The Planning and Zoning Law authorizes the legislative body of any county or city to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any county or city to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households or by persons and families of low or moderate income, as specified, and would declare the intent of the Legislature in adding this provision.

This bill would also authorize the Department of Housing and Community Development, within 10 years of the adoption or amendment of an ordinance by a county or city after September 15, 2017, that requires as a condition of the development of residential rental units that more than 15% of the total number of units rented in the development be affordable to, and occupied by, households at 80% or less of the area median income, to review that ordinance if the county or city meets specified conditions. The bill would authorize the department to request, and require that the county or city provide, evidence that the ordinance does not unduly constrain the production of housing by submitting an economic feasibility study that meets specified standards. If the department finds that economic feasibility study does not meet these standards, or if the county or city fails to submit the study within 180 days, the bill would require the county or city to limit any requirement to provide rental units in a development affordable to households at 80% or less of the area median income to no more than 15% of the total number of units in the development. The bill would require the department to report any findings made pursuant to these provisions to the Legislature. The bill would also declare that these provisions regarding department review of certain land use ordinances address a matter of statewide concern.

The Planning and Zoning Law authorizes the legislative body of any county or city to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any county or city to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households or by persons and families of low or moderate income, as specified, and would declare the intent of the Legislature in adding this provision.

This bill would also authorize the Department of Housing and Community Development, within 10 years of the adoption or amendment of an ordinance by a county or city after September 15, 2017, that requires as a condition of the development of residential rental units that more than 15% of the total number of units rented in the development be affordable to, and occupied by, households at 80% or less of the area median income, to review that ordinance if the county or city meets specified conditions. The bill would authorize the department to request, and require that the county or city provide, evidence that the ordinance does not unduly constrain the production of housing by submitting an economic feasibility study that meets specified standards. If the department finds that economic feasibility study does not meet these standards, or if the county or city fails to submit the study within 180 days, the bill would require the county or city to limit any requirement to provide rental units in a development affordable to households at 80% or less of the area median income to no more than 15% of the total number of units in the development. The bill would require the department to report any findings made pursuant to these provisions to the Legislature. The bill would also declare that these provisions regarding department review of certain land use ordinances address a matter of statewide concern.

The Planning and Zoning Law authorizes the legislative body of any city, county, or city and county or city to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any city, county, or city and county or city to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households, households or by persons and families of low or moderate income, as specified, and would declare the intent of the Legislature in adding this provision. The bill would also make nonsubstantive changes.

The Planning and Zoning Law authorizes the legislative body of any city, county, or city and county to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any city, county, or city and county to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households, as specified, and would declare the intent of the Legislature in adding this provision. The bill would also make nonsubstantive changes.

The Planning and Zoning Law authorizes the legislative body of any city, county, or city and county to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any city, county, or city and county to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households, as specified, and would declare the intent of the Legislature in adding this provision. The bill would also make nonsubstantive changes.

The Planning and Zoning Law authorizes the legislative body of any city, county, or city and county to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any city, county, or city and county to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households, as specified, and would declare the intent of the Legislature in adding this provision. The bill would also make nonsubstantive changes.

The Planning and Zoning Law authorizes the legislative body of any city, county, or city and county to adopt ordinances regulating zoning within its jurisdiction, as specified.

This bill would additionally authorize the legislative body of any city, county, or city and county to adopt ordinances to require, as a condition of development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, moderate-income, lower income, very low income, or extremely low income households, as specified, and would declare the intent of the Legislature in adding this provision. The bill would also make nonsubstantive changes.

(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1505

Author:(Bloom, et al.)

As Amended Ver:September 8, 2017

Majority vote

Original Committee Reference: L. GOV.

SUMMARY: Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of the development of residential rental units, and allows the Department of Housing and Community Development to review inclusion ordinances in specified circumstances.

The Senate amendments:

1. Revise several findings and declarations contained in the bill, as follows:
   1. Specifies that the Legislature declares its intent in adding subdivision (g) to Section 65850 of the Government Code Section 65850(g), pursuant to Section of the bill, to supersede the holding and dicta in the court decision of Palmer/Sixth Street Properties, L.P. V. City of Los Angeles (2009) 175 Cal.App.4^th 1396 to the extent that the decision conflicts with a local jurisdiction’s authority to impose inclusionary housing ordinance pursuant to subdivision (g) of Section 65850 of the Government Code, as added pursuant to Section 1 of the bill; and,
   2. Specifies, except as provided in a), above, in no case is it the intent of the Legislature in adding subdivision (g) to Section 65850 of the Government Code, pursuant to Section 1 of the bill, to enlarge, diminish, or modify in any way the existing rights of an owner of residential real property under specified sections of the Civil Code and the Government Code.
2. Add provisions specifying that the Department of Housing and Community Development (HCD) has the authority to review an ordinance adopted or amended by a city or county after September 15, 2017, that requires as a condition of the development of residential rental units that more than 15% of the total number of units rented in a development be affordable to, and occupied by, households at 80% or less of the area median income if either of the following apply:
   1. The city or county has failed to meet at least 75% of its share of the regional housing need, as applicable for the above-moderate income category, prorated based on the length of time within the planning period pursuant to existing law, over at least a five-year period. This determination shall be made based on the annual housing element report submitted to HCD, as specified; or,
   2. HCD finds that the jurisdiction has not submitted the annual housing report for at least two consecutive years.
3. Allow HCD to request, based on a finding pursuant to 2), above, evidence from the city or county that the ordinance does not unduly constrain the production of housing by submitting an economic feasibility study. Provide that the city or county shall submit the study within 180 days from receipt of HCD's request. Specify that HCD's review of the feasibility study shall be limited to determining whether or not the study meets the following standards:
   1. A qualified entity with demonstrated expertise preparing economic feasibility studies prepared the study;
   2. If the economic feasibility study is prepared after September 15, 2017, the city or county has made the economic feasibility study available for at least 30 days on its Internet Web site. After 30 days, the city or county shall include consideration of the economic feasibility study on the agenda for a regularly scheduled meeting of the legislative body of the city or county prior to consideration and approval. Specify that this paragraph applies when an economic feasibility study is completed at the request of the department or prepared in connection with the ordinance;
   3. The study methodology followed best professional practices and was sufficiently rigorous to allow an assessment of whether the renal inclusionary requirement, in combination with other factors that influence feasibility, is economically feasible; and,
   4. If the economic feasibility study requested pursuant to 3), above, has not been submitted to HCD within 180 days, the jurisdiction shall limit any requirement to provide rental units in a development affordable to households at 80% of the area median income to no more than 15% of the total number of units in a development until an economic feasibility study has been submitted to HCD and HCD makes a finding that the study meets the standards above.
4. Require HCD, within 90 days of submission, to make a finding as to whether or not the economic feasibility study meets the standards specified above.
5. Specify, if HCD finds that the jurisdiction’s economic feasibility study does not meet the standards above, that the jurisdiction shall have the right to appeal the decision to the Director of HCD or his or her designee. The Director or designee shall issue a final decision within 90 days of the HCD’s receipt of the appeal unless extended by mutual agreement of the jurisdiction and HCD.
6. Provide, if in its final decision HCD finds that jurisdiction’s study does not meet the standards above, as specified, the jurisdiction shall limit any requirement to provide rental units in a development affordable to households at 80% of the area median income to no more than 15% of the total number of units in a development at such time as the jurisdiction submits an economic feasibility study that supports the ordinance under review and HCD issues a finding that the study meets the standards above.
7. Prohibit HCD from requesting to review an economic feasibility study for an ordinance more than 10 years from the date of adoption or amendment of the ordinance, whichever is later.
8. Require HCD to annually report any findings made pursuant to this section to the Legislature, as specified.
9. Apply provisions above to charter cities by declaring that ensuring access to affordable housing is a matter of statewide concern.

EXISTING LAW:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Specifically authorizes the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for offstreet parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

FISCAL EFFECT: Unknown.

COMMENTS:

1. Bill Summary. This bill authorizes the legislative body of any city or county to adopt ordinances to require, as a condition of the development of residential units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified. This bill additionally specifies that the ordinance must provide an alternative means of compliance that my include, but is not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units, and makes a number of other findings and declarations related to inclusionary housing.

