Increased State Density Bonus Available Next Year

| Sabrina Eshaghi

As we’ve previously covered, Governor Gavin Newsom signed a substantial amount of housing bills into law this year. Two of the most notable pieces of legislation will significantly increase the state density bonus permitted under state law and will make noteworthy changes to SB 35. Below is a more in-depth look at the amendments to the State Density Bonus Law as well as an overview of the potential impacts of the amendments to SB 35 in San Francisco.

AB 1287 – State Density Bonus Law

Beginning on January 1, 2024, AB 1287 will allow an additional 20% to 50% density bonus on top of the existing maximum bonus for projects that provide additional affordable housing units. Currently, the maximum density bonus allowed under the State Density Bonus Law is 50%, which can be accomplished by providing 15% very low income, 24% low income, or 44% moderate income units. The new amendments will allow projects that qualify for a 50% bonus under the current law to provide additional very low income or moderate income affordable housing units in exchange for an additional density bonus based on the sliding scale shown below. For example, a project that provides an additional 5% very low income units, for a total of 20% very low income units, would be subject to an additional 20% bonus, for a total bonus of 70%.

The only limit placed on projects that utilize this additional density bonus is that no more than 50% of the total units can be restricted as affordable.

The amendments also allow up to four concessions for projects that include a total of at least 16% of the units for very low-income households or at least 45% for moderate income households in for sale developments.

The bill also makes some tweaks to the requirements for 100% affordable housing projects that are proposed under the State Density Bonus law.

SB 35’s Future in San Francisco

SB 35 is a state law that offers streamlined ministerial approval for projects in cities that haven’t met their Regional Housing Need Allocation (RHNA) goals in exchange for providing affordable housing and agreeing to certain labor requirements. SB 423, which will take effect on January 1, 2024, includes a number of amendments to SB 35, as discussed in detail here.

San Francisco is currently falling short of meeting its RHNA goals for low income housing, but not above moderate income housing. So, in order to qualify for SB 35, a project in San Francisco must provide at least 50% of its units (not including units granted via a density bonus) to low-income households.

However, due to the increase in the state’s housing production goals allocated to San Francisco for the current RHNA cycle (2023-2031), it is anticipated that the City will not meet its goals for above-moderate housing in the next reporting period. If the California Department of Housing and Community Development makes that determination next summer, then a rental project will qualify for SB 35 streamlining by providing 10% of its units as affordable to very low income households or 20% of its units to low income households. An ownership project can qualify by providing 10% of its units as affordable to low income households.

SB 35 allows for ministerial approval, meaning it eliminates environmental review under CEQA and discretionary entitlements from the Planning Commission. It also imposes a maximum 6-month time frame for approval of planning entitlements. If San Francisco becomes a “10% jurisdiction,” it could unlock the ability to pursue projects that are otherwise cost-prohibitive due to long processing and approval timelines.

Together, SB 35 and the new additional density bonus could significantly spur housing development in San Francisco next year.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

LA Court Weighs In on the Builder’s Remedy

| Sabrina Eshaghi
Builder's Remedy

Until now, the notorious “builder’s remedy” had not been tested in court, leaving developers with serious questions about how it works and whether it’s worth potential legal challenges from unamenable cities. Recently, however, a superior court in Los Angeles referenced the builder’s remedy in a ruling that implied the remedy is available in the City of La Cañada Flintridge. This case, and others that are still in the pipeline, will have significant implications for developers who have filed builder’s remedy projects, or are considering doing so, as well as for cities across the state.

Builder’s Remedy

According to the HCD’s Housing Element Review and Compliance Report (as of 7/24/23), only 33 out of 109 Bay Area jurisdictions have adopted fully compliant Housing Elements. As discussed in our previous e-update, the deadline for Bay Area cities and counties to revise housing elements has passed, and those that remain noncompliant have opened themselves up to builder’s remedy projects.

The builder’s remedy is a mechanism in the Housing Accountability Act that prohibits any city that has not adopted a compliant housing element by the required deadline from applying its general plan and zoning standards to reject certain housing development projects. To qualify for the builder’s remedy, a project must provide either 20% of the units as affordable to 80% AMI households (low-income), or 100% of the units as affordable to 120% AMI households (moderate-income).

Because the builder’s remedy has never been tested in court, there is uncertainty about how the builder’s remedy applies in practice and how cities will process these projects. Many cities that failed to adopt compliant housing elements have openly defied state law by stating that the builder’s remedy doesn’t apply to them or by passing an ordinance banning builder’s remedy projects.

