BILL ANALYSIS                                                                                                                                                                                                    Ó






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: ab 2222
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  Nazarian
                                                         VERSION: 6/17/14
          Analysis by:  Mark Stivers                     FISCAL:  no
          Hearing date:  June 24, 2014



          SUBJECT:

          Density bonus law

          DESCRIPTION:

          This bill generally makes an applicant ineligible for a density  
          bonus if the proposed housing development will displace units  
          that are affordable to, or occupied by, lower income households.  
             

          ANALYSIS:

          Given California's high land and construction costs for housing,  
          it is extremely difficult for the private market to provide  
          housing units that are affordable to low- and even  
          moderate-income households.  Public subsidy is often required to  
          fill the financial gap on affordable units.  Density bonus law  
          (referred to below as the traditional density bonus) allows  
          public entities to reduce or even eliminate subsidies for a  
          particular project by allowing a developer to include more total  
          units in a project than would otherwise be allowed by the local  
          zoning in exchange for affordable units.  Allowing more total  
          units permits the developer to spread the cost of the affordable  
          units more thinly over the market-rate units.  The idea of  
          density bonus law is to cover at least some of the financing gap  
          of affordable housing with regulatory incentives rather than  
          additional subsidy.

          Under existing law, if a developer proposes to construct a  
          housing development with a specified percentage of affordable  
          units, the city or county must provide all of the following  
          benefits:

           A density bonus
           Incentives or concessions (hereafter referred to as  
            incentives)
           Waiver of any development standards that prevent the developer  




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            from utilizing the density bonus or incentives
           Reduced parking standards

          To qualify for the benefits of this provision, a proposed  
          housing development must meet one of the following criteria: 1)  
          include at least 5% of the units affordable to very low-income  
          households, 2) include at least 10% of the units affordable to  
          low-income households, 3) include at least 10% of the units in a  
          for-sale common-interest development affordable to  
          moderate-income households, or 4) be a senior housing  
          development.  Units affordable to lower income households must  
          remain affordable for 30 years, and for-sale units affordable to  
          moderate-income households must be subject to an equity sharing  
          agreement that returns a proportionate share of appreciation to  
          the local governments upon resale of the home.  If one of these  
          four options is met, a developer is entitled to a base increase  
          in density for the project as a whole (referred to as a density  
          bonus) and one regulatory incentive.  At higher levels of  
          affordability, the developer is entitled to a sliding scale of  
          density bonuses, up to a maximum of 35% of the maximum zoning  
          density and up to three incentives.  

          While a local government is not required to provide financial  
          assistance or fee waivers, the incentives a local government  
          must grant include any of the following:

           A reduction in site development standards
           A modification of zoning code requirements (including a  
            reduction in setbacks, square footage requirements, or parking  
            spaces, or architectural design requirements that exceed the  
            minimum building standards)
           Approval of mixed use zoning in conjunction with the housing  
            project if commercial, office, industrial, or other  land uses  
            will reduce the cost of the housing development,  and if such  
            non-residential uses are compatible with the project
           Other regulatory incentives or concessions that result in  
            identifiable, financially sufficient, and actual cost  
            reductions

          A local government may not apply development standards that  
          preclude the density bonus or incentives from being used unless  
          waiving such standards would have a significant, adverse impact  
          upon public health, public safety, or the environment.  

          In addition, parking requirements are capped for density bonus  
          developments.  A city or county may not require more than one  




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          parking space per studio or one-bedroom unit, two parking spaces  
          per two- or three-bedroom unit, or two and one-half parking  
          spaces per four-bedroom or larger unit.  In addition, a  
          developer may meet these standards with uncovered spaces or  
          tandem parking.  These parking caps are automatic.  A developer  
          may request further parking reductions by using one of the  
          incentives to which the development is entitled.  

          A similar section of law (referred to here as the conversion  
          density bonus) requires a local government to grant a developer  
          a density bonus of 25% or other incentives of equivalent  
          financial value if the developer is converting apartments to  
          condominiums and agrees to make at least 33% of the units  
          affordable to low- or moderate-income households or 15% of the  
          units affordable to low-income households.

           This bill , with respect to both the traditional density bonus  
          and the conversion density bonus statutes, makes an applicant  
          ineligible for a density bonus or the incentives described above  
          if the proposed housing development is located on a parcel from  
          which dwelling units have, at any time in the previous five  
          years, been occupied by low-income households, been subject to a  
          recorded covenant or law that restricts rents to levels  
          affordable to low-income households, or been subject to any  
          local rent-control ordinance, unless the proposed housing  
          development replaces these units.  