Amendments taken in the Senate on September 8, 2017, give HCD authority in limited cases to review a feasibility study for a newly adopted or amended inclusionary ordinance to determine whether the study meets certain requirements. Review is limited to cases in which: 1) The ordinance is adopted or amended after September 15, 2017; and, 2) The ordinance requires more than 15% of rental units to be for low-income households or below; and, 3) The jurisdiction has failed to meet at least 75% of its above-moderate income RHNA share over a 5-year period, or if it failed to submit an annual report to HCD for two straight years. If all three of those requirements do not apply, HCD has no authority to review a feasibility study; however, if all three of those requirements do apply, HCD may request to see a feasibility study, under specified conditions. HCD, within 90 days of submission of a feasibility study, shall make a finding as to whether or not the study meets specified standards, which could then limit the jurisdiction's percentage of inclusionary rental units.

This bill is co-sponsored by the California Housing Consortium, the California Rural Legal Assistance Foundation, Housing California, Non-Profit Housing Association of Northern California, and the Western Center on Law & Poverty.

1. Author's Statement. According to the author, "Inclusionary policies have been utilized in California for decades, dating back to the late 1970s. However, an appellate court decision – Palmer v. City of Los Angeles – cut off one crucial option for local governments: the ability to apply inclusionary polices to rental housing. The Palmer court improperly conflated rent control, which is regulated by the state's Costa Hawkins Act, and deed-restricted affordable housing, which is not, creating uncertainty and confusion for local governments and housing advocates regarding the future viability of this important and well-established local land use tool.

"AB 1505 is narrowly focused on allowing local inclusionary policies to require the provision of affordable rental housing, if so desired locally, effectively restoring the law as it stood prior to 2009.

"It is important to note that AB 1505 does not authorize inclusionary housing. There is no need for such authorization because adopting inclusionary policies is and always has been a constitutional exercise of the local police power. This was unanimously affirmed by the California Supreme Court in 2015 in CBIA vs. City of San Jose. The court also affirmed that local governments must provide developers with economically beneficial incentives if their inclusionary policies require developers to provide affordable units.

"AB 1505 does not mandate anything. Local governments may choose to adopt inclusionary policies, as many cities and counties in California have done over the last five decades. Under AB 1505, it will continue to be a local choice."

1. Background. California Constitution Article XI, Section 7, grants each city and county the power "to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws." This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature's intent to "provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters."

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower- income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the city's affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act (Act). The Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that "forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit."

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins), Chapter 331. The various analyses for the bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill "establishes a comprehensive scheme to regulate local residential rent control." The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, "Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market." The analysis further describes strict rent control ordinances as those that impose vacancy control and states, "Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls." This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

1. California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose's inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying "in-lieu" fees to the City. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis "to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance."

The superior court agreed with CBIA's contention and issued a judgment enjoining the City from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that "contrary to CBIA's contention, the conditions the San Jose ordinance imposes upon future development do not impose 'exactions' upon the developers' property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution." The ruling also noted that enforcing these limits to address a growing housing problem is "constitutionally legitimate" and cited the severe scarcity of affordable housing in California in its decision.

1. Arguments in Support. Supporters argue that despite the long track record of success of inclusionary policies, the Palmer decision cut off one crucial option for local governments: the ability to apply inclusionary policies to rental housing. Supporters argue that the Palmer court improperly conflated rent control, which is regulated by the state's Costa Hawkins Rental Housing Act, and deed-restricted affordable housing, which is not, creating uncertainty for the future viability of this important and well-established local land use tool. According to supporters, this bill simply restores the law to what it had been for decades prior to 2009, allowing the policies that have been effective at creating affordable housing for the last 40 years to continue without fear of litigation.
2. Arguments in Opposition. None on file.

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958 FN: 0002213

 THIRD READING  

Bill No: AB 1505

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 7-4, 6/6/17

AYES: Beall, Allen, Atkins, McGuire, Skinner, Wieckowski, Wiener

NOES: Cannella, Bates, Gaines, Morrell

NO VOTE RECORDED: Mendoza, Roth

ASSEMBLY FLOOR: 47-24, 5/4/17 - See last page for vote

SUBJECT:

SOURCE: California Housing Consortium

California Rural Legal Assistance Foundation

Housing California

Non-Profit Housing Association of Northern California

Western Center on Law and Poverty

DIGEST:

This bill authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development.

Senate Floor Amendments of 9/8/17 provide the Department of Housing and Community Development with the authority to review an ordinance adopted or amended after September 15, 2017, that requires as a condition of the development of residential rental units that more than 15% of the total number of units rented in a development be affordable to, and occupied by, households at 80% of the area median income, if specified conditions apply.

Senate Floor Amendments of 7/10/17 clarify that the Legislature’s intent is to supersede the holding and dicta in the Palmer/Sixth Street Properties L.P. v. City of Los Angeles decision to the extent that the decision conflicts with a local jurisdiction’s authority to impose inclusionary housing ordinances. Additionally, the amendments state that it is in not the Legislature’s intent to enlarge, diminish, or modify the existing rights of a residential property owner.

ANALYSIS:

Existing law:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Authorizes, specifically, the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for off-street parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act (Costa-Hawkins Act), the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

This bill:

1. Permits a locality to require, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate income, lower income, very low income, or extremely low income households. Requires that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
2. Declares the intent of this bill is to supersede any holding or dicta in Palmer/Sixth Street Properties v. City of Los Angeles (2009) 175 Cal.App.4th 1396, to the extent that the decision or opinion conflicts with the authority of localities to adopt inclusionary housing requirements and that it is not the intent to enlarge, diminish, or modify any existing authority of a locality to establish inclusionary housing requirements as a condition of development beyond reaffirming their applicability to rental units.
3. Provides the Department of Housing and Community Development (HCD) with the authority to review an ordinance adopted or amended after September 15, 2017, that requires as a condition of the development of residential rental units that more than 15% of the total number of units rented in a development be affordable to, and occupied by, households at 80% area median income (AMI), if either of the following conditions apply:
   1. If the locality has failed to meet at least 75% of its share of the regional housing need allocated under Housing Element Law for above-moderate income category over at least a five year period; or
   2. HCD finds that the locality has not submitted its annual housing element report for two consecutive years.
4. Provides that HCD may request a locality to provide evidence that the ordinance does not unduly constrain the production of housing by submitting an economic feasibility study, based upon a finding pursuant to (3) above. HCD’s review of the study shall be limited to determining whether the study meets the following standards:
   1. A qualified entity with demonstrated expertise prepared the study.
   2. If the study is prepared after September 15, 2017, the locality shall make sure the study is available to review for at least 30 days on their Web site.
   3. The study methodology followed best practices and was sufficiently rigorous to allow an assessment of whether the rental inclusionary requirement, in combination with other factors that influence feasibility, is economically feasible.
5. Provides that, if the study required under (3) has not been submitted to HCD within 180 days, the locality shall limit any requirement to provide rental units in a development affordable to households at 80% AMI no more than 15% of the total number of units in a development until an economic feasibility study has been submitted to HCD and HCD makes a finding that the study meets the standards described in (4) above.
6. Requires HCD to make a finding within 90 days of submission as to whether the study meets the requirements in (4) above. If HCD finds the locality’s study does not meet the required standards, the locality has the right to appeal the decision to the HCD director.
7. Prohibits HCD from requesting to review an economic feasibility study for an ordinance more than 10 years from the adoption or amendment of the ordinance, whichever is later.

Background

Article XI, Section 7 of the California Constitution grants each city and county the power “to make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws.” This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature’s intent to “provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters.”

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower-income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the City’s affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Costa-Hawkins Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that “forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

The Legislature enacted the Costa-Hawkins Act in 1995 with the passage of AB 1164 (Hawkins, Chapter 331). The various analyses for the bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill “establishes a comprehensive scheme to regulate local residential rent control.” The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, “Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market.” The analysis further describes strict rent control ordinances as those that impose vacancy control and states, “Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls.” This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose’s inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying “in-lieu” fees to the city. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.”

The superior court agreed with CBIA’s contention and issued a judgment enjoining the city from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that “contrary to CBIA’s contention, the conditions the San Jose ordinance imposes upon future development do not impose ‘exactions’ upon the developers’ property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution.” The ruling also noted that enforcing these limits to address a growing housing problem is “constitutionally legitimate” and cited the severe scarcity of affordable housing in California in its decision.

