AB 2011 & SB 6: Pro-Growth or Slow Growth for Construction Workforce

| Daniel Frattin and Daniel J. Turner
SB 6

AB 2011, along with SB 6 (Cabellero, Eggman and Rubio), were passed by the California Legislature this week with large majorities in both houses. The two bills will create 10-year housing programs with similar aims: increasing housing production and increasing the skill level, wages, and number of residential construction workers. However, the bills differ in important ways—their approach to density, allowances for ministerial approvals, and the degree of deference to local zoning rules. They also take markedly different approaches to growing, training, and better compensating the residential construction workforce. The bills were the product of a political compromise between the State Building & Construction Trades Council and the Carpenters Union. They effectively set up an experiment to test the relative efficacy of the SB 6 labor rules favored by the State Building & Construction Trades Council—basically requiring union labor on any SB 6 project and the rules preferred by the Carpenters Union – requiring payment of prevailing wages and benefits to all workers on an AB 2011 project.

A good deal of attention has been given to improving the regulatory conditions for getting new housing approved, expanding access to sites, and requiring cities to upzone. However, less attention has been paid to the fact that—even if there were shovel-ready projects for the Governor’s declared goal of 3.5 million new homes over ten years—the current residential construction workforce could only build about a third of that number without significant increases in the number and productivity of workers, who currently build housing at a rate of one home per worker per year. By comparison, average productivity per worker was 1.4 units per year from 1990-2005. Put simply, the state cannot meet its housing targets without an increase in the number of workers and productivity.

However, attracting new workers has proven difficult. Median residential construction worker pay in California ranks 46th in the country when adjusted for the high cost of living. On average, residential construction workers income is 2/3 of their commercial counterparts and they get about 1/3 the amount of fringe benefits. Less than half have insurance through employers. This is a dramatic shift since the 1970s and 1980s, when average pay in both sectors was roughly equal.

AB 2011, which we discussed in greater detail last week, provides for time-limited ministerial approvals for properties on commercial corridors that meet certain criteria for affordable housing and overrides local zoning rules that conflict with its minimum standards for density and height. It also mandates payment of prevailing wage to all construction workers, or at least the prevailing apprentice wages for apprentices enrolled in state-approved apprentice programs. Family healthcare benefits are required for projects with qualified construction craft workers on projects with more than 50 units, while those without such workers can credit qualifying expenditures toward the prevailing wage requirements. Essentially, AB 2011 bets that rapid approvals under more liberal standards will entice employers to pay higher wages and create a strong, near-term incentive for developers to invest in apprenticeship programs to elevate worker productivity.

A final version of SB 6 has yet to be published, but takes a less aggressive approach than AB 2011 with lower minimum density requirements, greater deference to local zoning, and no mandatory ministerial approval process unless a project otherwise qualifies under SB 35. Thus, many SB 6 projects would be subject to lengthy CEQA reviews and modified discretionary approvals. It would require lower amounts of affordable housing subsidies by than AB 2011, but would effectively require the use of union labor if two qualified bids are received from union contractors. While SB 6 expands potential building sites, most projects would not realize the cost savings associated with quick ministerial approvals or the elimination of most entitlement/CEQA risk. Without these incentives in place, it may be years before the state sees its first SB 6 project, or additional demand for workers.

AB 2011 passed the Assembly 67-4 with 9 abstentions and the Senate 33-0 with 7 abstentions. While the 4 Noes in the Assembly were from rural and suburban districts leaning more conservative (3 Rs & 1 D), notably 7 of the 9 abstentions were from urban and suburban districts along the coast between Ventura and San Diego with a high number of Democratic representatives (6 Ds & 3 Rs). Conversely, SB 6 passed the Assembly 67-0 with 13 abstentions and the Senate 34-0 with 6 abstentions. Of the 4 Noes for AB 2011, 3 abstained in SB 6 and 1 voted yes (a democrat representative from District 29, encompassing Santa Cruz and the surrounding area). The Assembly abstentions followed a similar pattern as AB 2011, with those abstaining coming from both parties and primarily representing rural districts or coastal urban and suburban districts in Southern California. For both AB 2011 and SB 6, the Senate abstentions followed a similar geographic pattern as in the Assembly.

