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.

 

California Passes New Law to Spur Housing

| Melinda Sarjapur
production

Last week the California Legislature passed SB-423, new law introduced by Senator Scott Weiner to spur statewide housing production.

SB-423 extends and expands SB-35 (Weiner, 2017), which allows streamlined, ministerial processing for housing developments in cities that haven’t met their Regional Housing Need Allocation (RHNA) goals. Qualifying SB-35 projects must also meet certain criteria, including on-site affordability and labor requirements, and comply with local objective zoning standards.

SB-35 has been celebrated by housing development advocates statewide over the past six years for unlocking the potential to develop thousands of new homes. According to an August 2023 report issued by the UC Berkeley Terner Center for Housing Innovation, SB-35 spurred applications for construction of more than 18,000 new units in California between 2018 and 2021, 62% of which were 100% affordable.

SB-423 extends the original term of SB-35 by decade, to January 1, 2036.

It also makes a number of significant tweaks to SB-35, including:

  • Extending into the Coastal Zone. Previously, SB-35 did not apply to property within California’s Coastal Zone, which is a band of land that extends approximately 840 miles along California’s coast. SB-423 removes this exemption, allowing SB-35 to apply within the Coastal Zone beginning January 1, 2025, except for certain environmentally sensitive or hazardous locations, or areas not zoned for multifamily housing. Qualifying developments would still require a Coastal Zone Permit, but the public agency must approve it if they determine the development is consistent with objective zoning standards, which may be modified through state density bonus law.
  • Shortening San Francisco’s Reporting Period. SB-35 applies to cities that aren’t meeting their RHNA housing production goals either for low- or above-moderate income categories, which is typically determined by the California Department of Housing and Community Development (“HCD”) every four years. However, SB-423 singles-out the City of San Francisco, requiring analysis of its RHNA goal progress (and SB-35 eligibility under each income category) every year. As of the most recent assessment, San Francsico was meeting RHNA goals for above-moderate income housing, but not low-income housing. As a result, SB-35 projects in the City must currently provide 50% of units affordable to low-income households. However, if moving forward San Francisco falls below above-moderate income housing targets in an annual review period, projects could instead qualify for SB-35 by providing 10% of on-site units as affordable. Local Inclusionary Program requirements would still apply, but affordable units under SB-35 would count toward the local requirements.
  • Tying Application to Housing Element Compliance. SB-423 extends application of SB-35 to Cities that have failed to adopt a compliant housing element as determined by the California Department of Housing and Community Development (“HCD”), even if they’re currently meeting RHNA goals.
  • Altering Affordability Requirements. SB-423 amends the affordability requirements for rental units in 10% jurisdictions, requiring such units to be affordable to households making 50% of the area median income, instead of the current 80%. The legislation also includes an alternate definition for “affordable rent” for developments that dedicate 100% of their units, exclusive of manager’s units, to lower income households.
  • Clarifying Interaction with Local Inclusionary Programs. It specifies that if a local BMR program requires units that are restricted as affordable to AMI tiers higher than those required by SB-35, the units meeting SB-35 thresholds will satisfy the local program requirements for higher-income units.
  • Amends Labor Standards. It requires projects over 85 feet in height, regardless of unit count, to utilize a skilled and trained workforce. Further, on projects with 50 or more units, contractors and subcontractors with construction craft employees must meet specified apprenticeship program and health care expenditure requirements.
  • Allowing the State to Approve Development on State Property. It authorizes the California Department of General Services, at its discretion, to act in the place of the local government, at its discretion, in order to approve SB-35 projects on property owned by or leased to the state.
  • Creating New Noticing Requirements. Requires local governments to hold a public meeting within 45 days of receiving a notice of intent to submit an SB-35 application for projects proposed in a census tract designated as a moderate- or low-resource area, or an area of high segregation and poverty.
  • Limiting the Scope of Local Review. Expressly states that cities cannot request studies, information or other materials that are not related to determining whether the development is consistent with the objective standards, nor can they require compliance with any standards necessary to receive a post-entitlement permit before the issuance of the project’s entitlement.

SB-423 is now on Governor Newsom’s desk along with a long list of other new bills passed just before the end of the legislative session. The Governor has until October 14th to sign or veto the bill. Unless vetoed, it will take effect on January 1, 2024.

 

Authored by Reuben, Junius & Rose, LLP Partner Melinda Sarjapur.

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.

San Francisco Housing Element Update

| Jody Knight
Housing Element

While the Bay Area works to recover from the impacts of COVID-19 on retail and hospitality, and digital nomads slowly return to the office, the pandemic has done nothing to slow escalating home prices. The California Association of Realtors reported this week that the Bay Area’s median single-family home price exceeded $1.3 million in April, with a median price of $1.8 million in San Francisco. The City saw an increase of 5.9% from last year and 2.6% from March.

As single-family homes become increasingly out of reach for many families, the City also continues to experience a shortfall in all housing types, resulting in ongoing debate about uneven development throughout the City and the introduction of legislation at the State and local level that takes aim at single-family zoning.

On March 18, 2021, Reuben, Junius and Rose’s Tuija Catalano updated you about the upcoming RHNA (Regional Housing Needs Assessment) cycle. The update explained how the draft allocation would significantly increase the identified need for housing units in the Bay Area compared with the last RHNA cycle. Under the draft, San Francisco would see an increase from 28,869 to 82,069 units.