La Cañada Flintridge Case

Southern California jurisdictions were required to adopt their updated Housing Element by October 15, 2021. The City of La Cañada Flintridge adopted its Housing Element on October 4, 2022, which was determined to be inadequate by HCD. On February 21, 2023, the city adopted an amended Housing Element, which HCD again found to not be in substantial compliance with state law.

While stopping short of confirming HCD’s finding and determining whether the substance of the city’s Housing Element complied with state law, the court found that the Housing Element is not in compliance with state law because the city missed mandatory deadlines. Specifically, the city failed to adopt a Housing Element within 120 days of the deadline and was therefore subject to the penalty requiring it to complete its rezoning within one year of the statutory deadline-i.e., by October 15, 2022- instead of the three years otherwise permitted. Because the city’s challenged Housing Element was not adopted until February 21, 2023, and the Housing Element had still not been certified by HCD, the court was required to find that the city’s Housing Element will not be in substantial compliance with the Housing Element Law until the required rezoning is complete. This appears to put to rest the idea that a city can avoid all the consequences of failing to obtain HCD certification by “self-certifying” its own Housing Element.

Although the city argued that the timelines under the Housing Element Law are purely directory, the court disagreed and confirmed that the timelines are mandatory. In making that finding, the court looked to the penalties that apply for missing the deadlines and confirmed “there are at least two significant penalties for failing to timely adopt a housing element. First, there is the rezoning penalty…that is the subject of this litigation…Second, the HAA contains [the] builder’s remedy that limits a city’s ability to deny a development for low-cost housing unless its housing element…is in substantial compliance with the Housing Element Law.” To our knowledge, this is the first time a court has opined on or directly referenced the builder’s remedy by name.

The court did not issue an explicit declaration that the builder’s remedy applies in the city because the organization that filed the lawsuit, Californians for Homeownership, did not have legal standing without a pending project. Nevertheless, the judge seemed to signal that a developer with a pending project may be able to obtain such a declaration.

The court’s acknowledgment of the builder’s remedy is a positive sign for those with a pending builder’s remedy project. According to the Real Deal, the president of the California Association of Realtors said in a statement, “For far too long, certain cities and counties have treated compliance with state housing laws as optional. This decision sends a clear message: complying with these laws is not optional.”

As discussed in our previous e-update, other housing advocacy groups have also filed lawsuits against jurisdictions that are out of compliance with the Housing Element Law. We will continue to keep you updated as decisions are issued in these cases.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

SF’s Proposed BMR and Impact Fee Changes

| Mark Loper
fee

Late last month, Supervisors Peskin and Safai introduced long-awaited legislation lowering San Francisco’s affordable housing requirements for certain approved and proposed projects, as well as reducing impact fees. This week’s alert summarizes the proposal as it currently stands.

Changes for pipeline projects

Sponsors of projects with 25 or more units that were or are approved before November 1, 2023 and have not received a first construction document (usually the architectural addendum)—so-called “pipeline projects”—are allowed to apply for a lower affordable housing obligation, additional time to obtain a site permit, and changes to density bonus law compliance.

The affordable rates are proposed to be reduced across the board as follows:

  • Affordable housing fee. 16.4%, for both ownership and rental projects. If the project is in an area with a specific affordable housing fee, the applicable percentage is 54.5% of the rate for rental projects in the area or 16.4%, whichever is higher.
  • On-site. 12% for both ownership and rental projects, with 8% for low-income, 2% moderate-income, and 2% middle-income. For projects in areas with specific on-site BMR requirements, the rate is 54% of the rate for rental housing projects in that area or 12%, whichever is higher.
  • Off-site. 16.4%, for both ownership and rental projects. If the project is in an area with specific off-site BMR requirements, the applicable percentage is 54.5% of the rate for rental projects in the area or 16.4%, whichever is higher.

Project sponsors can also request an extension of performance periods for their projects up to May 1, 2029. The legislation does not require the City to extend all performance periods to May 2029, though. The current practice is for three-year extensions starting on the date of City approval.

The legislation has two “use it or lose it” provisions. First, the City needs to grant the request for reduced affordable rates by November 1, 2026. Because the deadline is not the date that the request is submitted to the City but the date of City approval, sponsors should make sure to apply comfortably before the end of the deadline. Also, sponsors need to get a first construction document—as noted above, usually the architectural addendum—on or before May 1, 2029.

Finally, density bonus pipeline projects are allowed to request modifications to the number and type of concessions, incentives, and waivers, as well as the number of affordable units. This recognizes that density bonus projects may need to adjust their compliance with the density bonus law if the project’s on-site affordable unit count decreases.

As noted above, sponsors must ask for a reduction; the changes do not apply automatically. Most projects will be approved by City staff administratively, assuming the Planning Commission agrees to delegate its authority. The legislation also would allow staff to extend the time to get a site permit, instead of going to the Planning Commission. Projects proposing “significant modifications” need to go to the Planning Commission, though. This includes projects whose unit count would change by more than 20%, floor area would change by more than 10%, and whose unit typology would change from dwelling units to group housing.