This bill authorizes the legislative body of any city or county to adopt ordinances to establish, as a condition of development, inclusionary housing requirements and makes a number of legislative findings and declarations to supersede any holding or dicta in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009). The ordinance shall provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

Comments

1. Purpose. According to the author, “This bill restores the ability of local governments to apply locally adopted inclusionary policies to rental housing. Given our state’s severe housing crisis, it is critical that we give local governments every possible tool to address affordable housing needs. Inclusionary zoning is one of those tools. Local governments have successfully adopted and implemented inclusionary policies at the local level for decades in California. Some 170 cities and counties have policies on the books. Unfortunately, a 2009 appellate court decision – Palmer v. City of Los Angeles – for the first time called these policies into question as applied to rental housing. In the end, we aren’t going to just build our way out of this housing crisis alone. We need every tool we can to solve this problem. Inclusionary policies help ensure that when new housing is built, deed-restricted housing is also built.”
2. HCD economic feasibility study. This bill gives HCD authority in limited cases to review a feasibility study for a newly adopted or amended inclusionary ordinance to determine whether the study meets certain requirements. HCD is limited to reviewing a feasibility study within 10 years of the date of adoption or amendment of the inclusionary ordinance. After 10 years, there can be no review regardless of the percentage of lower-income rental units required. Review is limited to cases in which all the following apply:
   1. The ordinance is adopted or amended after September 15, 2017;
   2. The ordinance requires more than 15% of rental units to be for low-income households or below; and
   3. The jurisdiction has failed to meet at least 75% of its above-moderate income pursuant to the regional housing needs share over a five-year period, or if it failed to submit an annual report to HCD for two straight years.

If all three of those requirements do not apply, HCD has no authority to review a feasibility study. If all three of those requirements apply, HCD may request to see a feasibility study and the following apply:

• 1. HCD review is limited to determining whether or not the jurisdiction submits a feasibility study that meets two specified standards: the study was prepared by someone qualified and the study followed best professional practices. HCD is not making a judgement on the question of feasibility itself.
  2. The study can be an existing study or a newly prepared study. If the jurisdiction prepares a new feasibility study in response to HCD’s request for review, the study must be posted online for 30 days before being considered at a regular hearing of the legislative body.
  3. If HCD finds that the study doesn’t meet the specified standards, it does not have the power to invalidate the ordinance. The jurisdiction can still implement a rental inclusionary requirement, but it must drop the requirement for 80% AMI and below to 15% or less until it submits a study that HCD finds meets the standards. 

1. Opposition. Writing in opposition to a prior version of the bill, several regional apartment associations contend that this bill brings back “vacancy decontrol.” They state that this bill provides no reasonable limitations on the power of local governments to “price restrict rental housing.” The opposition goes on to assert that cities and counties must be required to offer developers and rental property owners “cost offsets and/or financial contributions” to build below market rate rental units.

Related/Prior Legislation

SB 277 (Bradford, 2017) authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development.

AB 2502 (Mullin, 2016) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill did not pass off the Assembly Floor.

AB 1229 (Atkins, 2013) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill was vetoed by the Governor, and was issued the following veto message:

This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area.

FISCAL EFFECT: Appropriation: Fiscal Com.: Yes Local:

SUPPORT: (Verified 9/8/17)

California Housing Consortium (co-source)

California Rural Legal Assistance Foundation (co-source)

Housing California (co-source)

Non-Profit Housing Association of Northern California (co-source)

Western Center on Law and Poverty (co-source)

American Planning Association

BRIDGE Housing

California Coalition for Rural Housing

California Housing Partnership Corporation

California League of Conservation Voters

California State Association of Counties

City of East Palo Alto

City of Emeryville

City of Glendale

City of Los Angeles

City of Mountain View

City of Napa

City of Oakland

City of San Mateo

City of Santa Barbara

City of Santa Monica

City of Thousand Oaks

City of West Hollywood

Coalition for Economic Survival

Community Housing Partnership

Community Legal Services in East Palo Alto

Corporation for Supportive Housing

Council of Community Housing Organizations

Council of Infill Builders

County of Los Angeles, Board of Supervisors

County of Santa Clara, Board of Supervisors

County of Yolo, Board of Supervisors

Disability Rights California

EAH Housing

East Bay Housing Organizations

Eden Housing

Enterprise Community Partners

Greenbelt Alliance

Housing California

Irvine Community Land Trust

John Stewart Company

Law Foundation of Silicon Valley

LeadingAge California

League of California Cities

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid San Mateo

Legal Services of Northern California

Los Angeles Homeless Services Authority

Marin County Council of Mayors and Councilmembers

MidPen Housing Corporation

Natural Resources Defense Council

Peace and Freedom Party of California

Planning and Conservation League

Public Advocates

Public Interest Law Project

Resources of Community Development

Sacramento Housing Alliance

San Diego Housing Federation

SEIU California

Siefel Consulting

Sierra Business Council

Silicon Valley Community Foundation

State Building & Construction Trades Council

SV@Home

Tenants Together

The Kennedy Commission

Western Center on Law and Poverty

YWCA of San Francisco & Marin

One Individual

OPPOSITION: (Verified 9/8/17)

Apartment Association, California Southern Cities

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

East Bay Rental Housing Association

GH Palmer and Associates

North Valley Property Owner Association

San Diego County Apartment Association

Santa Barbara Rental Property Association

ASSEMBLY FLOOR: 47-24, 5/4/17

AYES: Aguiar-Curry, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Eggman, Friedman, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Reyes, Ridley-Thomas, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Arambula, Baker, Brough, Chávez, Chen, Choi, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Quirk-Silva, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Travis Allen, Bigelow, Cervantes, Frazier, Cristina Garcia, Gray, Patterson, Quirk, Rodriguez

Prepared by:

9/11/17 9:09:27

**** END ****

 THIRD READING  

Bill No: AB 1505

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 7-4, 6/6/17

AYES: Beall, Allen, Atkins, McGuire, Skinner, Wieckowski, Wiener

NOES: Cannella, Bates, Gaines, Morrell

NO VOTE RECORDED: Mendoza, Roth

ASSEMBLY FLOOR: 47-24, 5/4/17 - See last page for vote

SUBJECT:

SOURCE: California Housing Consortium

California Rural Legal Assistance Foundation

Housing California

Non-Profit Housing Association of Northern California

Western Center on Law and Poverty

DIGEST:

This bill authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development.

Senate Floor Amendments of 7/10/17 clarify that the Legislature’s intent is to supersede the holding and dicta in the Palmer/Sixth Street Properties L.P. v. City of Los Angeles decision to the extent that the decision conflicts with a local jurisdiction’s authority to impose inclusionary housing ordinances. Additionally, the amendments state that it is in not the Legislature’s intent to enlarge, diminish, or modify the existing rights of a residential property owner.

ANALYSIS:

Existing law:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Authorizes, specifically, the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for off-street parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act (Costa-Hawkins Act), the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

This bill:

1. Permits a locality to require, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate income, lower income, very low income, or extremely low income households. Requires that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
2. Declares the intent of the bill is to supersede any holding or dicta in Palmer/Sixth Street Properties v. City of Los Angeles (2009) 175 Cal.App.4th 1396, to the extent that the decision or opinion conflicts with the authority of localities to adopt inclusionary housing requirements and that it is not the intent to enlarge, diminish, or modify any existing authority of a locality to establish inclusionary housing requirements as a condition of development beyond reaffirming their applicability to rental units.

Background

Article XI, Section 7 of the California Constitution grants each city and county the power “to make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws.” This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature’s intent to “provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters.”

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower-income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the City’s affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Costa-Hawkins Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that “forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

The Legislature enacted the Costa-Hawkins Act in 1995 with the passage of AB 1164 (Hawkins, Chapter 331). The various analyses for the bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill “establishes a comprehensive scheme to regulate local residential rent control.” The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, “Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market.” The analysis further describes strict rent control ordinances as those that impose vacancy control and states, “Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls.” This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose’s inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying “in-lieu” fees to the city. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.”

The superior court agreed with CBIA’s contention and issued a judgment enjoining the city from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that “contrary to CBIA’s contention, the conditions the San Jose ordinance imposes upon future development do not impose ‘exactions’ upon the developers’ property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution.” The ruling also noted that enforcing these limits to address a growing housing problem is “constitutionally legitimate” and cited the severe scarcity of affordable housing in California in its decision.

