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California Legislature Passes Historic Housing Legislation in Effort to Tackle State’s Housing Crisis

In an eleventh hour push at the tail end of the 2017 legislative session last week, California legislators passed a bundle of bills targeted at calming the state’s unprecedented housing crisis.  Taken together, the bills address a wide swath of issues affecting housing production and affordability, including:  funding for subsidized housing development, requirements for entitlement and permit streamlining, and tools for local and state agencies to enforce local planning obligations.  This extensive legislative effort to reform California housing policy stands in stark contrast to the logjam that has vexed Sacramento lawmakers for years, if not decades.  While the bills still require the signature of Governor Brown by mid-October, here is a first look at the pending changes to state housing law, including links to each of the bills.

Renewed Efforts at Streamlined Approvals and Funding for Housing

In 2016, Governor Brown sought to link state funding for affordable housing with a “by-right” housing proposal that would have simplified and hastened the local approval process for multifamily housing projects that comply with the local zoning standards.  The Governor’s efforts, proposed as a budget trailer bill, were not successful and failed to pass the legislature in part due to lobbying by labor groups seeking prevailing wage requirements for new housing developments.  This year, a group of bills, SB 35, SB 2, and SB 3, seek to accomplish many of the goals of the 2016 legislative effort by again providing a streamlined entitlement process for qualifying projects, in addition to funding for affordable housing. It is anticipated that Governor Brown will sign these three key bills.

SB 35 (Wiener).  SB 35 would create a streamlined, ministerial entitlement process for certain multi-family, urban infill projects in jurisdictions that have not approved housing projects sufficient to meet their state-mandated Regional Housing Needs Allocation (“RHNA”).  To qualify, projects must be consistent with objective planning and zoning standards, comply with prevailing wage requirements, and include an inclusionary housing component (10 percent in jurisdictions that have not approved housing projects sufficient to meet their RHNA for above-moderate income housing and 50 percent in jurisdictions that have not approved housing projects sufficient to meet their RHNA for below-moderate income housing).  SB 35 would remain in effect until January 1, 2026.

SB 2 (Atkins).  SB 2, the “Building Homes and Jobs Act,” would establish a permanent, ongoing source of funding dedicated to affordable housing development by imposing a $75 document recording fee, per transaction per parcel, on certain real estate transactions (excluding transactions subject to documentary transfer tax and owner-occupied residential real estate sales), not to exceed $225.  SB 2 would allocate the funds between local agencies and the State Department of Housing and Community Development (“HCD”) to be used to support affordable housing development, with 70 percent of funds dedicated to local agencies and the remainder heading to HCD commencing in 2019 (the split would be 50-50 percent in 2018).

SB 3 (Beall).  SB 3, the “Veterans and Affordable Housing Bond Act of 2018” would put a $4-billion general obligation bond on the November 6, 2018, California ballot, with $3 billion to subsidize affordable housing programs and the remaining $1 billion for home loans for veterans through the Department of Veteran Affairs (CalVet) Home Loan Program.

Streamlining Proposals

Several other bills are aimed at streamlining the approval and permitting of qualifying housing projects. The programs authorized by these bills would be voluntary in nature, in contrast to the streamlining mandated by SB 35.

AB 73 (Chiu, Caballero, Bonta, Kalra).  This bill would authorize local governments to establish a housing sustainability district that would allow for streamlined review of residential projects in the district that meet certain criteria, including compliance with prevailing wage requirements.  The bill would require that at least 20 percent of the residential units constructed within the district be affordable to very-low, low-, and moderate-income households.  The bill also would provide for incentive payments to local governments that establish housing sustainability districts that meet certain requirements, including authorizing residential use through a ministerial permit.

SB 540 (Roth).  SB 540 would authorize local governments to establish a Workforce Housing Opportunity Zone through the specific plan process.  The bill would provide for streamlined review of development within the Workforce Housing Opportunity Zone that meets certain criteria.  The bill also would authorize grants and/or no-interest loans to local governments that establish Workforce Housing Opportunity Zones.