Projects entitled between November 2023 and November 2026

The ordinance would also reduce the affordable housing requirements for non-pipeline projects entitled between November 1, 2023 and November 1, 2026. The rates are proposed as follows:

  • Affordable housing fee. 20.5%, for both ownership and rental projects. If the project is in an area with a specific affordable housing fee, the applicable percentage is 68% of the rate for rental projects in the area.
  • On-site. 15% for both ownership and rental projects, with 10% for low-income, 2.5% moderate-income, and 2.5% middle-income. For projects in areas with specific on-site BMR requirements, the rate is 68% of the rate for rental housing projects in that area.
  • Off-site. 20.5%, for both ownership and rental projects. If the project is in an area with a specific off-site requirement, the applicable percentage is 68% of the rate for rental projects in the area.

These projects also have a “use it or lose it” provision: their first construction document needs to be received within 30 months of entitlement approval or approval on appeal, whichever happens later, and building permit approval for projects that do not require discretionary entitlements.

Permanent affordable housing changes

The ordinance would make a third and permanent change to San Francisco’s affordable requirements:

  • Affordable housing fee. For projects with 25 or more units, 27% for condos and 24.5% for rental projects.
  • On-site. 15% for projects with 10-24 units. For projects with 25 or more units, 20% for condos and 18% for rentals. Condos need to be 10% low-income, 5% moderate income, and 5% middle income. Rentals need to be 10% low-income, 4% moderate-income, and 4% middle-income.
  • Off-site. For projects with 25 or more units, 27% for condos and 24.5% for rentals. Condos need to have 12% low-income, 7.5% moderate-income, and 7.5% middle-income. Rentals need to have 12.5% low-income, 6% moderate-income, and 6% middle-income.
  • UMU and Divisadero NCT. Different Affordable requirements would apply to UMU and the Divisadero NCT.

Starting in 2028, the on-site percentage would increase by 0.5% annually, up to a maximum of 26% for condo projects and 24% for rentals.

Impact fee reductions until November 2026

The ordinance also proposes to reduce most development impact fees by 33%, so long as the fees are assessed by November 1, 2026, and the project gets a first construction document within 30 months of entitlement approval or approval on appeal, whichever happens first, or building permit approval for projects that do not require discretionary entitlements. Pipeline projects need to receive a first construction document by May 1, 2029.

The schools fee—which is imposed by SFUSD and outside of the jurisdiction of the City itself—would not be reduced. And any Community Facilities Districts (aka Mello-Roos assessments) will continue to apply to qualifying projects in areas such as Central SOMA and the Transit Center District.

We will continue to track this important piece of legislation and its eventual implementation. In the meantime, please reach out to us with any questions about whether your project qualifies for a reduction and how to properly ask for and receive a reduction in a project’s affordable housing requirement.

 

Authored by Reuben, Junius & Rose, LLP Partner Mark Loper.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

PDR Protections & Higher Fees for Large Institutions in Housing Element Package

| Melinda Sarjapur and Daniel Frattin
PDR

San Francisco’s Housing Element Update (“Update”) has been in the works since mid-2020, and the City is sprinting to adopt it before a January 2023 deadline that could open the door to Builder’s Remedy Projects and eventually a loss of state funding for affordable housing and transportation. (See Exhibit D to the Planning Department’s Update Initiation Memo).

The Update’s primary focus is to spur residential construction to meet the state-mandated RHNA target of 82,000 new homes over eight years and to shift more housing development – especially affordable housing – to transit corridors on the westside.

However, through “conforming amendments” to other elements of the City’s General Plan, the City sets the stage for new restrictions on the conversion or displacement of existing Production, Distribution, and Repair (“PDR”) or Industrial uses. It also targets large institutions – one of the sectors where in-person activity tends to be higher in the era of hybrid work – for new development impact fees.

Two of these amendments are shown below.  For each item, text from the existing General Plan is shown in plain text; proposed additions to the General Plan are underlined.

Air Quality Element:

Policy 3.3: Continue existing city policies that require housing development in conjunction with office development and expand this requirement to other types of commercial and large institutional developments.

The intent is to require large institutional employers that aren’t currently subject to the City’s Jobs-Housing Linkage Fee to conduct an analysis of the housing demand of their employees and then show how they will meet that demand in their Institutional Master Plans (“IMP”). It could also pave the path for extending the JHLF to large non-institutional uses that are not currently subject to it (hospitals/schools/etc.).