This bill authorizes the legislative body of any city or county to adopt ordinances to establish, as a condition of development, inclusionary housing requirements and makes a number of legislative findings and declarations to supersede any holding or dicta in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009). The ordinance shall provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

Comments

1. Purpose. According to the author, “This bill restores the ability of local governments to apply locally adopted inclusionary policies to rental housing. Given our state’s severe housing crisis, it is critical that we give local governments every possible tool to address affordable housing needs. Inclusionary zoning is one of those tools. Local governments have successfully adopted and implemented inclusionary policies at the local level for decades in California. Some 170 cities and counties have policies on the books. Unfortunately, a 2009 appellate court decision – Palmer v. City of Los Angeles – for the first time called these policies into question as applied to rental housing. In the end, we aren’t going to just build our way out of this housing crisis alone. We need every tool we can to solve this problem. Inclusionary policies help ensure that when new housing is built, deed-restricted housing is also built.”
2. Seeing double. The Senate passed SB 277 (Bradford) earlier this year, which is identical to this bill. Both this bill and SB 277 were recently amended to address concerns raised by the opposition. The amendments require that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
3. Opposition. Writing in opposition, several regional apartment associations contend that this bill brings back “vacancy decontrol.” They state that this bill provides no reasonable limitations on the power of local governments to “price restrict rental housing.” The opposition goes on to assert that cities and counties must be required to offer developers and rental property owners “cost offsets and/or financial contributions” to build below market rate rental units.

Related/Prior Legislation

SB 277 (Bradford, 2017) authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. Thebill is pending in the Assembly.

AB 2502 (Mullin, 2016) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill did not pass off the Assembly Floor.

AB 1229 (Atkins, 2013) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill was vetoed by the Governor, and was issued the following veto message:

This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 7/10/17)

California Housing Consortium (co-source)

California Rural Legal Assistance Foundation (co-source)

Housing California (co-source)

Non-Profit Housing Association of Northern California (co-source)

Western Center on Law and Poverty (co-source)

American Planning Association

BRIDGE Housing

California Coalition for Rural Housing

California Housing Partnership Corporation

California League of Conservation Voters

California State Association of Counties

City of East Palo Alto

City of Emeryville

City of Glendale

City of Los Angeles

City of Mountain View

City of Napa

City of Oakland

City of San Mateo

City of Santa Barbara

City of Santa Monica

City of Thousand Oaks

City of West Hollywood

Coalition for Economic Survival

Community Housing Partnership

Community Legal Services in East Palo Alto

Corporation for Supportive Housing

Council of Community Housing Organizations

Council of Infill Builders

County of Los Angeles, Board of Supervisors

County of Santa Clara, Board of Supervisors

County of Yolo, Board of Supervisors

Disability Rights California

EAH Housing

East Bay Housing Organizations

Eden Housing

Enterprise Community Partners

Greenbelt Alliance

Housing California

John Stewart Company

Law Foundation of Silicon Valley

LeadingAge California

League of California Cities

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid San Mateo

Legal Services of Northern California

Los Angeles Homeless Services Authority

Marin County Council of Mayors and Councilmembers

MidPen Housing Corporation

Natural Resources Defense Council

Peace and Freedom Party of California

Planning and Conservation League

Public Advocates

Public Interest law Project

Resources of Community Development

Sacramento Housing Alliance

San Diego Housing Federation

SEIU California

Siefel Consulting

Sierra Business Council

Silicon Valley Community Foundation

State Building & Construction Trades Council

SV@Home

Tenants Together

The Kennedy Commission

Western Center on Law and Poverty

YWCA of San Francisco & Marin

One Individual

OPPOSITION: (Verified 9/5/17)

Apartment Association, California Southern Cities

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

East Bay Rental Housing Association

GH Palmer and Associates

Irvine Community Land Trust

North Valley Property Owner Association

San Diego County Apartment Association

Santa Barbara Rental Property Association

ASSEMBLY FLOOR: 47-24, 5/4/17

AYES: Aguiar-Curry, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Eggman, Friedman, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Reyes, Ridley-Thomas, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Arambula, Baker, Brough, Chávez, Chen, Choi, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Quirk-Silva, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Travis Allen, Bigelow, Cervantes, Frazier, Cristina Garcia, Gray, Patterson, Quirk, Rodriguez

Prepared by:

9/5/17 15:21:59

**** END ****

 THIRD READING  

Bill No: AB 1505

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 7-4, 6/6/17

AYES: Beall, Allen, Atkins, McGuire, Skinner, Wieckowski, Wiener

NOES: Cannella, Bates, Gaines, Morrell

NO VOTE RECORDED: Mendoza, Roth

ASSEMBLY FLOOR: 47-24, 5/4/17 - See last page for vote

SUBJECT:

SOURCE: California Housing Consortium

California Rural Legal Assistance Foundation

Housing California

Non-Profit Housing Association of Northern California

Western Center on Law and Poverty

DIGEST:

This bill authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development.

ANALYSIS:

Existing law:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Authorizes, specifically, the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and
      4. The intensity of land use.
   4. Establish requirements for off-street parking and loading;
   5. Establish and maintain building setback lines; and
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

This bill:

1. Permits a locality to require, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate income, lower income, very low income, or extremely low income households. Requires that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
2. Declares the intent of the bill is to supersede any holding or dicta in Palmer/Sixth Street Properties v. City of Los Angeles (2009) 175 Cal.App.4th 1396, to the extent that the decision or opinion conflicts with the authority of localities to adopt inclusionary housing requirements and that it is not the intent to enlarge, diminish, or modify any existing authority of a locality to establish inclusionary housing requirements as a condition of development beyond reaffirming their applicability to rental units.

Background

Article XI, Section 7 of the California Constitution grants each city and county the power “to make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws.” This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature’s intent to “provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters.”

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower-income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the city’s affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that “forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins, Chapter 331). The various analyses for the bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill “establishes a comprehensive scheme to regulate local residential rent control.” The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, “Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market.” The analysis further describes strict rent control ordinances as those that impose vacancy control and states, “Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls.” This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose’s inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying “in-lieu” fees to the city. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.”

The superior court agreed with CBIA’s contention and issued a judgment enjoining the city from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that “contrary to CBIA’s contention, the conditions the San Jose ordinance imposes upon future development do not impose ‘exactions’ upon the developers’ property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution.” The ruling also noted that enforcing these limits to address a growing housing problem is “constitutionally legitimate” and cited the severe scarcity of affordable housing in California in its decision.

This bill authorizes the legislative body of any city or county to adopt ordinances to establish, as a condition of development, inclusionary housing requirements and makes a number of legislative findings and declarations to supersede any holding or dicta in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009). The ordinance shall provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

Comments

1. Purpose. According to the author, “This bill restores the ability of local governments to apply locally adopted inclusionary policies to rental housing. Given our state’s severe housing crisis, it is critical that we give local governments every possible tool to address affordable housing needs. Inclusionary zoning is one of those tools. Local governments have successfully adopted and implemented inclusionary policies at the local level for decades in California. Some 170 cities and counties have policies on the books. Unfortunately, a 2009 appellate court decision – Palmer v. City of Los Angeles – for the first time called these policies into question as applied to rental housing. In the end, we aren’t going to just build our way out of this housing crisis alone. We need every tool we can to solve this problem. Inclusionary policies help ensure that when new housing is built, deed-restricted housing is also built.”
2. Seeing double. The Senate passed SB 277 (Bradford) earlier this year, which is identical to this bill. Both this bill and SB 277 were recently amended to address concerns raised by the opposition. The amendments require that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
3. Opposition. Writing in opposition, several regional apartment associations contend that this bill would bring back “vacancy decontrol.” They state that this bill provides no reasonable limitations on the power of local governments to “price restrict rental housing.” The opposition goes on to assert that cities and counties must be required to offer developers and rental property owners “cost offsets and/or financial contributions” to build below market rate rental units.

Related/Prior Legislation

SB 277 (Bradford) authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill is pending in the Assembly.

AB 2502 (Mullin, 2016) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill did not pass off the Assembly Floor.