Enforcing Local Planning Obligations

A significant number of the housing bills seek to reform and provide teeth to existing state housing laws.

SB 167 (Skinner)/AB 678 (Bocanegra).  These companion bills are identical and would make a number of procedural amendments to the Housing Accountability Act (“HAA”) to weaken local jurisdictions’ power to disapprove of housing projects, including strengthening the provisions governing findings required for disapproval of projects and requiring courts to impose substantial fines of a minimum of $10,000 per unit on localities who fail to comply with a court order compelling compliance with the HAA.

AB 1515 (Daly).  AB 1515 would make further revisions to the HAA to specify that a housing development project will be deemed consistent with local planning and zoning standards if there is substantial evidence that would allow a reasonable person to conclude it is consistent, giving less deference to local governments that disapprove housing projects.

SB 166 (Skinner).  SB 166 would modify what is referred to as the “No Net Loss Zoning Law,” and other provisions of the Housing Element Law, Government Code section 65580 et seq., to require that local governments maintain adequate housing sites for all levels of household income at all times during the relevant eight year planning period covered by most housing elements.

AB 1397 (Low).  AB 1397 would make changes to the Housing Element Law.  Under existing law, each housing element must contain an inventory of land suitable for residential development.  AB 1397 would require that the land listed on the inventory have a realistic and demonstrated potential for redevelopment during the planning period to meet the locality’s housing need for a designated income level.  AB 1397 would add a number of other technical requirements regarding the inventory aimed at improving its functionality in identifying sites truly available or feasible for residential development.

AB 72 (Santiago and Chiu).  AB 72 would authorize HCD to conduct mid-cycle reviews of local government actions for compliance with their housing elements and revoke its finding that a local government’s housing element is in compliance with state Housing Element Law if actions are inconsistent.  The bill also would allow HCD to refer violations of Housing Element Law to the state Attorney General.

AB 879 (Grayson).  AB 879 would make certain changes to the law governing local governments’ housing element annual reports, including requiring reporting of housing development applications and units approved, as well as requiring expanded analysis of constraints on the production of housing.

Housing Tools for Local Governments

Finally, several of the bills offer local governments additional means of providing or maintaining affordable housing stock.

AB 1505 (Bloom, Chiu, and Gloria).  AB 1505, referred to as the “Palmer Fix”, would allow local governments to establish on-site inclusionary housing requirements for new residential rental projects and would supersede the holding of the controversial decision of Palmer/Sixth Street Properties, L.P. V. City of Los Angeles (2009) 175 Cal.App.4th 1396, that prevented jurisdictions from doing so.  However, certain local ordinances imposing an inclusionary requirement of more than 15 percent of the total project units would be subject to HCD review and would potentially require an economic feasibility study. As we have discussed in a previous blog post, “Keep an Eye On” (3/14/16), Governor Brown has vetoed similar legislation over the past few years, noting that inclusionary rental requirements can exacerbate the challenges faced by low-and middle-income communities seeking to attract new development.

AB 45 (Thurmond).  In furtherance of the legislature’s efforts to provide workforce housing, including teacher housing, AB 45 is a funding bill that would create a new School Employee Housing Assistance Grant to be administered by HCD.  Subject to appropriation by the Legislature, the School Employee Housing Assistance Grant would provide financing assistance to qualified school districts and qualified developers for the creation of affordable rental housing for school employees.  The program is targeted toward school districts that have demonstrated an inability to recruit and/or retain qualified teachers.

AB 1521 (Bloom and Chiu).  AB 1521 would make a number of changes to strengthen the state’s existing statutory scheme for preserving low-income restricted assisted housing developments at risk of conversion to market rate, including increased requirements for notice of expiring rental restrictions and additional limitations on purchase and sale offers required before terminating a subsidy contract or prepaying a mortgage.

Stay tuned to Cox, Castle & Nicholson’s Lay of the Land blog for updates on whether these bills are signed or vetoed by the Governor in the coming weeks. We will provide additional in-depth analysis of those bills that become enacted housing law.