In a bit of revisionist history, the Planning Department notes that the “IMP” caused colleges to realize the housing needs of their students and credit that as causing many private non-profit colleges to build student housing. In fact, IMPs had nothing to do with colleges building housing. The need was obvious; in reality inclusionary housing requirements were too expensive for them to shoulder. It was only when the City exempted student housing from inclusionary requirements that several private schools embarked on ambitious housing construction programs. Non-profit colleges and healthcare providers will find it difficult to grow in San Francisco if the Jobs-Housing Linkage Fee – currently ranging from $26 – $76 per square foot for other uses – is extended to them.

Commerce & Industry Element:

Policy 4.5: Control encroachment of incompatible land uses on viable industrial activity. Production, Distribution, and Repair (PDR) areas offer economic opportunity for adjacent neighborhoods, especially for low-income communities and communities of color. PDR businesses can provide stable job opportunities, good wages, and diversity in types of activities and jobs Restrict incompatible land uses, such as housing and office, and the conversion of industrial buildings to other building types in PDR districts and in areas of concentrated PDR, construction, or utility activities.

In mixed-use districts or areas adjacent to PDR districts, avoid the displacement of existing businesses, protect the affordability of PDR space, and, if displacement is unavoidable, replace some or all the PDR use with viable, affordable industrial space on-site or off-site in a PDR district.

This revised language paves the way for the City to adopt additional restrictions on the types of uses permitted in PDR districts – specifically the conversion or new construction of laboratory uses that frequently complement PDR. Engineering labs, for example, often need PDR to supply parts for prototyping, testing, and may well grow into small-scale manufacturing (PDR) uses themselves. This flexibility has served both PDR and lab uses well. How is a policy that replaces synergy with inflexibility good for the City? Why is industrial protection in districts where housing is not even permitted a “conforming” amendment to the General Plan?

Even more ironically, this policy amendment sets the stage to say “no” to housing in the very areas that have been most successful at producing it: rezoned PDR areas accounted for roughly ¾ of housing production by striking a balance between preserving space for industry and allowing much higher residential density. Proposition X made it harder to build housing in certain districts by requiring replacement space. However, this policy could reach much further and set up yet another restriction on housing in favor of preserving industrial space. The Update is supposed to remove barriers to housing. This one fails that test.

A full list of the General Plan updates proposed in connection with the Housing Element Update is available on the Planning Department’s website.

The full Housing Element Update is anticipated for adoption by the Planning Commission on December 15, 2022, and Board of Supervisors in January 2023.

 

Authored by Reuben, Junius & Rose, LLP Attorney Melinda Sarjapur and Daniel Frattin.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

HCD Cracks Down on S.F. Housing Practices; S.F. Real Estate Tax Appeal Deadline

| Thomas P. Tunny
HAU

Last month, the State Department of Housing and Community Development (“HCD”) announced that its Housing Accountability Unit (“HAU”) will conduct a first-ever Housing Policy and Practice Review of San Francisco, aimed at identifying and removing barriers to approval and construction of new housing in the City. According to the City’s self-reported data, it has the longest timelines in the state for advancing housing projects to construction, among the highest housing and construction costs, and the HAU has received more complaints about San Francisco than any other local jurisdiction in the state. U.S. Census data shows that Seattle – a city of comparable size – approves housing construction at more than three times the rate of San Francisco.

Over the next nine months and beyond, the HAU, in partnership with the U.C. Berkeley Institute of Urban and Regional Development and others, will conduct a comprehensive analysis of San Francisco’s housing approval policies and practices. The review will examine discretionary decision-making patterns that lead to abnormally long housing delays. The review also intends to identify barriers to the approval and development of housing at all income levels, including housing that is affordable to lower- and moderate-income households.

Separately, in an August 8 letter to Planning Director Rich Hillis, HCD was both critical and encouraging of the City’s Draft Housing Element. California cities are required to update their General Plan Housing Elements by January 2023. HCD praised the City’s “bold and meaningful actions to both reduce barriers to higher-opportunity neighborhoods while simultaneously reinvesting in historically underserved neighborhoods.” Yet HCD also identified a number of revisions that would be necessary for the Housing Element to comply with state law.

In yet another letter on August 11, HCD asked the City to explain itself concerning a specific project approval, expressing concern that the City violated housing law. HCD was concerned with the City’s decision, in granting conditional approval, to downsize a 19-unit group housing project at 3832 18th Street in the Mission District. HCD expressed concern that the downsizing violated the State Density Bonus Law.

This project-specific letter follows HCD’s letter to the City last November expressing concern that the City’s denial of two large housing projects, at 450 O’Farrell Street and 469 Stevenson Street, may have violated state law. In those cases, the Planning Commission had approved the projects, but the Board of Supervisors denied them.