AB 1229 (Atkins, 2013) would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. The bill was vetoed by the Governor, and was issued the following veto message:

This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 6/12/17)

California Housing Consortium (co-source)

California Rural Legal Assistance Foundation (co-source)

Housing California (co-source)

Non-Profit Housing Association of Northern California (co-source)

Western Center on Law and Poverty (co-source)

American Planning Association

BRIDGE Housing

California Coalition for Rural Housing

California Housing Partnership Corporation

California League of Conservation Voters

California State Association of Counties

City of East Palo Alto

City of Emeryville

City of Glendale

City of Los Angeles

City of Mountain View

City of Napa

City of Oakland

City of San Mateo

City of Santa Barbara

City of Santa Monica

City of Thousand Oaks

City of West Hollywood

Coalition for Economic Survival

Community Housing Partnership

Community Legal Services in East Palo Alto

Corporation for Supportive Housing

Council of Community Housing Organizations

Council of Infill Builders

County of Los Angeles, Board of Supervisors

County of Santa Clara, Board of Supervisors

County of Yolo, Board of Supervisors

Disability Rights California

EAH Housing

East Bay Housing Organizations

Eden Housing

Enterprise Community Partners

Greenbelt Alliance

Housing California

John Stewart Company

Law Foundation of Silicon Valley

LeadingAge California

League of California Cities

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid San Mateo

Legal Services of Northern California

Los Angeles Homeless Services Authority

Marin County Council of Mayors and Councilmembers

MidPen Housing Corporation

Natural Resources Defense Council

Peace and Freedom Party of California

Planning and Conservation League

Public Advocates

Public Interest Law Project

Resources of Community Development

Sacramento Housing Alliance

San Diego Housing Federation

SEIU California

Siefel Consulting

Sierra Business Council

Silicon Valley Community Foundation

State Building & Construction Trades Council

SV@Home

Tenants Together

The Kennedy Commission

Western Center on Law and Poverty

YWCA of San Francisco & Marin

One individual

OPPOSITION: (Verified 6/6/17)

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Apartment Association, California Southern Cities

California Association of Realtors

East Bay Rental Housing Association

GH Palmer and Associates

North Valley Property Owner Association

San Diego County Apartment Association

Santa Barbara Rental Property Association

ASSEMBLY FLOOR: 47-24, 5/4/17

AYES: Aguiar-Curry, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Eggman, Friedman, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Reyes, Ridley-Thomas, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Arambula, Baker, Brough, Chávez, Chen, Choi, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Quirk-Silva, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Travis Allen, Bigelow, Cervantes, Frazier, Cristina Garcia, Gray, Patterson, Quirk, Rodriguez

Prepared by:

6/12/17 13:41:15

**** END ****

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2017 - 2018 Regular

Bill No: Hearing Date: 6/6/2017

SUBJECT:

DIGEST: This bill authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development.

ANALYSIS:

Existing law:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Specifically authorizes the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for off-street parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

This bill:

1. Permits a locality to require, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate income, lower income, very low income, or extremely low income households. Requires that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
2. Declare the intent of the bill is to supersede any holding or dicta in Palmer/Sixth Street Properties v. City of Los Angeles (2009) 175 Cal.App.4^th 1396, to the extent that the decision or opinion conflicts with the authority of localities to adopt inclusionary housing requirements and that it is not the intent to enlarge, diminish, or modify any existing authority of a locality to establish inclusionary housing requirements as a condition of development beyond reaffirming their applicability to rental units.

COMMENTS:

1. Purpose. According to the author, this bill restores the ability of local governments to apply locally adopted inclusionary policies to rental housing. Given our state’s severe housing crisis, it is critical that we give local governments every possible tool to address affordable housing needs. Inclusionary zoning is one of those tools. Local governments have successfully adopted and implemented inclusionary policies at the local level for decades in California. Some 170 cities and counties have policies on the books. Unfortunately, a 2009 appellate court decision – Palmer v. City of Los Angeles – for the first time called these policies into question as applied to rental housing. In the end, we aren’t going to just build our way out of this housing crisis alone. We need every tool we can to solve this problem. Inclusionary policies help ensure that when new housing is built, deed-restricted housing is also built.
2. Background. Article XI, Section 7 of the California Constitution grants each city and county the power “to make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws.” This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature’s intent to “provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters.”

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower-income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the city’s affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that “forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins), Chapter 331. The various analyses for this bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill “establishes a comprehensive scheme to regulate local residential rent control.” The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, “Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market.” The analysis further describes strict rent control ordinances as those that impose vacancy control and states, “Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls.” This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

1. California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose’s inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying “in-lieu” fees to the city. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis “to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance.”

The superior court agreed with CBIA’s contention and issued a judgment enjoining the city from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that “contrary to CBIA’s contention, the conditions the San Jose ordinance imposes upon future development do not impose ‘exactions’ upon the developers’ property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution.” The ruling also noted that enforcing these limits to address a growing housing problem is “constitutionally legitimate” and cited the severe scarcity of affordable housing in California in its decision.

This bill authorizes the legislative body of any city or county to adopt ordinances to establish, as a condition of development, inclusionary housing requirements and makes a number of legislative findings and declarations to supersede any holding or dicta in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009). The ordinance shall provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

1. Prior legislation. AB 1229 (Atkins, 2013) would have expressly authorized cities and counties to establish inclusionary housing requirements as a condition of development. The bill further declares the intent of the Legislature to supersede any holding or dicta in Palmer v. City of Los Angeles that conflicts with this authority.

AB 1229 was vetoed with the following message:

“This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area.”

1. Seeing double. This committee heard SB 277 (Bradford), which is identical to this bill, earlier this legislative session and approved the bill on a vote of 7-1.

Both this bill and SB 277 were recently amended to address concerns raised by the opposition. The amendments require that the ordinance provide alternative means of compliance that may include, but are not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

1. Opposition. Writing in opposition, several regional apartment associations contend that this bill would bring back “vacancy decontrol.” They state that this bill would provide no reasonable limitations on the power of local governments to “price restrict rental housing.” The opposition goes on to assert that cities and counties must be required to offer developers and rental property owners “cost offsets and/or financial contributions” to build below market rate rental units.

Related Legislation:

SB 277 (Bradford) — Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. This bill is pending on the Senate Floor.

AB 2502 (Mullin, 2016) — Would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. This bill did not pass off the Assembly Floor.

AB 1229 (Atkins, 2013) — Would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. This bill was vetoed by the Governor (see Comment 4, above).

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

POSITIONS: (Communicated to the committee before noon on Wednesday,

May 31, 2017.)

SUPPORT:

California Housing Consortium (co-sponsor)

California Rural Legal Assistance Foundation (co-sponsor)

Housing California (co-sponsor)

Non-Profit Housing Association of Northern California (co-sponsor)

Western Center on Law and Poverty (co-sponsor)

American Planning Association

California Coalition for Rural Housing

California Housing Partnership Corporation

California League of Conservation Voters

California State Association of Counties

City of East Palo Alto

City of Emeryville

City of Glendale

City of Los Angeles

City of Mountain View

City of Napa

City of Oakland

City of San Mateo

City of Santa Barbara

City of Santa Monica

City of Thousand Oaks

City of West Hollywood

Coalition for Economic Survival

Community Housing Partnership

Community Legal Services in East Palo Alto

Corporation for Supportive Housing

Council of Community Housing Organizations

Council of Infill Builders

County of Los Angeles, Board of Supervisors

County of Santa Clara, Board of Supervisors

County of Yolo, Board of Supervisors

Disability Rights California

EAH Housing

East Bay Housing Organizations

Eden Housing

Enterprise Community Partners

Greenbelt Alliance

Housing California

John Stewart Company

Law Foundation of Silicon Valley

LeadingAge California

League of California Cities

Legal Aid Foundation of Los Angeles

Legal Aid of Marin

Legal Aid San Mateo

Legal Services of Northern California

Los Angeles Homeless Services Authority

Marin County Council of Mayors and Councilmembers

MidPen Housing Corporation

Natural Resources Defense Council

Planning and Conservation League

Public Advocates

Public Interest law Project

Resources of Community Development

Sacramento Housing Alliance

San Diego Housing Federation

Siefel Consulting

Sierra Business Council

Silicon Valley Community Foundation

State Building & Construction Trades Council

SV@Home

Tenants Together

The Kennedy Commission

Western Center on Law and Poverty

YWCA of San Francisco & Marin

1 Individual

OPPOSITION:

Apartment Association, California Southern Cities

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

California Association of Realtors

East Bay Rental Housing Association

GH Palmer and Associates

North Valley Property Owner Association

Santa Barbara Rental Property Association

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1505

Author:(Bloom, et al.)