While union support was split between the two bills, with both construction and other unions on either side, pro-housing and business organizations tended to support both. Most affordable housing developers supported AB 2011 and opposed SB 6, presumably because the latter would tend to increase cost and time for approval without offsetting benefits. San Francisco’s Council of Community Housing Organizations, which frequently opposes market-rate development, was a notable outlier, supporting SB 6 and opposing AB 2011 in spite of its clear benefits to affordable housing developers.

Both bills still need to be signed by the governor and will not take effect until July 2023. Annual reports of projects approved under both bills are required from cities and the Department of Housing & Community Development is to provide two reports on the use of each during the ten year period prior to their sunset date.

 

Authored by Reuben, Junius & Rose, LLP Attorneys Daniel Frattin and Daniel J. Turner.

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.

Summary of New State Condo Laws

| Jay Drake
laws

The California state legislature recently passed a number of new laws pertaining to California common interest developments and homeowners associations.  Below is a brief summary of a few of the new laws.

SB 432 – This is a follow-up to our Update on July 9, 2021, which described proposed SB 432.  This bill has now been approved and will become effective January 1, 2022.  The law makes several changes to HOA election procedures, including HOA director qualifications and term limits, retention of election materials and election notice requirements.

AB 1101 – This bill was approved on September 23, 2021, and makes changes aimed at preventing fraud and financial malfeasance in HOAs, and furthers the changes made by AB 2912 in 2018 which implemented basic protections for HOA finances.  This bill requires (i) HOAs’ accounts to be in financial institutions insured by the FDIC, National Credit Union Administration Insurance Fund, or a guaranty corporation, (ii) imposes requirements on HOAs to obtain fidelity bond insurance covering acts by HOA directors, officers and managing agents, (iii) requires written HOA board approval for withdrawals of specified large amounts from HOA accounts, and (iv) prohibits HOA managing agents from comingling funds of the HOA with the managing agent’s own funds.

AB 1584 – This is a follow-up to our Update on March 11, 2021 regarding AB 3182 which added new Civil Code 4741 that limits rental restrictions in condo projects.  That bill required HOAs to amend their governing documents to comply with Civil Code 4741 by December 31, 2021.  AB 1584, approved on September 28, 2021, modifies Civil Code 4741 by (i) allowing the HOA board of directors to unilaterally amend the HOA’s governing documents to comply with Civil Code 4741, without the approval of the HOA members, and (ii) gives the board of directors until July 1, 2022, to complete such amendment.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

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.

Condo Owners Exempt from HOA Rental Prohibitions Adopted After Purchase, Court Rules

| Michael Corbett
rental

The 4th District Court of Appeals has resolved an ambiguity in the intent and enforceability of Civil Code Section 4740, a statute within the Davis-Stirling Act (“Act”) placing limitations on rental prohibitions within common interest developments (“CID”) in California. The court’s ruling is a victory for owners of residential condominiums currently renting units in a manner that their homeowners association (“HOA”) seeks to prohibit through proposed changes to the CC&Rs, bylaws, rules, or related documents (collectively, the “Governing Documents”) of the HOA.

In Brown v. Montage at Mission Hills, Inc. (21 C.D.O.S. 8590), certified for publication on August 20, 2021, the court held that, pursuant to Section 4740(a), an HOA’s amendment to its Governing Documents prohibiting short-term rentals of less than 30 days (“STRs”) was unenforceable against an owner that had been using her unit for STRs the previous 16 years.

Civil Code section 4740(a) states that an owner of a property in a CID shall not be subject to a provision in its regulations “that prohibits the rental or leasing of any of the separate interests in that common interest development” un­less that provision “was effective prior to the date the owner acquired title to their separate interest.”

