BILL ANALYSIS Ó SENATE COMMITTEE ON TRANSPORTATION AND HOUSING Senator Jim Beall, Chair 2015 - 2016 Regular Bill No: AB 2501 Hearing Date: 6/28/2016 ----------------------------------------------------------------- |Author: |Bloom | |----------+------------------------------------------------------| |Version: |6/15/2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Alison Dinmore | |: | | ----------------------------------------------------------------- SUBJECT: Housing: density bonuses DIGEST: This bill makes a number of changes to density bonus law, including clarifying the processing of a density bonus application. ANALYSIS: Existing law: 1) Requires all local governments to adopt an ordinance that specifies how they will implement state density bonus law. 2) Requires local governments to grant a density bonus, when an applicant for a housing development of five or more units seeks and agrees to construct a project, that will contain at least any one of the following: a) 10% of the total units for lower-income households b) 5% of the total units of a housing for very low-income households c) A senior citizen housing development or mobilehome park d) 10% of the units in a common-interest development AB 2501 (Bloom) Page 2 of ? (CID) for moderate-income households 1) Requires that the applicant agree to, and the local government to ensure, continued affordability of all low- and very low-income units that qualified the applicant for the density bonus for at least 55 years 2) Requires the local government to allow an increase in density of 20% over the otherwise maximum allowable residential density under the applicable zoning ordinance and land-use element of the general plan for low-income, very low-income, or senior housing, and by 5% for moderate-income housing in a CID. 3) Requires that the density bonus for low-, very low-, and moderate-income units increase incrementally according a set formula. 4) Requires cities and counties to provide an applicant for a density bonus with concessions and incentives based on the number of below market-rate units included in the project as follows: a) One incentive or concession, if the project includes at least 10% of the total units for low-income households, 5% for very low-income households, or 10% for moderate-income households in a CID b) Two incentives or concessions, if the project includes at least 20% of the total units for low-income households, 10% for very low-income households, or 20% for moderate-income households in a CID c) Three incentives or concessions, if the project includes at least 30% of the total units for low-income households, 15% for very low-income households, or 30% for moderate-income households in a CID AB 2501 (Bloom) Page 3 of ? 1) Specifies that concessions or incentives may include the following: a) A reduction in site development standards b) A modification of zoning code requirements or architectural design requirements that exceed the minimum building standards - including a reduction in setbacks, square footage requirements, or parking requirements - that results in identifiable, financially sufficient, and actual cost reductions c) 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 nonresidential uses are compatible with the project d) Other regulatory incentives or concessions proposed by the developer or the city or county that result in identifiable cost reductions 2) Requires the local government to grant the incentive or concession requested by the developer, unless the city or county makes written findings that the concession or incentive is not needed to provide the affordable housing; or that the concession or incentive would have a specific adverse impact on health and safety, the environment, or an historical resource. 3) Allows a developer to request a waiver or reduction of development standards. 4) Specifies that the developer must show that the requested waiver or modification of development standards is necessary to make the housing units economically feasible. Defines development standard to include site and construction conditions that apply to a residential development, pursuant AB 2501 (Bloom) Page 4 of ? to any ordinance, general plan element, specific plan, charter amendment, or other local condition, law, policy, resolution, or regulation. 5) Provides a 15% density bonus to the developer of any market-rate housing project who donates land to a city or county that could accommodate housing for very low-income households equal to at least 10% of the number of units in the market-rate development. For each 1% increase above the 10%, the density bonus shall increase by 1% up to a maximum combined density increase of 35%. 6) Provides that upon the request of a developer, a city, county, or city and county shall not require a vehicular parking ratio, inclusive of handicapped and guest parking, that meets the following ratios: a) Zero to one bedroom - one onsite parking space b) Two to three bedrooms - two onsite parking spaces c) Four and more bedrooms - two and one-half parking spaces This bill: 1) Clarifies that when an applicant seeks a density bonus for a housing development within, or for the donation of land for housing within, the jurisdiction of a city, county, or city and county, that local government shall comply with density bonus law. 2) Prohibits a local government from conditioning the submission, review or approval of an application for a density bonus on the preparation of an additional report or study that is not otherwise described or required by state law. 3) Requires the local government, in order to provide for expeditious processing of a density bonus application, to do AB 2501 (Bloom) Page 5 of ? the following: a) Adopt procedures and timelines for processing a density bonus application b) Provide a list of all documents and information required to be submitted with the density bonus application in order for the density bonus application to be deemed complete and consistent with density bonus law c) Notify the applicant for a density bonus whether the application is complete, consistent with the Permit Streamlining Act 4) Modifies the circumstance under which a local government can refuse to grant a concession or incentive to a developer when a concession or incentive "does not reduce the cost of the development" from that when "it is not required in order" to provide for the affordable-housing costs. 