The aforementioned Housing Accountability Unit at HCD is part of an unprecedented new initiative to support the production of housing statewide. According to its website, “California’s housing crisis has reached historic proportions despite the passage of numerous laws intended to increase the supply of housing affordable to Californians at all income levels.” As part of the 2021-2022 state budget, HCD received additional staff to grow its accountability efforts and formed the HAU. The HAU holds jurisdictions accountable for meeting their housing element commitments and complying with state housing laws. One of its primary tools is technical assistance to the public and enforcement letters. More information on these powers is available at the HCD website.

San Francisco Real Estate Tax Appeal Deadline

The deadline for San Francisco property owners to appeal their property’s value for the 2022/2023 tax year is September 15, 2022.  Deadlines for other California counties vary.  Please contact Kevin Rose (krose@reubenlaw.com) if you have questions about the tax appeal process.

 

Authored by Reuben, Junius & Rose, LLP Attorney Thomas P. Tunny.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

November Ballot Measure Seeks to Increase Affordable Housing Production

| Melinda Sarjapur and Daniel Frattin
Housing

The “Affordable Homes Now” measure submitted in March by a coalition of labor and housing advocates, has successfully collected the 52,000 signatures required to qualify for San Francisco’s November 2022 ballot. Citing a study by the Terner Center for Housing Innovation at UC Berkeley, the measure describes San Francisco’s four-year average to permit multifamily residential buildings as “one major obstacle to the goal of increasing affordable housing.” The measure attributes soaring housing costs to the difficulty many small businesses and essential service providers have with hiring and retaining workers, resulting in high turnover among public school and community college teachers. Finally, it notes that the lack of a “large, stable, and productive construction workforce” is a further constraint on housing production, driving delays, cost overruns, and safety incidents.

Affordable Homes Now takes aim at these issues with a program to bolster and expedite the production of local affordable housing by providing streamlined, ministerial approval for the following types of development:

  • “100% Affordable Housing Projects,” in which (a) all residential uses are restricted as affordable housing with a maximum overall average income of 120%, and (b) maximum sales or rental prices do not exceed 80% of median market rents or sales for the neighborhood, as determined by the Mayor’s Office of Housing and Community Development (“MOHCD”). To provide for the “missing middle” that is not served by existing affordable housing programs, households earning up to 140% of AMI would be eligible for residency, so long as they comply with the overall average affordability requirements above. Qualifying projects may include non-residential use at the ground floor, and those accessory to and supportive of on-site housing;
  • “Increased Affordable Housing Projects,” which contain 10 or more units, and agree to provide on-site affordable units in an amount that is 15% greater than otherwise required under the City’s Inclusionary Housing Program or local HOME-SF density program. For example, a project subject to a 21.5% on-site requirement under the Inclusionary Program would be required to make 24.7% of its units affordable under the Affordable Homes Now measure. In a 100-unit project, the total number of affordable units would increase from 22 to 25; and
  • “Educator Housing Projects,” as currently defined in Planning Code Section 206.9. Among other criteria, this includes providing all residential units as deed-restricted for the life of the project for occupancy by at least one employee of the San Francisco Unified School District (“SFUSD”) or San Francisco Community College District (“SFCCD”); providing at least 4/5ths of all units as affordable to households with income ranging from 30%-140% of AMI, with the overall average of 100% AMI across all units, and the remaining 1/5th of all units affordable up to a maximum 160% AMI.

To protect historic buildings, recreational resources, prevent tenant displacement or development that would conflict with certain zoning standards or preexisting uses, the measure would not apply to Projects that:

  • Remove or demolish historic landmarks, contributory buildings to a designated historic district, or Category I or II “significant” buildings under Article 11 of the Planning Code;
  • Are located on Recreation and Parks Department property;
  • Are located on sites not zoned for residential use;
  • Demolish, remove, or convert any residential units, movie theaters, or nighttime entertainment use; or
  • Include non-residential uses that require Conditional Use Authorization under the Planning Code.

Similar to the statewide SB-35 legislation which took effect in 2018, qualifying Affordable Homes Now projects that meet objective zoning standards would receive streamlined processing and be exempt from the California Environmental Quality Act (“CEQA”). Such projects would require no discretionary approvals by City Boards, commissions, or officials, and would not be subject to Discretionary Review. Associated building permits and other city permits necessary for construction would also receive streamlined, ministerial processing.

Projects qualifying under this measure could also utilize State Density Bonus Law to increase residential density, in which case any waivers, concessions or incentives would be considered consistent with objective zoning standards. However, for projects that do not utilize State Density Bonus Law, the measure would allow for administrative waivers or reductions from certain development standards including residential density; ground floor ceiling height; rear yard setback; dwelling unit exposure; loading; parking and open space.

