Housing Element Fallout: From Noncompliance to Lawsuits

| Daniel J. Turner
Noncompliance

The January 31, 2023 deadline for Bay Area cities and counties to revise and update their Housing Elements has passed, and only four of the Bay Area’s 109 local jurisdictions – San Francisco, City of Alameda, Emeryville, and San Leandro – have adopted fully compliant Housing Elements so far. While many of the Bay Area’s other jurisdictions have made substantial progress toward updating their Housing Elements, others have shown little effort in meeting their obligations under the state’s Housing Element Law. State law imposes a number of potential enforcement penalties and consequences on jurisdictions that fail to comply with the Housing Element Law, including the oft-discussed “Builder’s Remedy”, and housing advocacy groups have started turning to the courts to enforce these provisions against noncompliant jurisdictions.

Background

California’s Housing Element Law was enacted in 1969 and is intended to encourage housing development by requiring cities and counties to adopt Housing Elements as part of their General Plans. A Housing Element is a jurisdiction’s detailed plan for the development of housing within its borders, and it must meet various statutory requirements, such as identifying adequate development sites to meet the jurisdiction’s allocated housing need, creating programs to incentivize the production of affordable housing units, and describing the necessary measures to implement the plan. To achieve compliance with the law, the Housing Element must also receive certification from the California Department of Housing and Community Development (HCD) before the jurisdiction’s statutorily determined deadline. A jurisdiction that fails to do so is considered out of compliance and is exposed to certain penalties and other enforcement mechanisms until it adopts a compliant Housing Element.

Penalties for Non-Compliance

Among the potential consequence for noncompliance is the notorious Builder’s Remedy. Under the Builder’s Remedy, a jurisdiction is prohibited from denying an affordable housing project based on the project’s noncompliance with the jurisdiction’s General Plan or Zoning Ordinance. It effectively frees such projects from all local zoning and development controls, unless the jurisdiction can justify project modifications or disapproval by articulating specific, adverse impacts to health or safety. To qualify for the Builder’s Remedy, a project must provide either 20% of units as affordable to ≤80% AMI households (low-income), or 100% of units as affordable to ≤120% AMI households (moderate-income). While potentially very powerful, it should be noted that the Builder’s Remedy has had minimal real-world testing, with sparingly few examples of successfully entitled projects.

Beyond the Builder’s Remedy, a noncompliant jurisdiction can experience a variety of other consequences. For example, a jurisdiction that does not become compliant within 120 days of missing its deadline is subject to tighter implementation and rezoning timelines once it does adopt a compliant Housing Element. Further, as long as a jurisdiction remains noncompliant, it may be subject to other statutory or judicial losses of zoning and permitting authority, it may be liable for court-imposed fines, and it may have reduced access to state funding and grants for housing, infrastructure, and municipal operations.

Current Status of Bay Area Jurisdictions

The 105 remaining Bay Area jurisdictions – beyond those four listed above – are in various states of noncompliance with the Housing Element Law. These jurisdictions range from those that have made substantial progress toward compliance and are undergoing review and certification by the HCD, to those jurisdictions that have barely begun preliminary drafts.

Oakland, the Bay Area’s third-largest city, is among those jurisdictions that did not achieve compliance by the deadline after its Housing Element was denied certification on February 3rd. Despite having already undergone multiple revisions since it was first submitted in December 2022, a number of technical deficiencies were identified in Oakland’s Housing Element and HCD requested further edits. HCD’s denial letter to Oakland also commended the city’s overall efforts in completing the process. Oakland resubmitted its Housing Element on February 13th, and it is currently pending review.

According to the HCD’s Housing Element Review and Compliance Report (as of 2/14/23), approximately 34 Bay Area jurisdictions are in a similar situation to Oakland’s, with an adopted Housing Element that is currently awaiting review and certification by the HCD. About three-fourths of these jurisdictions submitted their Housing Elements on or within a few days of the January 31st deadline, and given this large influx, the HCD’s review timeline is uncertain. While technically out of compliance, these jurisdictions are unlikely to experience the more severe enforcement consequences due to the substantial amount of progress they have already made and the high likelihood of achieving compliance within the next few months.

Based on the Compliance Report, another 59 jurisdictions have submitted an initial or subsequent draft Housing Element to HCD for review but have not yet adopted it. Because the adoption process includes environmental review, public participation, and multiple hearings, these jurisdictions have a longer road ahead of them (although it will vary greatly for each individual jurisdiction). A further 12 jurisdictions have not yet submitted anything to HCD and may not have even begun the drafting process.

Housing Advocacy Group Lawsuits

In response to the numerous jurisdictions that failed to meet the Housing Element deadline, housing advocacy groups, including YIMBY Law, California Housing Defense Fund, and Californians for Homeownership, have started filing lawsuits against those jurisdictions that are furthest out of compliance. These lawsuits are requesting that the court compel each jurisdiction to bring its respective Housing Element into compliance and are asking the court to impose additional sanctions available to the court under the Housing Element Law, which range from fines to removal of permitting authority. Further, each lawsuit is seeking a judgment declaration regarding the provisions of the Builder’s Remedy, with the apparent intent of laying the groundwork for developers to take advantage of it without having to face extraneous judicial challenges.