5) Provides that the city, county, or city and county shall bear the burden of proof for the denial of a requested concession or incentive. 6) Clarifies that "density bonus" means the maximum allowable gross residential density, or if elected by the applicant, a lesser percentage of density increase, including but not limited to no increase in density. 7) Adds "mixed-use development" to the definition of "housing development." 8) Provides that the granting of a concession, in and of itself, cannot require a special study. 9) Deletes the requirement that incentives or concessions proposed by the developer or local government result in "identifiable, financially sufficient" and actual cost reductions, and instead require the "identifiable" and actual cost reductions. 10) Clarifies that each component of any density-bonus calculation, including base density and bonus density, resulting in fractional units will be separately rounded up to the next whole number. Finds and declares that this provision is declaratory of existing law. AB 2501 (Bloom) Page 6 of ? 11) States that a request for a reduction in parking ratio, under existing law, shall neither reduce nor increase the number of incentives or concessions to which the applicant is entitled. 12) Provides that density bonus law shall be interpreted liberally in favor of producing the maximum number of total housing units. COMMENTS: 1) Purpose. According to the author, California remains one of the most expensive housing markets in the United States. Through the loss of redevelopment agencies and reductions in state and federal housing funding, fewer resources are available to address this need. One tool for increasing affordable housing production is through regulatory incentives that reduce barriers to the production of affordable housing and encourage market-based solutions. State density bonus law (Government Code Sections 65915 - 65918) provides concessions and incentives to housing developers who agree to make a percentage of the units in their development affordable to low- and moderate-income households. However, the law has a number of ambiguous provisions that discourage developers from utilizing it, or are used by local governments to prevent developers from accessing the law. Developers and local governments need certainty for density bonus law to be an effective incentive to produce affordable housing. Right now that certainty is lacking. 2) Density bonus law. 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 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 broadly over the market-rate AB 2501 (Bloom) Page 7 of ? 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 from utilizing the density bonus or incentives; and reduced parking standards. 3) Clarifying application requirements and processing timelines. Current law does not set a timeline by which a local government must process an application for a density bonus. This bill requires the local government, in order to provide for expeditious processing of a density bonus application, to adopt procedures and timelines for processing a density bonus application; provide a list of all documents and information required to be submitted with the density bonus application, and notify the applicant for a density bonus whether the application is complete. Further, this bill prohibits a local government from conditioning the submission, review, or approval of an application for a density bonus on the preparation of an additional report or study that is not otherwise described and that the granting of an application, in and of itself, cannot require a special study. Adding a timeline and clarifying the application requirements will provide greater certainty to developers and help inform their decisions regarding a development. The opposition raised concerns that these provisions would preclude a local government from requiring reasonable documentation related to the eligibility for a density bonus or other concessions or incentives, waivers, or reductions of development standards, or parking standards. To address this concern, the author will accept an amendment stating the following: This subdivision shall not prohibit a local government from requiring an applicant to provide reasonable documentation to establish eligibility for a requested density bonus, incentives or concessions, waivers or reductions of development standards, and parking ratios. AB 2501 (Bloom) Page 8 of ? 4) Additional studies. This bill provides that the granting of a concession or incentive shall not require or be interpreted, in and of itself, to require a study. The opposition raised a concern that this could be interpreted to preclude a local government from requiring reasonable documentation to establish eligibility for the concession or demonstrate that the incentive or concession meets the definition of a concession or incentive in existing law. To address this concern, the author will accept an amendment stating the following: "Study" does not include reasonable documentation to establish eligibility for the concession or incentive or to demonstrate that the incentive or concession meets the definition set forth in existing law. 5) Rewording existing law. This bill makes clarifying changes by restating existing law in 65915(b): A city, county, or city and county shall grant one density bonus, as specified, and incentives or concessions, waivers or reductions of development standards, and parking ratios, when an applicant for a housing development seeks and agrees to construct a housing development with units for specified income levels. The intent was to provide clarity in the law in one place about the four benefits to which a developer is entitled should the developer