BILL ANALYSIS SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1867 SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Harkey VERSION: 4/26/10 Analysis by: Mark Stivers FISCAL: no Hearing date: June 29, 2010 SUBJECT: Housing elements: credit for conversion DESCRIPTION: This bill allows a city or county to count against its housing need the conversion of existing homeownership units in complexes of three or more units to affordable rental housing. ANALYSIS: The Planning and Zoning Law requires cities and counties to prepare and adopt a general plan, including a housing element, to guide the future growth of a community. Cities and counties located within the territory of a metropolitan planning organization (MPO) must revise their housing elements every eight years following the adoption of every other regional transportation plan. Cities and counties in rural non-MPO regions must revise their housing elements every five years. Before each revision, each community is assigned its fair share of housing for each income category through the regional housing needs assessment (RHNA) process. A housing element must identify and analyze existing and projected housing needs, identify adequate sites with appropriate zoning to meet its share of the RHNA, and ensure that regulatory systems provide opportunities for, and do not unduly constrain, housing development. The Department of Housing and Community Development (HCD) reviews both draft and adopted housing elements to determine whether or not they are in substantial compliance with the law. In general, in order for a city or county to show that it can accommodate its RHNA allocation, it must identify sites on which AB 1867 (HARKEY) Page 2 new housing may be built. Current law also allows a city or county, however, to meet up to 25% of its RHNA allocation through the conversion (converting non-affordable units to affordable units through purchase of affordability covenants or the units themselves), preservation (extending the term of affordability on existing affordable housing units), or substantial rehabilitation of affordable housing units under specified conditions, including among others: The city or county must have met (i.e., housing units were built) at least some portion of its RHNA allocation for very low- and low-income housing in the previous planning period. The city or county must identify the specific, existing sources of available funding in the housing element and commit assistance to individual developments (i.e., enter into a legally binding agreement to provide the necessary financial assistance) within the first two years of the housing element planning period. The converted, preserved, or rehabilitated units must be made available for occupancy within two years of the execution of the agreement committing assistance. For purposes of counting units against the city's or county's RHNA allocation, the converted, preserved, or rehabilitated units must be counted in the appropriate income category. The city or county must include in its annual housing element progress report it submits to HCD for the third year of the planning period an update on its progress in providing the units counted. With respect to units converted from non-affordable to affordable in particular, the following conditions also apply: The units must be located in multifamily rental housing complexes of four or more units. The units must not be acquired by eminent domain. The units must be unoccupied by low-income households or, if occupied, the city or county must provide relocation assistance to occupants displaced by the conversion. The units must constitute a net increase in the city's or county's stock of assisted affordable housing units. The units must be subject to an affordability covenant and remain affordable for a period of at least 55 years. This bill , for purposes of utilizing the authority to meet up to 25% of its RHNA allocation through the conversion of non-affordable units to affordable units, allows a city or AB 1867 (HARKEY) Page 3 county to count the conversion of existing homeownership units in complexes of three or more units to affordable rental housing. COMMENTS: 1.Purpose of the bill . According to the author, local governments must have more tools to provide housing for all segments of their populations. This measure will allow for greater flexibility for local governments, will result in additional affordable housing opportunities in appropriate sites, and will allow municipalities to help the low-income residents of existing substandard dwelling units. 2.The opportunity cost . Housing element law requires cities and counties to identify adequate sites that are appropriately zoned to accommodate their share of the regional housing need. While the presence of adequately zoned sites does not guarantee that housing will be produced, it is also true that housing cannot be built without adequately zoned sites. While this bill may contribute to making some market-rate units affordable through conversion, it will also contribute to the shortage of properly zoned land that is a primary contributor to California's long-standing housing shortage and unaffordability. 3.Rewarding bad behavior . While this bill is no longer sponsored or supported by the City of San Juan Capistrano, it stems from a situation in that city. In a section of the city near downtown and the train station, there are a number of 3-plex condominiums. These units are individually owned, either by owner-occupants or landlords, and many are occupied by more than one family. The city was interested in purchasing as many of these units as possible, converting them to affordable rental housing units, and getting credit to help the city achieve housing element compliance. San Juan Capistrano, however, does not have a particularly good track record when it comes to zoning sites for affordable housing and approving rental housing projects. The city does not yet have an HCD-approved housing element for the planning period that began in June, 2006. According to HCD's reviews of the city's two draft housing elements to date, the city currently needs to identify or rezone additional sites to accommodate its housing need for lower-income households. One site under consideration is even owned by the city, yet the AB 1867 (HARKEY) Page 4 city has not been interested in making this site available for affordable housing. The city may have other sites that could be rezoned for affordable housing, but the city has not yet committed to such a rezoning. As a result, this bill may help divert the city away from rezoning possible sites for affordable housing, which could actually result in the new construction and net increase in affordable housing units. It should also be noted that the city has maintained a number of exclusionary housing development standards, including a maximum 35% lot-coverage ratio, a 35-foot height limit, a maximum second floor to first floor ratio of 80%, and a requirement that all residential development projects over 50 cubic yards go through a discretionary review process. HCD has cited the need for the city to analyze and address these constraints, and to date the city has failed to revise its land use controls. In addition, the city has so far failed to identify a zone that can accommodate emergency shelters without a conditional use permit, as required by SB 2 (Cedillo), Chapter 633, Statutes of 2007. Moreover, the bill may encourage the city to direct its housing resources away from the new construction of affordable housing. Under the bill, a city may only get credits towards 25% of its RHNA obligation but can spend 100% of its housing resources on conversion. This follows a situation in 2003 and 2004 in which the city contracted with a non-profit affordable housing developer to assess potential sites for development, entered into an exclusive negotiating agreement with the developer for the most promising and only available site, and then, after strong opposition from neighboring homeowners to the proposed 60-unit project, voted not to pursue a development agreement with the developer for affordable rental housing. Ultimately, the site was developed with 20-30 Habitat for Humanity homes, less than half of the number of units originally proposed. Lastly, if the city were to employ the conversion strategy this bill encourages, the converted affordable housing units would only be occupied by one family. While reducing overcrowding is positive and current law requires the local government to provide relocation assistance to displaced occupants, the city's lack of rental housing will almost surely require displaced families to move out of the city. It can be argued that this bill runs contrary to state policy AB 1867 (HARKEY) Page 5 and encourages a city's or county's aversion to rezoning and making available sites for the new construction of affordable housing. The committee may wish to consider requiring that a city or county that seeks to get RHNA credit for conversion of ownership units to commit at least an equal amount of financial assistance to the new construction of affordable rental housing for lower-income households. Assembly Votes: Floor: 74-0 HCD: 9-0 Local Gov: 6-2 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 23, 2010) SUPPORT: California State Association of Counties City of Buena Park City of Dana Point City of Laguna Hills City of Mission Viejo City of Oakland City of Palm Desert City of San Clemente City of Torrance OPPOSED: None received.