Affordable Homes Now projects would not be required to submit for a Preliminary Project Assessment before filing a formal development application. Following submission of a complete development application, the City would have approximately six to nine months to approve qualifying projects, depending upon the number of residential units they contain.

Finally, the measure aims to attract a larger, more stable, and skilled construction workforce by setting minimum labor standards for Affordable Homes Now projects. These standard scale up based on the size of a project:

  • 10+ units – All workers must be paid at least the applicable prevailing wage.
  • 40+ units – In addition to the prevailing wage requirements, contractors that will employ construction craft employees for 1,000 or more hours are (a) required to provide medical insurance or make an $11.90/hour contribution to Healthy San Francisco per hour worked up to a weekly maximum of $476 and participate in state-approved apprenticeship programs; or (b) use contractors that are a signatory to a collective bargaining agreement that requires participation in a state-approved apprenticeship program. If no apprentices are available, projects may move forward without delay. The labor requirements are to be monitored through San Francisco’s Office of Labor Standards Enforcement, with contractors and subcontractors required to submit monthly reports confirming compliance with the above standards. Failure to submit a monthly report is subject to a $10,000 fine per month for each month the report is not provided, as well as fines of $200 per worker per day employed in contravention of Affordable Homes Now requirements.

The Affordable Homes Now Initiative is proposed by a coalition of labor and housing advocates, including the Nor Cal Carpenters Union; Housing Action Coalition; Habitat for Humanity; Greenbelt Alliance; YIMBY Action; SPUR; and Grow SF. It is backed by Mayor London Breed; Senator Scott Weiner; and Supervisor Matt Dorsey. The 52,000 signatures gathered to place the measure on the ballot represent more than 10 percent of registered San Francisco voters.

 

Authored by Reuben, Junius & Rose, LLP Attorneys Melinda Sarjapur and Daniel Frattin.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

State Takes Aim at Housing Fees and Permit Delays

| Sabrina Eshaghi
housing fees

After a productive legislative year in 2021, the state legislature is continuing to tackle California’s ongoing challenges related to the housing crisis and lengthy processing times. Two bills would aim to minimize some of the roadblocks facing housing projects by bringing down both direct costs and holding costs. First, AB 2063 proposes to codify the state’s often disregarded stance that affordable housing fees do not apply to density bonus units. This would eliminate a significant cost for density bonus projects, which play a vital role in increasing housing production across the state. Second, AB 2234 proposes to enact time limits on processing and approving post-entitlement permits to create a more efficient and consistent process.  Both of these bills would help address some of the root causes of the high cost of building housing, including increasing impact fees and long-term holding costs associated with permitting.

AB 2063

This bill would update the State Density Bonus Law to clarify that affordable housing fees cannot be applied to density bonus units, except in limited circumstances. Although this is a relatively simple bill, its impact would be huge for housing projects in jurisdictions that have been requiring hundreds of thousands, and sometimes millions, in affordable housing fees on top of the on-site affordable housing units needed to qualify for the density bonus. The Attorney General issued an opinion in 2019 that this practice of applying impact fees on density bonus units was not permitted under the State Density Bonus Law. The Attorney General’s reasoning was that the imposition of these fees on density bonus units disincentivizes what the legislature clearly wished to incentivize—the construction of affordable housing. Despite the Attorney General’s opinion, some cities continue to apply affordable housing fees on density bonus units. This bill would codify the Attorney General’s opinion, putting this practice to rest.

The bill was introduced on February 14, 2022 by Assembly Member Berman and is sponsored by the Housing Action Coalition, a nonprofit that advocates for building more housing for California residents of all income levels. It was unanimously passed by the Assembly Housing and Community Development Committee on April 5th and the Assembly Local Government Committee on April 20th. It is now under review by the Appropriations Committee.

AB 2234

The Permit Streamlining Act sets time limits for the review and approval of entitlements. Its impact has been limited since its time limits run from completion of CEQA review, which is typically the main driver of entitlement schedules. This bill aims to put a similar, but more effective, framework in place for post-entitlement approvals. Due to challenges associated with staffing, permitting backlogs have long been a problem, especially in large cities with high volumes of construction. These delays increase holding costs and slow overall housing production. Given today’s inflationary environment, delays are even more problematic.

The bill would apply limits on the review process for all nondiscretionary permits for projects that are at least two-thirds residential. This would apply to building permits and permits for off-site improvements, demolition, excavation, and grading. Failure to meet any of the time limits would be treated as a violation of the Housing Accountability Act.