As Amended Ver:May 1, 2017

Majority vote

SUMMARY: Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of the development of residential rental units. Specifically, this bill:

1. Allows the legislative body of a city or county to adopt an ordinance that requires, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified.
2. Requires the ordinance to provide alternative means of compliance that may include, but is not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.
3. States that the Legislature finds and declares all of the following:
   1. Inclusionary housing ordinances have provided quality affordable housing to over 80,000 Californians, including the production of an estimated 30,000 units of affordable housing in the last decade alone;
   2. Since the 1970s, over 170 jurisdictions have enacted inclusionary housing ordinances to meet their affordable housing needs;
   3. While many of these local programs have been in place for decades, a 2009 appellate court decision has created uncertainty and confusion for local governments regarding the use of this tool to ensure the inclusion of affordable rental units in residential developments;
   4. It is the intent of the Legislature to reaffirm the authority of local jurisdictions to include in these inclusionary housing ordinances requirements related to the provision of rental units;
   5. The Legislature declares its intent in adding subdivision (g) to Government Code Section 65850, pursuant to Section 1 of this act, to supersede any holding or dicta in any court decision or opinion, to the extent that the decision or opinion conflicts with that subdivision;
   6. In no case is it the intent of the Legislature in adding subdivision (g) to Government Code Section 65850, pursuant to Section 1 of this act, to enlarge, diminish, or modify in any way the existing authority of local jurisdictions to establish, as a condition of development, inclusionary housing requirements, beyond reaffirming their applicability to rental units;
   7. This act does not modify or in any way change or affect the authority of local jurisdictions to require, as a condition of the development of residential units, that the development include a certain percentage of residential for-sale units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households; and,
   8. States that it is the intent of the Legislature to reaffirm that existing law requires that the action of any legislative body of any city, county, or city and county to adopt a new inclusionary housing ordinance be taken openly and that their deliberations be conducted openly consistent with the requirements of the Ralph M. Brown Act.

EXISTING LAW:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Specifically authorizes the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for offstreet parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

FISCAL EFFECT: None

COMMENTS:

1. Bill Summary. This bill authorizes the legislative body of any city or county to adopt ordinances to require, as a condition of the development of residential units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified. This bill additionally specifies that the ordinance must provide an alternative means of compliance that my include, but is not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units, and makes a number of other findings and declarations related to inclusionary housing.

This bill is co-sponsored by the California Housing Consortium, the California Rural Legal Assistance Foundation, Housing California, Non-Profit Housing Association of Northern California, and the Western Center on Law & Poverty.

1. Author's Statement. According to the author, "Inclusionary policies have been utilized in California for decades, dating back to the late 1970s. However, an appellate court decision – Palmer v. City of Los Angeles – cut off one crucial option for local governments: the ability to apply inclusionary polices to rental housing. The Palmer court improperly conflated rent control, which is regulated by the state's Costa Hawkins Act, and deed-restricted affordable housing, which is not, creating uncertainty and confusion for local governments and housing advocates regarding the future viability of this important and well-established local land use tool.

"AB 1505 is narrowly focused on allowing local inclusionary policies to require the provision of affordable rental housing, if so desired locally, effectively restoring the law as it stood prior to 2009.

"It is important to note that AB 1505 does not authorize inclusionary housing. There is no need for such authorization because adopting inclusionary policies is and always has been a constitutional exercise of the local police power. This was unanimously affirmed by the California Supreme Court in 2015 in CBIA vs. City of San Jose. The court also affirmed that local governments must provide developers with economically beneficial incentives if their inclusionary policies require developers to provide affordable units.

"AB 1505 does not mandate anything. Local governments may choose to adopt inclusionary policies, as many cities and counties in California have done over the last five decades. Under AB 1505, it will continue to be a local choice."

1. Background. California Constitution Article XI, Section 7, grants each city and county the power "to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws." This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature's intent to "provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters."

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower- income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the city's affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act (Act). The Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that "forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit."

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins), Chapter 331. The various analyses for the bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of AB 1164, which is very similar to the other analyses, states that the bill "establishes a comprehensive scheme to regulate local residential rent control." The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, "Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market." The analysis further describes strict rent control ordinances as those that impose vacancy control and states, "Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls." This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

1. Prior Legislation:
   1. AB 1229 (Atkins) of 2013, would have expressly authorized cities and counties to establish inclusionary housing requirements as a condition of development. The bill further declared the intent of the Legislature to supersede any holding or dicta in Palmer v. City of Los Angeles that conflicts with this authority. AB 1229 was vetoed with the message:

"This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area."

• 1. AB 1505 is substantially similar to a bill introduced last year, AB 2502 (Mullin and Chiu). While AB 2502 passed out of both this Committee and the Housing and Community Development Committee, it did not move out of the Assembly.

1. California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose's inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying "in-lieu" fees to the City. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis "to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance."

The superior court agreed with CBIA's contention and issued a judgment enjoining the City from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that "contrary to CBIA's contention, the conditions the San Jose ordinance imposes upon future development do not impose 'exactions' upon the developers' property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution." The ruling also noted that enforcing these limits to address a growing housing problem is "constitutionally legitimate" and cited the severe scarcity of affordable housing in California in its decision.

1. Arguments in Support. Supporters argue that despite the long track record of success of inclusionary policies, the Palmer decision cut off one crucial option for local governments: the ability to apply inclusionary policies to rental housing. Supporters argue that the Palmer court improperly conflated rent control, which is regulated by the state's Costa Hawkins Rental Housing Act, and deed-restricted affordable housing, which is not, creating uncertainty for the future viability of this important and well-established local land use tool. According to supporters, this bill simply restores the law to what it had been for decades prior to 2009, allowing the policies that have been effective at creating affordable housing for the last 40 years to continue without fear of litigation.
2. Arguments in Opposition. Opponents argue that this bill will discourage the creation of new rental housing, exacerbating the housing affordability crisis in California.

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958 FN: 0000217

Date of Hearing: April 26, 2017

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 1505 (

Author:Bloom) – As Introduced Ver:February 17, 2017

SUBJECT: Land use: zoning regulations

SUMMARY: Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of the development of residential rental units. Specifically, this bill:

1. Allows the legislative body of a city or county to adopt an ordinance that requires, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified.
2. States that the Legislature finds and declares all of the following:
   1. Inclusionary housing ordinances have provided quality affordable housing to over 80,000 Californians, including the production of an estimated 30,000 units of affordable housing in the last decade alone;
   2. Since the 1970s, over 170 jurisdictions have enacted inclusionary housing ordinances to meet their affordable housing needs;
   3. While many of these local programs have been in place for decades, a 2009 appellate court decision has created uncertainty and confusion for local governments regarding the use of this tool to ensure the inclusion of affordable rental units in residential developments;
   4. It is the intent of the Legislature to reaffirm the authority of local jurisdictions to include in these inclusionary housing ordinances requirements related to the provision of rental units;
   5. The Legislature declares its intent in adding subdivision (g) to Section 65850 of the Government Code, pursuant to Section 1 of this act, to supersede any holding or dicta in any court decision or opinion, to the extent that the decision or opinion conflicts with that subdivision;
   6. In no case is it the intent of the Legislature in adding subdivision (g) to Section 65850 of the Government Code, pursuant to Section 1 of this act, to enlarge, diminish, or modify in any way the existing authority of local jurisdictions to establish, as a condition of development, inclusionary housing requirements, beyond reaffirming their applicability to rental units;
   7. This act does not modify or in any way change or affect the authority of local jurisdictions to require, as a condition of the development of residential units, that the development include a certain percentage of residential for-sale units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households; and,
   8. States that it is the intent of the Legislature to reaffirm that existing law requires that the action of any legislative body of any city, county, or city and county to adopt a new inclusionary housing ordinance be taken openly and that their deliberations be conducted openly consistent with the requirements of the Ralph M. Brown Act.