The trial court agreed with the HOA that Section 4740 precluded CIDs from imposing complete bans on renting, and that its prohibition on STRs was merely a restriction on rent­ing. The Court of Appeal reversed that ruling, finding the meaning of section 4740 to be unclear, ambiguous, and in need of closer scrutiny.

The ambiguity lied in two reasonable, but conflicting, interpretations of the statute’s meaning: on the one hand, if a regulation forbids a specific category of rentals, such as STRs, that regulation “prohibits” that type of rental, even if it does not prohibit all forms of rentals; on the other hand, Section 4740(a) could be read to forbid only outright “prohibitions” on leasing, but not “restrictions” on leasing that fall short of a complete ban on all leasing.

To resolve these conflicting interpretations, the court considered both the legislative history of Section 4740, as well as other provisions within the Act’s statutory scheme that imposed restrictions and/or prohibitions of certain actions or conduct.

While the court acknowledged that some statutes within the Act expressly created distinctions between “restrictions” and “prohibitions”, it also found that the legislative history of section 4740 indicated that the Legislature intended broad protection for owners against restrictions on renting, includ­ing restrictions against STRs. Further, the legislative history indicated that the Legisla­ture’s intention was to ensure that unit owners within CIDs maintained all of the rental rights they had at the time they purchased their unit.

In seeking guidance from both the entire statutory scheme of the Act and the legislative intent behind Section 4740, the court was required to “choose the construction that comports most closely with the Legislature’s apparent intent.” (Smith v. Superior Court (2006) 39 Cal.4th 77, 88) With this directive, the court determined the goal of Section 4740 is to exempt CID unit owners from any kind of rental prohibition or restric­tion that did not exist when the owner acquired title to the unit.

Notably, the court cited the opinion of the Legislative Counsel regarding section 4740’s effect on rental prohibitions in CIDs, including prohibitions against STRs, at the time of the statute’s enactment in 2012. The Legislative Counsel opined that a unit owner within a CID is subject to a provision of, or amendment to, Governing Documents that prohibits an owner from renting out their unit only if either (1) the prohibition took effect before the owner acquired title to his or her separate interest in that CID, or (2) the owner consented to the Governing Documents or amendment con­taining that provision.

In Brown, HOA respondent Montage nonetheless argued its STR prohibition was permissible due to “public policy considerations.” Montage observed that individual property owner’s rights must some­times give way to the public interest and the right of CIDs to decide their rules and restrictions. However, relying on the public policy considerations given priority by the Legislature when it adopted Section 4740, the court found the statute to have been enacted to protect “the rights of CID own­ers to rent or lease their properties, as the rights existed at the time they acquired them,” and that its goal was to ensure that “the right of an owner to rent or lease his or her separate interest [in a CID] shall be the same as when the owner purchased his or her separate interest throughout the life of ownership.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No. 150 (2011-2012 Reg. Sess.) as amended Apr. 25, 2011.) (Italics added.)

In other words, a residential condominium owner will not be subject to amendments to Governing Documents prohibiting a specific form of leasing – including without limitation STRs – otherwise allowed at the time such owner first purchased their unit. An owner who acquired title prior to the HOA’s adoption of such a rental prohibition would be exempt from the same unless the owner waived this right by formally voting in favor of the proposed prohibition.

The Brown appeal was pending while the Legislature enacted Civil Code Section 4741, a statute that was the subject of an e-update by this firm earlier in the year.  Section 4741 allows an HOA to adopt and enforce a provision in its Governing Documents that prohibits transient or STRs of units within its CID for a period of 30 days or less. (Civ. Code, § 4741, subd. (c)). However, as pointed out by the Brown ruling, Section 4741 expressly provides that, in ac­cordance with Section 4740, Section 4741 does not change the right of an owner of a separate interest who acquired title to their separate interest before the effective date of this section to rent or lease their property. (Civ. Code, § 4741, subd. (h)).

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

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.

