pursuant to the Jobs and Economic Improvement Through Environmental Leadership Act of 2021 (Leadership Act), which authorizes the Governor to certify qualifying projects (before January 1, 2032) for CEQA streamlining. One of the benefits of CEQA streamlining under the Leadership Act is that any CEQA litigation must be resolved (to the extent feasible) within 270 days, as specified.
As currently proposed, the following additional requirements would need to be met to qualify for CEQA streamlining:
Please see the text of SB 1227 for more information about the proposed CEQA streamlining provisions for qualifying San Francisco Downtown Revitalization Zone projects.
This new (welfare) property tax exemption would allow for a partial exemption equal to the percentage of the value of the property that is equal to the percentage of the number of units serving moderate-income households. As currently proposed, the following requirements would need to be met to qualify:
SB 1227 should help facilitate the development of new housing for the “missing in the middle” in the San Francisco Downtown Revitalization Zone by providing for a new property tax exemption for projects that include moderate-income rental units. That could in turn help increase the financial feasibility of converting underutilized commercial buildings to mixed-uses, including residential uses.
SB 1227 would impose robust labor requirements for both the new CEQA exemption and CEQA streamlining pathway for qualifying projects in the San Francisco Downtown Revitalization Zone, which could inhibit the utilization of those benefits.
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