EXISTING LAW:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Specifically authorizes the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for offstreet parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

FISCAL EFFECT: None

COMMENTS:

Need for this bill: According to the author, "Local inclusionary housing programs in California have proven to be effective tools for producing new homes affordable to working families and creating strong, diverse neighborhoods with a range of housing choices. Around 170 cities and counties have some form of inclusionary housing requirement in place as a complement to other local, state, and federal programs to address California’s affordable housing shortage. Inclusionary policies have been utilized in California for decades, dating back to the late 1970s. However, an appellate court decision—Palmer v. City of Los Angeles—cut off one crucial option for local governments: the ability to apply inclusionary policies to rental housing. The Palmer court improperly conflated rent control, which is regulated by the state’s Costa Hawkins act, and deed-restricted affordable housing, which is not, creating uncertainty and confusion for local governments and housing advocates regarding the future viability of this important and well-established local land use tool. AB 1505 is narrowly focused on allowing local inclusionary polices to require the provision of affordable rental housing if so desired locally, effectively restoring the law as it stood prior to 2009."

Background: California Constitution Article XI, Section 7, grants each city and county the power "to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws." This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature's intent to "provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters."

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower- income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court
of Appeal opined that the city's affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that "forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit."

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins), Chapter 331. The various analyses for this bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of
AB 1164, which is very similar to the other analyses, states that the bill "establishes a comprehensive scheme to regulate local residential rent control." The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, "Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market." The analysis further describes strict rent control ordinances as those that impose vacancy control and states, "Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls." This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

California Building Industry Association (CBIA) v. City of San Jose: The City of San Jose's inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying "in-lieu" fees to the City. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis "to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance."

The superior court agreed with CBIA's contention and issued a judgment enjoining the City from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that "contrary to CBIA's contention, the conditions the San Jose ordinance imposes upon future development do not impose 'exactions' upon the developers' property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution." The ruling also noted that enforcing these limits to address a growing housing problem is "constitutionally legitimate" and cited the severe scarcity of affordable housing in California in its decision.

Staff comment: The CBIA v. San Jose case makes it clear that inclusionary housing policies in California can require the creation of affordable for-sale units, but Palmer v. City of Los Angeles created uncertainty on what is appropriate for rental developments. This bill ensures that local governments may apply inclusionary policies to both rental and for-sale housing developments. It is important to note that AB 1505 does not mandate anything. Local governments may choose to adopt inclusionary policies, as many cities and counties in California have done for decades.

This bill is nearly identical to a bill that was introduced in the Senate (see related legislation section below).

Arguments in support: Supporters argue that inclusionary housing programs are an important tool in the production of affordable housing for working families. On-site inclusionary housing helps residents remain in communities and increases social and economic inclusion with every new housing development. This creates strong, diverse neighborhoods with a range of housing choices.

Arguments in opposition: Opponents are concerned that this bill would permit local governments to require housing developments to contain an unrestricted percentage of rent controlled units, without any consideration for the economic viability of the development. In opponents' view, this will discourage new construction and further reduce the state's housing supply. Opponents also point to several alternatives to inclusionary housing, such as impact fees and density bonus incentives, that are already in effect statewide.

Committee amendments:

To provide additional flexibility in meeting a local government's affordable housing requirements, the Committee may wish to consider an amendment to require local governments to provide alternative means of compliance with an inclusionary ordinance, such as in-lieu fees or land dedication.

The proposed Committee amends are as follows:

On page 2, line 28, after Code insert:

The ordinance shall provide alternative means of compliance, which may include, but is not limited to, in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units.

Related legislation:

SB 277 (Bradford, 2017): Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. This bill is pending on the Senate Floor.

AB 1229 (Atkins, 2013): Would have expressly authorized cities and counties to establish inclusionary housing requirements as a condition of development. The bill further declared the intent of the Legislature to supersede any holding or dicta in Palmer v. City of Los Angeles that conflicts with this authority. AB 1229 was vetoed with the message:

"This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area."

AB 2502 (Mullin, 2016): Would have authorized the legislative body of a city or county to establish inclusionary housing requirements as a condition of development. This bill died on the Assembly Floor.

Double referral: AB 1505 is double referred. It was heard in the Assembly Committee on Local Government and passed out on a vote of 6-3 on April 5, 2017.

REGISTERED SUPPORT / OPPOSITION:

Support

California Housing Consortium (co-sponsor)

California Rural Legal Assistance Foundation (co-sponsor)

Housing California (co-sponsor)

Non-Profit Housing Association of Northern California (co-sponsor)

Western Center on Law and Poverty (co-sponsor)

American Planning Association, California Chapter

California League of Conservation Voters

California State Association of Counties

City of East Palo Alto

City of Los Angeles

City of Santa Monica

City of West Hollywood

Council of Community Housing Organizations

Council of Infill Builders

Disability Rights California

Los Angeles County Board of Supervisors

Natural Resources Defense Council

Planning and Conservation League

Public Advocates

Santa Clara Board of Supervisors

SF Council of Community Housing Organizations

State Building and Construction Trades Council

Tenants Together

Opposition

Apartment Association, California Southern Cities

Apartment Association of Orange County

California Association of Realtors

East Bay Rental Housing Association

North Valley Property Owner Association

Analysis Prepared by: Rebecca Rabovsky / H. & C.D. / (916) 319-2085

Date of Hearing: April 5, 2017

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 1505 (

Author:Bloom, Chiu, and Gloria) – As Introduced Ver:February 17, 2017

SUBJECT: Land use: zoning regulations.

SUMMARY: Authorizes the legislative body of a city or county to establish inclusionary housing requirements as a condition of the development of residential rental units. Specifically, this bill:

1. Allows the legislative body of a city or county to adopt an ordinance that requires, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified.
2. States that the Legislature finds and declares all of the following:
   1. Inclusionary housing ordinances have provided quality affordable housing to over 80,000 Californians, including the production of an estimated 30,000 units of affordable housing in the last decade alone;
   2. Since the 1970s, over 170 jurisdictions have enacted inclusionary housing ordinances to meet their affordable housing needs;
   3. While many of these local programs have been in place for decades, a 2009 appellate court decision has created uncertainty and confusion for local governments regarding the use of this tool to ensure the inclusion of affordable rental units in residential developments;
   4. It is the intent of the Legislature to reaffirm the authority of local jurisdictions to include in these inclusionary housing ordinances requirements related to the provision of rental units;
   5. The Legislature declares its intent in adding subdivision (g) to Section 65850 of the Government Code, pursuant to Section 1 of this act, to supersede any holding or dicta in any court decision or opinion, to the extent that the decision or opinion conflicts with that subdivision;
   6. In no case is it the intent of the Legislature in adding subdivision (g) to Section 65850 of the Government Code, pursuant to Section 1 of this act, to enlarge, diminish, or modify in any way the existing authority of local jurisdictions to establish, as a condition of development, inclusionary housing requirements, beyond reaffirming their applicability to rental units;
   7. This act does not modify or in any way change or affect the authority of local jurisdictions to require, as a condition of the development of residential units, that the development include a certain percentage of residential for-sale units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households; and,
   8. States that it is the intent of the Legislature to reaffirm that existing law requires that the action of any legislative body of any city, county, or city and county to adopt a new inclusionary housing ordinance be taken openly and that their deliberations be conducted openly consistent with the requirements of the Ralph M. Brown Act.

EXISTING LAW:

1. Grants cities and counties the power to make and enforce within their limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.
2. Declares the Legislature's intent to provide only a minimum of limitation with respect to zoning in order that counties and cities may exercise the maximum degree of control over local zoning matters.
3. Specifically authorizes the legislative body of any county or city to adopt ordinances that do any of the following:
   1. Regulate the use of buildings, structures, and land as between industry, business, residences, open space, agriculture, recreation, enjoyment of scenic beauty, use of natural resources, and other purposes;
   2. Regulate signs and billboards;
   3. Regulate all of the following:
      1. The location, height, bulk, number of stories, and size of buildings and structures;
      2. The size and use of lots, yards, courts, and other open spaces;
      3. The percentage of a lot that may be occupied by a building or structure; and,
      4. The intensity of land use.
   4. Establish requirements for offstreet parking and loading;
   5. Establish and maintain building setback lines; and,
   6. Create civic districts around civic centers, public parks, public buildings, or public grounds, and establish regulations for those civic districts.
4. Limits, pursuant to the Costa-Hawkins Rental Housing Act, the permissible scope of local rent control ordinances and generally gives the owner of residential real property the right to establish the initial rental rate for a dwelling or unit.