          At a minimum, the replacement units must be of equivalent size  
          or type and affordable for 55 years to the same or lower income  
          category as the units to be replaced.  The replacement units do  
          not count towards the qualifying percentages for the density  
          bonus (i.e., the density bonus units are in addition to the  
          replacement units), unless the proposed project will already be  
          100% affordable to low-income households.  The number of units  
          the developer must replace is calculated as follows: 

           For developments occupied on the date of application, the  
            developer must replace all units occupied by lower-income  
            households at the same or lower level of affordability.   
            Unoccupied units within the development are replaced in the  
            same proportion as the occupied units.

           For developments vacated or demolished within the five-year  
            period preceding the application, the developer must provide a  
            number of units at the same or lower level of affordability  
            that is equivalent to the highest number of units affordable  




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            to or occupied by low-income households as existed in that  
            five-year period.  If the incomes of the former residents were  
            unknown, then one-half of the replacement units must be  
            affordable to very low-income households and one-half to  
            low-income households.

          The bill further provides that all affordable ownership units  
          that qualify a development for a density bonus shall be subject  
          to an equity sharing agreement, as opposed to a resale  
          restriction.  Lastly, the bill clarifies that, other than  
          through the incentive or concession provisions described above,  
          the granting of a density bonus does not require the waiver of a  
          local ordinance or provisions of a local ordinance unrelated to  
          development standards.

          COMMENTS:

           1.Purpose of the bill  .  According to the author, density bonus  
            law is intended to encourage private developers to increase  
            the supply of affordable housing.  Because the law does not  
            require replacement of existing affordable units, however, a  
            density bonus project may result in fewer affordable units  
            than previously existed on the parcel.  This bill seeks to  
            correct this unintended consequence by requiring that density  
            bonus projects start with the same number of affordable units  
            before calculating the bonus.  This will ensure an overall  
            increase in affordable housing.

           2.Equity sharing for homeownership units  .  Current law provides  
            that lower-income homeownership units in a density bonus  
            project must remain affordable to and occupied by lower income  
            households for 30 years.  As a result, a homebuyer who later  
            seeks to resell is limited in whom he or she may sell to and  
            in the price he or she may ask.  This creates complicated  
            sales and often results in the homebuyer seeing little to no  
            price appreciation, except for whoever owns the property at  
            year 30 and may sell the home at full market value for a  
            windfall profit.  Moreover, local governments rarely monitor  
            these requirements, and many cases exist of the homeowner  
            simply receiving a windfall profit at sale prior to year 30.  

            Moderate-income density bonus units, on the other hand, are  
            subject to an equity sharing agreement, whereby the homeowner  
            may later sell the home at any price to any buyer, but must  
            repay to the local government the initial price break he or  
            she received as well as a proportionate share of appreciation.  




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             While the original unit is no longer affordable, the city  
            must reuse these proceeds to assist another homeowner buy a  
            home.  As a result, the equity sharing model is  
            administratively simpler and ensures perpetual affordability,  
            as opposed to 30-year affordability.  This bill places all  
            density bonus homeownership units under the equity sharing  
            model.

           3.Technical amendments  .

                 On page 5, line 31, after "development" insert ",  
               exclusive of a manager's unit or units,"
                 On page 6, lines 1-2, strike "this paragraph" and insert  
               "subparagraph (A)"
                 On page 6, line 25, after the period insert "All  
               replacement calculations resulting in fractional units  
               shall be rounded up to the next whole number." 
                 On page 18, line 4, after "development" insert ",  
               exclusive of a manager's unit or units,"

          Assembly Votes:

               Floor:                            72-0
               L Gov:      8-0
               H&CD:       7-0

          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             June 18,  
          2014.)

               SUPPORT:  Association of Regional Center Agencies
                         Western Center on Law and Poverty
                         California Rural Legal Assistance Foundation
                         Studio City Neighborhood Council
                         Councilmember Mike Bonin, City of Los Angeles
                         City of Los Angeles
                         Coalition of Economic Survival
                         Public Counsel
                         Women Organizing Resources, Knowledge, and  
          Services

               OPPOSED:  None received.  








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