San Francisco has begun the process of planning for those housing units. The City’s Housing Element 2022 Update began in May 2020. The Housing Element is a component of the General Plan that is updated every eight years.

The current update focuses on social and racial equity, while it looks at how to accommodate the creation of 82,000 housing units by 2031. The plan focuses on building in State identified High Opportunity Areas, which are mainly in the western part of the City. The Planning Department has a page dedicated to the process which provides information and allows for public input.

The first draft of the Goals, Policies and Actions of the Housing Element have been identified as follows:

  • recognize the right to housing as a foundation for health and social and economic stability;
  • repair the harms of historic racial, ethnic, and social discrimination for American Indian, Black, and other People of Color;
  • foster racially and socially inclusive neighborhoods through distinct community strategies;
  • increase housing production to improve affordability for the City’s current and future residents;
  • increase housing choices for the City’s diverse cultural lifestyles, abilities, family structures, and income; and
  • promote neighborhoods that are well-connected, healthy, and rich with community culture.

On April 22, 2021, the Planning Commission conducted an informational hearing on the Draft Housing Element. Planning Staff will be engaging in outreach to further refine the policies in the plan, with a second draft anticipated by Fall 2021. The Draft Environment Impact Report is anticipated in early 2022.

At the April 22, 2021 hearing, the Planning Commission also heard the 2020 Housing Inventory and Housing Balance Reports. The City saw a 1% increase in housing stock in 2020, with most new development in SoMa, the Mission and Downtown. While 2020 was a difficult year for development because of the pandemic, the Reports illustrate how far the City has to go to meet its RHNA target, particularly on housing affordable to lower income residents.

Given the already contentious environment surrounding housing equity and the geographic distribution of new units in the City, we expect this Housing Element update to generate significant debate. However, the Plan does not change allowable land uses, heights, or density, so meeting the City’s housing needs will depend on legislative changes. We will follow and report on both as the housing debate continues.

 

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.

Cities’ Upcoming Need to Identify Housing Opportunity Sites

| Tuija Catalano
Housing

The next RHNA (Regional Housing Needs Assessment) cycle is quickly approaching, which means that all Bay Area cities will be taking a closer look at their Housing Elements and determining whether they have enough land zoned to accommodate more housing.

In June 2020, the California Housing and Community Development (“HCD”) provided the Bay Area its Regional Housing Needs Determination for the next RHNA cycle (2023-2031), identifying a need for 441,176 new housing units.  The overall figure is further categorized into very low (26%), low (15%), moderate (16%), and above moderate (43%) housing and income levels.  This figure represents a significant increase when compared to the prior RHNA cycle (2015-2023) when the Bay Area was allocated 187,990 units.  In the Bay Area, the Association of Bay Area Governments (“ABAG”) is responsible for allocating the overall figure among cities and counties, and its Housing Methodology Committee spent much of 2020 in meetings to discuss and decide on different methodology options.  Regardless of which allocation methodology was going to be chosen, most Bay Area cities and counties are seeing a significant increase in their RHNA allocations.

ABAG’s Executive Board approved the Draft RHNA Methodology and Final RHNA Subregional Shares (“Draft Allocation”) for the Bay Area on January 21, 2021.  The Draft Allocation is subject to HCD approval on or before April 11, 2021, and thereafter an appeal opportunity by individual cities and counties during Summer/Fall 2021.  Historically, very few appeals by individual cities or counties have been successful, and thus most of the Draft Allocation figures are anticipated to be adopted as final allocations by late 2021.

Once the allocations have been finalized, individual cities and counties will need to amend their Housing Elements and identify sufficient number of vacant or underdeveloped sites that can accommodate the RHNA figure allocated to each city.  Many cities are currently starting the process by engaging consultants to work on their next Housing Element update.  The updated housing elements must be submitted to the State by each city and county no later than January 2023, and if applicable, cities and counties will thereafter need to rezone properties consistent with the updated Housing Elements and site identifications.

To understand the magnitude of the increases cities and counties are facing for the next RHNA cycle, it is helpful to look at some of the Draft Allocation figures.  The following represents a sampling of Bay Area cities, comparing their final 2015-2023 RHNA figure to those proposed in the Draft Allocation for the next, 2023-2031 cycle.  For a complete list of cities/counties, see the Draft Allocation.

City2015-2023 cycle2023-2031 cycle
San Francisco28,86982,069
Oakland14,76526,251
San Jose35,08062,200
Berkeley2,9598,934
Fremont5,45512,897
Concord3,4785,073
Lafayette4002,114
Walnut Creek2,2355,805
Novato4152,090
Tiburon78639
Daly City1,3504,838
Menlo Park6552,946
San Bruno1,1553,165
Cupertino1,0644,588
Los Gatos6191,993
Sunnyvale5,45211,966

Cities and counties are not required to build new housing, but they are required to plan for it and specifically plan for enough housing that satisfies their assigned RHNA figure.  Since most Bay Area cities and counties are subject to significant increases, local city councils and board of supervisors, along with their Planning Departments, will be taking a comprehensive look at zoning and development in their jurisdictions over the next year and a half.  This may also represent opportunities in the near-term for property owners of currently vacant or underutilized properties and/or those that lack the zoning necessary for residential development.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tuija Catalano.

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.