FISCAL EFFECT: None

COMMENTS:

1. Bill Summary. This bill authorizes the legislative body of any city or county to adopt ordinances to require, as a condition of the development of residential units, that the development include a certain percentage of residential rental units affordable to, and occupied by, households with incomes that do not exceed the limits for moderate-income, lower-income, very low-income, or extremely low-income households, as specified. The bill also makes a number of other findings and declarations related to inclusionary housing.

This bill is co-sponsored by the California Housing Consortium, the California Rural Legal Assistance Foundation, Housing California, Non-Profit Housing Association of Northern California, and the Western Center on Law & Poverty.

1. Author’s Statement. According to the author, “Inclusionary policies have been utilized in California for decades, dating back to the late 1970s. However, an appellate court decision – Palmer v. City of Los Angeles – cut off one crucial option for local governments: the ability to apply inclusionary polices to rental housing. The Palmer court improperly conflated rent control, which is regulated by the state’s Costa Hawkins Act, and deed-restricted affordable housing, which is not, creating uncertainty and confusion for local governments and housing advocates regarding the future viability of this important and well-established local land use tool.

“AB 1505 is narrowly focused on allowing local inclusionary policies to require the provision of affordable rental housing, if so desired locally, effectively restoring the law as it stood prior to 2009.

“It is important to note that AB 1505 does not authorize inclusionary housing. There is no need for such authorization because adopting inclusionary policies is and always has been a constitutional exercise of the local police power. This was unanimously affirmed by the California Supreme Court in 2015 in CBIA vs. City of San Jose. The court also affirmed that local governments must provide developers with economically beneficial incentives if their inclusionary policies require developers to provide affordable units.

“AB 1505 does not mandate anything. Local governments may choose to adopt inclusionary policies, as many cities and counties in California have done over the last five decades. Under AB 1505, it will continue to be a local choice.”

1. Background. California Constitution Article XI, Section 7, grants each city and county the power "to make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws." This is generally referred to as the police power of local governments. The Planning and Zoning Law is a general law that sets forth minimum standards for cities and counties to follow in land use regulation, but the law also establishes the Legislature's intent to "provide only a minimum of limitation in order that counties and cities may exercise the maximum degree of control over local zoning matters."

Using this police power, many cities and counties have adopted ordinances, commonly called "inclusionary zoning" or "inclusionary housing" ordinances, that require developers to ensure that a certain percentage of housing units in a new development be affordable to lower- income households. These ordinances vary widely in the percentage of affordable units required, the depth of affordability required, and the options through which a developer may choose to comply. Most, if not all, of such ordinances apply to both rental and ownership housing.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court
of Appeal opined that the city's affordable housing requirements associated with a particular specific plan (which was similar to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state law known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the start of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The Act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that "forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit."

The Legislature enacted the Costa-Hawkins Rental Housing Act in 1995 with the passage of AB 1164 (Hawkins), Chapter 331. The various analyses for this bill exclusively discuss rent control ordinances and do not once mention inclusionary zoning ordinances, of which approximately 64 existed in the state at that time. The Assembly concurrence analysis of
AB 1164, which is very similar to the other analyses, states that the bill "establishes a comprehensive scheme to regulate local residential rent control." The analysis includes a table of jurisdictions that would be affected by the bill, and the table exclusively includes cities with rent control ordinances and does not include any cities that had inclusionary zoning ordinances affecting rental housing. The analysis also states, "Proponents view this bill as a moderate approach to overturn extreme vacancy control ordinances which unduly and unfairly interfere into the free market." The analysis further describes strict rent control ordinances as those that impose vacancy control and states, "Proponents contend that a statewide new construction exemption is necessary to encourage construction of much needed housing units, which is discouraged by strict local rent controls." This legislative history provides no indication that the Legislature intended to affect inclusionary zoning with the passage of AB 1164.

1. Prior Legislation:
   1. AB 1229 (Atkins) of 2013, would have expressly authorized cities and counties to establish inclusionary housing requirements as a condition of development. The bill further declared the intent of the Legislature to supersede any holding or dicta in Palmer v. City of Los Angeles that conflicts with this authority. AB 1229 was vetoed with the message:

"This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects. As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community. The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court's thinking before we make legislative adjustments in this area."

• 1. AB 1505 is substantially similar to a bill introduced last year, AB 2502 (Mullin and Chiu). While AB 2502 passed out of both this Committee and the Housing and Community Development Committee, it did not move out of the Assembly.

1. California Building Industry Association (CBIA) v. City of San Jose. The City of San Jose's inclusionary housing ordinance passed in 2010 and required all new residential development projects of 20 or more units to sell at least 15% of the for-sale units at a price that is affordable to low- or moderate-income households. The ordinance allowed developers to opt out of the 15% requirements by dedicating land elsewhere or by paying "in-lieu" fees to the City. Shortly before the ordinance took effect, CBIA filed a lawsuit in superior court, maintaining that the ordinance was invalid on its face on the ground that the city, in enacting the ordinance, failed to provide a sufficient evidentiary basis "to demonstrate a reasonable relationship between any adverse public impacts or needs for additional subsidized housing units in the City ostensibly caused by or reasonably attributed to the development of new residential developments of 20 units or more and the new affordable housing exactions and conditions imposed on residential development by the Ordinance."

The superior court agreed with CBIA's contention and issued a judgment enjoining the City from enforcing the challenged ordinance. The Court of Appeal then reversed the superior court judgment, and concluded that the matter should be remanded to the trial court. CBIA then sought review of the Court of Appeal decision in the Supreme Court which granted review.

The Supreme Court in June of 2015 concluded that the Court of Appeal decision should be upheld, and that "contrary to CBIA's contention, the conditions the San Jose ordinance imposes upon future development do not impose 'exactions' upon the developers' property so as to bring into play the unconstitutional conditions doctrine under the takings clause of the federal or state Constitution." The ruling also noted that enforcing these limits to address a growing housing problem is "constitutionally legitimate" and cited the severe scarcity of affordable housing in California in its decision.

1. Arguments in Support. Supporters argue that despite the long track record of success of inclusionary policies, the Palmer decision cut off one crucial option for local governments: the ability to apply inclusionary policies to rental housing. Supporters argue that the Palmer court improperly conflated rent control, which is regulated by the state’s Costa Hawkins Act, and deed-restricted affordable housing, which is not, creating uncertainty for the future viability of this important and well-established local land use tool. According to supporters, this bill simply restores the law to what it had been for decades prior to 2009, allowing the policies that have been effective at creating affordable housing for the last 40 years to continue without fear of litigation.
2. Arguments in Opposition. Opponents argue that the bill provides no flexibility and allow a city to force a developer to use only one method of inclusionary – the requirement for rent controlled units. Opponents argue that there are many alternative options that may work better, such as in lieu fees, land dedication, and housing trust funds, and that each local community and housing project is unique. Additionally, opponents argue that the language in the bill will discourage the construction of badly needed new housing in California.
3. Double-Referral. This bill is double-referred to the Housing and Community Development Committee, where it will be heard next, should the bill pass out of this Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Housing Consortium [CO-SPONSOR]

California Rural Legal Assistance Foundation [CO-SPONSOR]

Housing California [CO-SPONSOR]

Non-Profit Housing Association of Northern California [CO-SPONSOR]

Western Center on Law & Poverty [CO-SPONSOR]

American Planning Association, California Chapter

California Coalition for Rural Housing

California Housing Partnership

California League of Conservation Voters

California State Association of Counties

Cities of Los Angeles, Napa, West Hollywood

Coalition for Economic Survival

Community Legal Services in East Palo Alto

Council of Infill Builders

County of Los Angeles

Disability Rights California

EAH Housing

Eden Housing

Greenbelt Alliance

Housing California

Law Foundation of Silicon Valley

League of California Cities

Legal Aid Society of San Mateo

Legal Services of Northern California

MidPen Housing Corporations

Natural Resources Defense Council

Planning and Conservation League

Public Advocates

Public Interest Law Project

SF Council of Community Housing Organizations

State Building and Construction Trades Council

Tenants Together

The Kennedy Commission

Opposition

Apartment Association, California Southern Cities

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

California Apartment Association (unless amended)

California Association of Realtors (unless amended)

CalChamber (unless amended)

California Business Properties Association (unless amended)

East Bay Rental Housing Association

North Valley Property Owners Association

Santa Barbara Rental Property Association

Analysis Prepared by: Debbie Michel / L. GOV. / (916) 319-3958