Specifically, the bill would require local jurisdictions to:

  • Publish an online checklist of requirements for applications to be deemed complete along with an example of an ideal application that developers can use as a reference. Cities with a population of at least 250,000 will also be required to accept and update the status of applications online, including noting whether anything is required from the applicant.
  • Provide written notice regarding whether the application is complete within 15 days. If a local agency does not make a timely determination, the application will be deemed complete.
  • Approve or deny a post-entitlement permit within 30 days of deeming the application complete for projects with up to 25 units, or within 60 days for projects with 26 or more units. This would not apply if the city makes a written finding that the permit may have a specific adverse impact on public health or safety and additional time is necessary to process the application.
  • Provide a process for applicants to appeal an incomplete determination and denial of a complete application within 60 days for projects with up to 25 units, or 90 days for projects with at least 26 units.

The bill was introduced by Assembly Members Rivas and Grayson on February 15, 2022 and is cosponsored by the Housing Action Coalition and Silicon Valley Leadership Group. It is scheduled to be heard by the Assembly Local Government Committee today.

We will continue to monitor these bills and keep you updated as they move through the legislative process.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Supervisor Safai Introduces Competing Fourplex Legislation

| Sabrina Eshaghi
affordable

On November 30, 2021, Supervisor Ahsha Safai introduced legislation that would allow up to four units on lots zoned RH-1(D), RH-1, and RH-2 with the addition of affordable housing for moderate-income families. This competes with Supervisor Rafael Mandelman’s fourplex legislation, which would allow up to four units in all RH zones without any affordability requirement. Supervisor Safai’s legislation takes a different approach that would require at least one deed-restricted middle-income housing unit in order to build a fourplex. Safai’s legislation would also allow exceptions to certain Planning Code requirements, provide priority processing, and eliminate 311 notice and discretionary review.

Specifically, the legislation would create what it calls the Affordable Housing Incentive Program, which would apply to lots that are (1) located in the RH-1(D), RH-1, or RH-2 districts, (2) within one mile of a major transit stop, and (3) no smaller than 2,500 square feet. In addition, the project cannot be subject to any other density bonus programs and any existing “protected” units, which includes rent controlled or affordable housing units, must be replaced.

Under the Program, one affordable housing unit is required to allow up to three units per lot and two affordable units are required to allow up to four units per lot. The affordable housing units must be provided at 110% of the area median income (“AMI”) for rental units, or 140% AMI for owned units. Currently, these income levels for a single person household translate to $102,600 and $130,550, respectively. At the 110% AMI level, base rent for a one-bedroom unit would be limited to $2,713 and $3,010 for a two-bedroom unit. The affordable units are also subject to certain size requirements.

In exchange for the affordable housing, the Program allows a variety of Code modifications and shorter processing times. For example, lots in the RH-1(D) and RH-1 zoning districts are currently limited to a height of 35 feet, but the Program would generally allow up to 40 feet. In addition, projects under the Program would be entitled to reduced rear yard, dwelling unit exposure, and open space requirements. The Planning Director may also grant minor exceptions from Code requirements to allow building mass to appropriately shift to respond to surrounding context when the proposed modification would not substantially reduce or increase the overall building envelope. Likewise, the provisions of the Residential Design Guidelines related to “building scale and form” and “building scale at the mid-block open space” would not apply.

To provide more certainty in the approval process, the Program requires projects to be approved within 180 days of submittal of a complete project application, unless an environmental impact report is required. It also eliminates 311 neighborhood notification and discretionary review. Instead, the only opportunity to appeal would be through the associated building permit.

The legislation is currently in a mandatory 30-day holding period before any Planning Commission or Board Committee hearings can take place. Meanwhile Supervisor Mandelman’s legislation has already advanced from the Planning Commission and is awaiting a Land Use Committee hearing date. It remains to be seen what version of the fourplex legislation will make it to the full Board.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Impact Fee Update

| Jody Knight
Affordable Housing

San Francisco School Fees Expanded

On January 11, 2021, San Francisco issued the 2021 Impact Fee Schedule. One change of note is the calculation of the San Francisco Unified School District Fee (“School Fee”) as applied to multi-unit residential developments. The change would increase the fee on such developments by increasing the space in the building subject to the fee.

The School Fee applies to new residential developments and additions to existing residential properties of greater than 500 square feet. Although the School Fee is collected upon issuance of the first construction document along with the fees paid to the City and County of San Francisco, the School Fee is subject to its own calculation rules under California Government Code Section 65995(b)(1).

Currently, San Francisco applies the School Fee to “total habitable space,” defined as space in a structure used for living, sleeping, eating or cooking. The calculation excludes bathrooms, toilet compartments, closets, halls, storage or utility space, and similar areas.