provide affordable units in their projects under existing law. Under existing law, in order to obtain concessions or incentives, waivers, and reduced parking ratios, the developer must request them from the city.To address concerns from the opposition, the author will accept an amendment that clarifies that a local government shall grant incentives or concessions, waivers, and reduced parking ratios, if requested by the applicant and consistent with the requirements under existing law. 6) Choosing to accept no density increase. Current density bonus law permits a developer a percentage increase in density in return for inclusion of a corresponding amount of very low-, low-, and moderate-income units. The maximum amount of density increase a developer can seek is 35%. Existing law allows a developer to choose to accept less density increase than he or she is entitled under the statute. The statute does not state explicitly that a developer can seek an amount equal to zero above the zoned density; however, some have interpreted the law to say this. This bill would explicitly state that a developer can elect to accept no increase in density. AB 2501 (Bloom) Page 9 of ? 7) Determining the value of concessions and incentives. Under current law, developers are allowed to submit a proposal for specific incentives and concession as part of the application for a density bonus. Local governments are required to grant the concessions or incentives a developer requests unless they make written findings based on substantial evidence that the concession or incentive are not required to provide the affordable housing, which would have specific adverse health and safety impacts, or have an adverse impact on a registered historic property that cannot be mitigated. When seeking incentives and concessions, existing law requires that they result in "identifiable, financially sufficient, and actual cost reductions." This language was added to the statute by SB 1818 (Hollingsworth, Chapter 928, Statutes of 2004). According to the Senate Housing and Community Development Committee analysis of that bill: The references to "identifiable and actual cost reductions ensure that the incentives have some value. The intent of adding "financially sufficient" is to ensure that that value is more than nominal and actually of benefit to the developer. However, the term suffers from vagueness and as a result lacks practical meaning. What is the standard against which sufficiency is to be judged? The intent of the language is to ensure that the concessions and incentives actually reduce the cost of the development to make the affordable housing units financially feasible. In some cases, local governments interpret this language to require developers to submit pro formas showing the amount of profit they will make on a project. The question becomes who determines whether or not a concession or incentive is "financially sufficient" to make the affordable housing units pencil out. This bill proposes to resolve that issue by stating that the reduction in site-development standards or modifications of zoning requirements result in identifiable and actual cost reductions as determined by the developer. 8) Opposition. According to the opposition, this bill AB 2501 (Bloom) Page 10 of ? violates the separation of powers and limits the ability of a local government to interpret its own development standards. Additionally, this bill would limit a city's ability to reduce development standards without waiving them and allow developers to determine whether project modifications result in cost reductions rather than the city. Local governments process many permits for development projects and request studies if the project necessitates more analysis. Disallowing full project analysis may be detrimental to the welfare of the local community. Assembly Votes: Floor: 50-11 Appr: 14-2 L.Govt: 7-0 H&CD: 5-1 Related Legislation: AB 1934 (Santiago) - creates a development bonus for commercial developers that partner with an affordable housing developer to construct a joint project or two separate projects encompassing affordable housing. This bill will also be heard in this committee today. AB 2442 (Holden) - requires local agencies to grant a density bonus when a developer agrees to construct housing for transitional foster youth, disabled veterans, or homeless persons. This bill is currently pending in the Senate Appropriations Committee. AB 2556 (Nazarian) - requires a jurisdiction, in cases where a proposed development is replacing existing affordable housing units, to adopt a rebuttable presumption regarding the number and type of affordable housing units necessary for density bonus eligibility. This bill is currently pending in the Senate Appropriations Committee. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes POSITIONS: (Communicated to the committee before noon on AB 2501 (Bloom) Page 11 of ? Wednesday, June 22, 2016.) SUPPORT: California Rural Legal Assistance Foundation (co-sponsor) Western Center on Law and Poverty (co-sponsor) California Apartment Association California Association of Realtors California Economic Summit California Housing Consortium City of Los Angeles East Bay Developmental Disabilities Legislative Coalition East Bay Rental Housing Associations Leading Age California The Arc and United Cerebral Palsy California Collaboration OPPOSITION: California State Association of Counties (prior version) City of Encinitas (prior version) City of Fontana (prior version) City of Fountain Valley (prior version) City of Highland (prior version) City of Lakeport (prior version) City of Sacramento (prior version) City of San Carlos (prior version) City of San Luis Obispo (prior version) City of Tiburon (prior version) City of Torrence (prior version) City of West Covina (prior version) League of California Cities Rural County Representatives of California (prior version) San Francisco Council of Community Housing Organizations South Bay Cities Council of Governments (prior version) Ventura Council of Governments (prior version) -- END --