It is unknown whether these advocacy groups will expand their current litigation efforts, and it remains to be seen whether any developers will actually employ the Builder’s Remedy at risk of garnering the ire of local agencies for future projects. However, these lawsuits may provide helpful insight in how the courts – and the cities themselves – will respond to the various enforcement mechanisms enacted over the past few years.

 

Authored by Reuben, Junius & Rose, LLP Attorney 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.

Bigger Code Violation Fines In SF’s Future?

| Mark Loper
code

We kick off Reuben, Junius and Rose’s 2023 client updates by discussing a proposed San Francisco ordinance that would significantly enhance penalties for unpermitted work eliminating or adding residential units and significantly altering historic resources, and increase administrative and civil penalties for violations of the Building and Planning Codes.

The legislation, co-sponsored by Supervisors Ronen, Peskin and Chan, was introduced in July 2022 (Board File No. 220878). In October 2022, the Building Inspection Commission voted unanimously to recommend approval. A Planning Commission hearing is scheduled for next Thursday, January 19th. After the Planning Commission, hearings would take place at the Board of Supervisors’ Land Use and Transportation Committee, followed by the full Board.

The ordinance would increase the Zoning Administrator’s authority to impose significant monetary fines on property owners who carry out unpermitted work associated with a residential demo, merger, or change of use, and significant alterations to historic buildings. For unpermitted alterations, mergers, or demolition that eliminate one or more residential units, and also for unpermitted additions of more than two unauthorized units, the property owner would be liable for an administrative penalty of up to $250,000 for each unit. The owner also would be required to file a permit and request retroactive permission from the Planning Commission to eliminate the dwelling unit with a Planning Code Section 317 Conditional Use permit. The Planning Department’s Zoning Administrator would ultimately determine the amount of the fee; the ordinance directs the Planning Commission to adopt factors and criteria for the Zoning Administrator to consider.

The ordinance would also punish property owners who carry out alterations that are tantamount to demolition without securing a Section 317 Conditional Use permit. For five years, no permits authorizing construction or alteration are allowed. There would be one exception: the permit would need to have the same or more residential units, with the same or higher proportion of residential to non-residential units as the building as it existed before the unpermitted work occurred. Also, the replacement units need to be at least 40% of the size of the largest unit in the project. They also could be subject to rent control; as written, this provision of the draft ordinance is unclear.

The ordinance would also enhance the potential penalties for unpermitted damage to historic properties. For historic properties that are designated locally or on the California or National registers, a penalty of up to $500,000 is available for each structure that is “significantly altered or damaged,” or “demolished.” Similar to the unpermitted residential work, the Historic Preservation Commission would be tasked with adopting factors and criteria for the Zoning Administrator, and would also need to define the terms “significantly altered or damaged” and “demolished.”

Also, for all Notices of Violation (“NOVs”)—not just NOVs relating to unpermitted work on residential or historic buildings—the ordinance would add the following additional factors when considering whether to uphold the NOV and whether to assess administrative penalties:

  • if a violation was willful or intentional;
  • the extent to which it resulted in financial gain;
  • if tenants were displaced; if the violation is reversible; and
  • if it created a nuisance, health hazard, or dangerous condition.

Also, the daily administrative penalty would be increased from $100 to $200.

On appeal to the Board of Appeals, if the Board upholds in whole or in part the Zoning Administrator’s decision on the amount of the penalty, it can reduce the penalty, but not below $50,000 for each residential unit or $100,000 for each historic property.

The ordinance would also allow a court to assess a daily civil penalty of between $200 and $1,000 and adds criteria for a court to consider when assessing the amount of any civil penalty for any Planning or Building Code violation. They include: the nature and seriousness of the misconduct, number of violations, the persistence of the misconduct, length of time, willfulness of the defendant, if any tenants were displaced, if the violation is reversable, if the violation impacted an historic resource, the financial gain because of the violation, and the defendant’s net worth.

Finally, the ordinance adds some procedural teeth. Any time after issuing an NOV, the Zoning Administrator can issue a “Notice of Additional Compliance Actions and Accrued Penalties” that requires a responsible party to perform additional abatement actions, and/or sets out the total penalties accrued to-date. Final NOVs or Notices of Violation and Penalty Decisions (“NOVPD”) may be recorded as an Order of Abatement on title, which also would spell out the steps necessary to abate the violation. The Ordinance would also make transferees responsible for daily penalties that accrue after the transfer if an NOV or NOVPD has been recorded on title; if not, the Zoning Administrator can only start assessing daily penalties if a notice and an opportunity to cure the violation are provided.

We will continue to track this interesting piece of legislation as it moves forward.

 

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.