Effective February 1, 2021, the assessable space for calculation of the School Fee for any new residential development will include all of the square footage within the perimeter of the structure. Space still excluded from the Fee calculation includes any carport, covered or uncovered walkway, garage, overhang, patio, enclosed patio, detached accessory structure, or similar area.

The change is based on a 2018 appeals court decision that settled the long-contested question of whether school district fees should be assessed on interior common areas. 901 First Street Owner, LLC v. Tustin Unified School District held that interior space outside of individual units, such as interior hallways, storage rooms, mechanical rooms, fitness centers, lounges, and other interior common areas should be included in the fee calculation under the language of Government Code Section 65995(b)(1). Based on this, the School Fee was expanded, which could lead to a significant increase in fees for projects anticipating paying the fee on the square-footage of the units only.

Oakland Eyes Increased Affordable Housing Fees

Oakland is currently undertaking a mandatory five-year review of its impact fee program. The focus of the review for many is impact fees for affordable housing. Currently, affordable housing fees are tiered depending on the type of housing proposed and the location of the property in one of three regions of the city based on the level of demand for development in that region. There is debate about whether the tiered system should be eliminated, as well as whether fees should be increased over the tiers.

Affordable housing advocates believe that fees should already have been increased to fund construction of affordable housing during the last several years of strong development. Developers have expressed concern that higher impact fees could stifle further development.

Officials and advocates are also looking at other aspects of the implementation of affordable housing requirements. Discussion is underway about how affordable housing is best produced, whether through construction of on-site affordable units or through funding construction of affordable units with impact fees. Also under review is the policy of collecting 50% of the affordable housing fee at permit issuance and 50% only after a certificate of occupancy is issued.

We will continue to watch the Oakland impact fee review process as it unfolds in 2021. We will also watch for earlier changes to fees spurred by the current debate.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jody Knight.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

California Increases Density Bonus to 50%

| Mark Loper
density bonus

Starting in 2021, residential projects in California with on-site affordable housing can get a density bonus of up to 50%.  Currently, under Government Code Section 65915—commonly known as the Density Bonus Law—the maximum bonus is 35%.  It is available for projects that include 11% very low income below market rate (“BMR”) units, 20% low income BMRs, or 40% moderate income BMRs.  Under a new law that flew somewhat under the radar during the last legislative session in Sacramento, a 50% bonus is available with increased affordability.  Specifically, 15% very low income, 24% low income, or 44% moderate income allow the full 50% bonus.

The new state law, AB 2345, requires cities and counties to comply even if they have not yet updated local implementing ordinances.  This means starting January 1, 2021, all jurisdictions in California are required to process projects proposing up to 50% additional density as long as those projects provide the additional BMRs in the “base” portion of the project, unless the locality already allows a bonus above 35%.

AB 2345 also lowered the BMR thresholds for concessions and incentives for projects with low income BMRs.  For background, in addition to waivers from development controls that preclude a project from achieving the density bonus it is guaranteed (with some narrow exceptions) in exchange for on-site BMRs, the Density Bonus Law allows sponsors to ask for “concessions and incentives” from zoning and development regulations that would make the project more expensive to construct.  Starting in 2021, projects with 17% low income BMRs can qualify for two concessions or incentives, and projects with 24% low income BMRs can qualify for three.

Finally, density bonus projects within one-half mile of a major transit stop and with direct access to the stop may be able to avoid minimum parking requirements.

All-Electric New Construction in San Francisco Starting in June 2021

On Tuesday, the San Francisco Board of Supervisors passed a law mandating new construction projects be all-electric.  The building or project will need to use a permanent supply of electricity as the source of energy for all space conditioning including heating and cooling, water heating, pools and spas, cooking appliances, and clothes drying appliances.  Gas or propane piping systems are not permitted from the point of delivery at the gas meter.

The all-electric requirement takes effect on June 1, 2021.  Starting then, all new building or site permit applications will need to comply.  Sponsors should keep in mind there is currently a multi-month delay to file permits at the Department of Building Inspection (“DBI”), and should not wait until the last minute to get their building or site permits on file.

There are two minor exceptions.  If it would be physically or technically infeasible to construct an all-electric building, DBI can grant modifications, but only to those portions of the building where infeasibility can be demonstrated, and the alternative design provides equivalent health, safety, and fire protection.  Importantly, financial considerations cannot be used to show infeasibility.

Also, a restaurant is allowed to have gas facilities used exclusively for cooking equipment.  For permits filed through December 31, 2021, permits identifying a restaurant use will be allowed to have gas facilities.  After 2021, the exception is narrowed and DBI has to determine that the gas system is necessary for the specific restaurant using the space.  Identifying a specific restaurant tenant that early in the process will likely be a challenge for many new construction projects.

 

Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.