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Inching Forward in the Golden State

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Inching Forward in the Golden State

New bills represent incremental progress toward building more housing in California. September 7, 2022
California
Economy, finance, and budgets
Politics and law

The California legislature’s ongoing efforts to remove impediments to the construction of needed new housing took a major step forward in late August with the passage of new legislation. If two specific bills are signed by Governor Gavin Newsom, they will be useful tools in a long-term battle over housing supply. But because of the bills’ complex and perhaps infeasible provisions and the many opportunities they offer for stalling tactics by recalcitrant municipalities, a supply-driven solution to the state’s housing crisis may face a longer, more difficult path to fruition than some hope.

Two of the bills passed by the legislature, known as AB 2011 and SB 6, cover similar ground. Both were approved as a result of a deal involving the two houses of the legislature, affordable-housing developers, and labor unions. (The law firm Holland & Knight offers a useful explainer comparing the bills.)

Both bills focus on the potential utility of commercially zoned land for new housing. Such a move would avoid earlier controversies about new multifamily housing displacing existing residents or changing the character of established residential neighborhoods. California’s largely suburban development pattern leaves it full of shopping centers and other businesses with large parking lots, at a time when the rise of online retail and work-from-home have made many commercial properties less valuable. Since the built densities of many existing commercial lots are very low—think one-story retail sitting in a sea of parking—a well-planned, mixed-use redevelopment could provide both much-needed housing and the same, or an even larger, employment- and tax revenue-generating commercial component.

Doing so would be much easier, however, when good-faith local governments plan willingly for it. Instead, the state legislature’s messy bargaining process tries to provide the same result. AB 2011 creates a “ministerial” process for housing development, helpfully exempt from the state’s dreaded environmental-review process, which provides litigious opponents with the opportunity to delay or even stop new housing. The bill offers two routes to a potential multifamily development on commercial land. The first requires that 100 percent of the units be affordable to low-income households, with a deed restriction lasting 55 years for rental projects and 45 years for ownership projects. That requires public subsidies, and while this option offers the most wide-ranging siting flexibility, its use will be relatively rare. The second option, limited to “commercial corridors,” requires that 15 percent of the units be affordable to lower-income households; and as an alternative, in an ownership project, 30 percent of units to be affordable to moderate-income households. The deed-restricted term of years is the same as for the first option. An analysis found that this definition is still so expansive that, depending on market conditions, “these parcels could increase the state’s capacity of . . . housing development opportunities by 1.6 to 2.4 million homes.”

Can that potential be realized? It depends both on whether the legislation’s conditions can feasibly be met and on whether local governments will erect new barriers that thwart the legislation’s intentions. The affordability conditions are based on the Section 8 income limits promulgated by the Department of Housing and Urban Development. They tend to be relatively generous, because the most housing-constrained parts of California have such high market rents. In Los Angeles County, for example, the “low-income limit” for a family of four is $95,300. The “moderate-income” limit is 50 percent higher than that. With eligible incomes so high, the internal cross-subsidy from “market” units needed to achieve “affordable” rents and sales prices may not be large. However, the legislation also requires workers to be paid “prevailing wages,” similar to public construction projects, which generally mirror union wages. The combination of affordability conditions and higher wages may make some projects infeasible—particularly outside the highest-rent metropolitan areas.

SB 6 provides a third option that, unlike the first two, is not exempt from the state’s environmental-protection measures. It also allows relatively dense multifamily housing in commercial locations where such housing is not otherwise permitted. New units would not be subject to affordability restrictions, but applicants must provide “prevailing wages” and also submit to requirements for a “skilled and trained” workforce—a condition some commentators see as a euphemism not just for union-level wages, but for actual union workers. In response to concerns about the limited number of union contractors, an escape clause waives the requirement for “skilled and trained” workers if the project fails to attract at least two qualified bids.

A third bill, AB 2097, would generally prohibit local governments from requiring off-street parking within a half-mile of “major transit stops”—rail or bus stations, ferry terminals with connecting transit service, or locations where two high-frequency bus routes intersect—and “high-quality transit corridors,” or areas with high-frequency bus service. Under the bill, off-street parking would still be permitted at the discretion of the developer. But in many communities, off-street parking requirements are higher than the market would produce of its own accord. AB 2097 is therefore expected to lower the cost of new housing, particularly at higher densities where parking needs to be provided in structured garages rather than open lots.

But such savings can be realized only if the housing gets built. That makes AB 2011, which commentators view as more likely to have a high impact than SB6, the most important of the three bills. AB 2011 takes effect on July 1, 2023, and “sunsets” ten years later. As UC Davis law professor Chris Elmendorf points out, recalcitrant municipalities will probably try to undermine the law’s effectiveness by imposing additional, economically impractical affordability requirements, which the law allows, or by enacting controls on the demolition of existing commercial buildings. Thus, the law’s effectiveness depends on the state’s diligence in enforcing its terms, and perhaps on future adjustments the legislature makes to thwart obstruction by local governments.

This legislative package may not be quite the game-changer that some supporters were hoping for. But it’s a remarkable achievement for the “Yes-In-My-Backyard” (YIMBY) coalition that has united members of both major political parties in Sacramento. With the political appeal of housing opponents diminishing steadily, the possibility that California will find a route, however circuitous and bumpy, out of its housing crunch has become more promising.

Photo by FREDERIC J. BROWN/AFP via Getty Images

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