BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 2222
          Author:   Nazarian (D)
          Amended:  6/26/14 in Senate
          Vote:     21

           
           SENATE TRANSPORTATION & HOUSING COMMITTEE  :  11-0, 6/24/14
          AYES:  DeSaulnier, Gaines, Beall, Cannella, Galgiani, Hueso,  
            Lara, Liu, Pavley, Roth, Wyland

           ASSEMBLY FLOOR  :  72-0, 5/23/14 - See last page for vote


           SUBJECT  :    Density bonus laws

           SOURCE  :     Author


           DIGEST  :    This bill 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  
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          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:

          1. A density bonus.

          2. Incentives or concessions (hereafter referred to as  
             incentives).

          3. Waiver of any development standards that prevent the  
             developer from utilizing the density bonus or incentives.

          4. 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:

          1. A reduction in site development standards.

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          2. 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).

          3. 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.

          4. 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 will 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  
          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  

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          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: 

          1. 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.

          2. 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  
             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.

          This 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, this 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.

           Background
           
           Equity sharing for homeownership units  .  Existing law provides  
          that lower-income homeownership units in a density bonus project  
          must remain affordable to and occupied by lower income  

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          households for 30 years.  As a result, a homebuyer who later  
          seeks to resell is limited in whom he/she may sell to and in the  
          price he/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/she  
          received as well as a proportionate share of appreciation.   
          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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  6/26/14)

          Alliance for Community Transit - Los Angeles
          California Rural Legal Assistance Foundation
          City of Los Angeles
          Coalition of Economic Survival
          Councilmember Mike Bonin, City of Los Angeles
          Public Counsel
          Studio City Neighborhood Council
          Western Center on Law and Poverty
          Women Organizing Resources, Knowledge, and Services

           ARGUMENTS IN SUPPORT  :    According to the author, "The overall  
          purpose of the density bonus law was to encourage developers to  
          build affordable housing by requiring local municipalities to  
          provide developers incentives to do so.  However, developers are  
          not required to begin the new project with the same number of  
          affordable units.  Specifically, developers are not required to  
          preserve affordable units.  As a result, a new project may  

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          result in less affordable units than previously existed on the  
          property.

          "Adequate and affordable housing is an issue of statewide  
          concern.  Yet, the density bonus law has had the reverse effect  
          and has resulted in fewer affordable units.  

          "AB 2222 corrects this issue by requiring proposed housing  
          projects to preserve affordable units and requires any other  
          price or rent control requirements to be met.

          "Additionally, the change in affordability for rental units will  
          ensure these units remain affordable for a longer period of  
          time.  AB 2222 will preserve and promote the supply of  
          affordable units for years to come."

          ASSEMBLY FLOOR  :  72-0, 5/23/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonta, Bradford, Brown, Buchanan, Ian Calderon,  
            Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh,  
            Dahle, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth  
            Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Holden, Jones, Jones-Sawyer, Levine,  
            Linder, Logue, Lowenthal, Maienschein, Medina, Melendez,  
            Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson,  
            Perea, John A. Pérez, Quirk, Quirk-Silva, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,  
            Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
          NO VOTE RECORDED:  Bonilla, Daly, Harkey, Roger Hernández,  
            Mansoor, V. Manuel Pérez, Waldron, Vacancy


          JA:d  6/27/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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