Eliminating Single Family Zoning is OK, but Don’t Eliminate Parking

| Matthew Visick
Bill

SB 9 Makes it Through the Assembly but AB 1401 Dies in the Senate

Two bills that would limit local control over housing issues met very different fates this past Thursday in the California Legislature.  Both were vehemently opposed by cities and groups that favor local control over land use decision making.  One was opposed by housing equity groups.

Senate Bill 9

Senate Bill 9 (“SB 9”) would, among other things, require a city or county to ministerially approve (1) a two-unit housing project in a single-family zone, (2) the subdivision of a parcel zoned for residential use into two parcels, or (3) both.

SB 9 could unlock substantial housing production in single-family neighborhoods, where opposition to multi-family housing projects is typically greatest.  Many of the lots in these districts include only a single-family home and maybe an Accessory Dwelling Unit (which cannot be separately sold).  SB 9 would allow each existing single-family lot to be ministerially subdivided into two lots, and require ministerial approval of a duplex on each of the lots.

According to the Terner Center for Housing Innovation at UC Berkeley, SB 9 has the potential to allow for the development of nearly 6 million new housing units statewide.

Assembly Bill 1401

Assembly Bill 1401 (“AB 1401”) would limit minimum off-street parking requirements for projects located near a “major transit stop” (generally a train station or bus station with high frequency headways).

AB 1401 is hardly radical legislation.  When first introduced by Assembly Member Friedman in February 2021, the bill prohibited public entities (cities and counties) from imposing or enforcing minimum parking requirements on residential, commercial, or other development that is located within one-half mile walking distance of a “major transit stop” (generally a rail stop or a bus stop with frequent headways).  As last amended on July 5, 2021, the bill eased the prohibition for smaller cities.  A city with a population of 75,000 or more that is located in a county with a population of less than 600,000 was only prohibited from imposing the parking minimums on projects located within one-quarter mile of a major transit stop, and a city with a population of less than 75,000 was not subject to any prohibition.

Studies show that eliminating minimum parking requirements for projects located near transit routes supports the state’s housing goals by reducing the cost to deliver housing and allowing more dwelling units on a development site.  Eliminating parking requirements near transit also advances the state’s environmental goals by reducing emissions from cars.

Wait, the Parking Bill is the One That Died?

Both SB 9 and AB 1401 sailed through their respective policy committees in both the Assembly and the Senate with large vote margins in support.  Both were vehemently opposed throughout by local governments and groups that advocate for “local control” over land use decision making.  Yet AB 1401 was referred to the “suspense file” in the Appropriations Committee, where ambitious legislation often goes to die, while SB 9 was not.

It is hard to know exactly why bills are referred to the “suspense file.”  The “suspense file” is intended to be a place to evaluate whether to advance a bill that could have a significant fiscal impact.  But committee analyses of both SB 9 and AB 1401 show that both bills were anticipated to have the same annual impact on the budget (SB 9: $89,000 and AB 1401: $97,000).

A more plausible explanation emerges when one considers the groups opposed to the changes the bills would bring.  It is not surprising that numerous suburban cities and local government groups opposed both bills (SB 9 faced even greater opposition from these groups than AB 1401).  However, the opposition to AB 1401 was more diverse.  Affordable housing advocates argued that eliminating parking minimums for market rate development would reduce incentives for developers to create the affordable dwelling units required to reduce parking requirements using the Density Bonus Law.  In addition, environmental groups objected to the reduction of parking near transit as inconsistent with equity goals.

Decline in Value Real Estate Tax Appeals Due September 15

The deadline to appeal the valuation of property for real estate tax purposes is September 15 for both San Francisco and Alameda Counties.  Such an appeal would be appropriate due to a decline in property value because of the impact of Covid-19 and the related business shutdowns.  If you need more information, please contact Kevin Rose at krose@reubenlaw.com (415.567.9000).  Other counties may have different deadlines, so you should check with your local County appeals board to confirm the deadlines.

 

Authored by Reuben, Junius & Rose, LLP Attorney Matthew Visick.

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.