The Planning and Zoning Law authorizes a local agency to provide, by ordinance, for the creation of accessory dwelling units in single-family and multifamily residential zones and sets forth required ordinance standards, including, among others, maximum unit size, parking, and height standards. Existing law requires a local agency to submit the accessory dwelling unit ordinance to the Department of Housing and Community Development within 60 days after adoption and authorizes the department to review and comment on the ordinance.

This bill would authorize the department to submit written findings to a local agency as to whether the local ordinance complies with state law, and to notify the Attorney General if the ordinance violates state law. The bill would require a local agency to consider the departments findings and would authorize the local agency to amend its ordinance to comply with state law or adopt a resolution with findings explaining why the ordinance complies with state law, and addressing the departments findings.

Existing law requires the Department of Housing and Community Development to propose building standards to the California Building Standards Commission, and to adopt, amend, or repeal rules and regulations governing, among other things, apartment houses and dwellings, as specified.

This bill would require the department to propose small home building standards governing accessory dwelling units and homes smaller than 800 square feet. The bill would require the small home building standards to be submitted to the California Building Standards Commission for adoption on or before January 1, 2021.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

GOVERNOR'S VETO

GV Bill Id:AB 69

Author:(Ting and Bloom)

As Enrolled Ver:September 4, 2020

2/3 vote

SUMMARY:

Establishes a new program in the State Treasurer's Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

The Senate Amendments:

Delete and replace the version passed by the Assembly. Specifically, the amendments:

1. Remove the requirement that the state Department of Housing and Community Development (HCD) submit proposed small building home standards to the California Building Standards Commission (CBSC), on or before January 1, 2021, for accessory dwelling units (ADUs) and homes of less than 800 square feet.
2. Create the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs, as follows:
3. Require the STO, within six months of the effective date of this bill, to establish the Program. Require the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
4. Specify that the homeowners eligible for the Program must be an owner of a single-family residential property and that they do not own more than three residential properties that consist of one to four units.
5. Require the Program to:
   1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
   2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
   3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
   4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
   5. Be designed to add 50,000 units to single-family properties within five years.
6. Require the STO to establish for the Program:
   1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
   2. Minimum criteria for an originating lender to participate in the program based on the lender's history of originating federally backed construction loans or ADU loans.
   3. The maximum percentage of actual loss guaranteed by the state under this program.
   4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
   5. That the applicant must be the owner and occupant of the existing primary residence
7. Require CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establish an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
8. Provide that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

Governor's Veto Message:

This bill would establish the Help Homeowners Add New Housing Program within the State Treasurer's Office to finance the construction of Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs) and would require the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

ADUs and JADUs are a critical tool for increasing the housing supply in California, and access to construction financing remains one of the major hurdles in unlocking their full potential. I was proud to sign three bills last year that built on the state's strongest-in-the-nation ADU streamlining laws.

Access to ADU financing - especially for lower-income California homeowners - is an issue that should be addressed, but the financial structure proposed in this bill would negatively impact affordable housing production, as it could harm CalHFA's credit ratings.

Therefore, I am directing the Business, Consumer Services and Housing Agency to continue departmental efforts to provide increased access to capital markets and opportunities to encourage broader adoption of ADUs and JADUs.

COMMENTS:

ADUs a part of the solution to the housing crisis: ADUs are additional living quarters that are independent of the primary dwelling unit on the same lot. ADUs are either attached or detached to the primary dwelling unit, and provide complete independent living facilities for one or more person, including separate access from the property's primary unit. This includes permanent provisions for living, sleeping, eating, cooking, and sanitation. JADUs are ADUs that are no more than 500 square feet and exist within single-family homes and have cooking facilities including a sink and stove but are not required to have a bathroom.

ADUs have been identified as an important piece of the solution to California's housing crisis.

According to the Terner Center for Housing Innovation at UC Berkeley, the average cost to build an ADU is relatively inexpensive at $156,000. Because of their size and lower cost to construct, the Terner Center found that 58 percent of ADUs are rented out at below market rate.

Over the past few years, the legislature has passed a number of bills to ease zoning restrictions and expedite the approval processes at the local level, which has contributed to the increased supply of ADUs throughout the state. For example, in the city of Los Angeles, since 2017 a total of 9,247 applications have been received for ADUs. This represents an approximate 30-fold increase as compared to the citywide average in the many years before the state law changed to reduce barriers to ADUs. Similarly, the city of Santa Rosa received 118 applications for ADUs in 2018, compared to 54 total from 2008-2016.

Financing for ADUs. While state laws have made it procedurally easier to build ADUs, there are still substantial financial hurdles. Depending on the size and design, ADUs can cost anywhere from $50,000 to $500,000 to build. Most households do not have that cash on hand, and many also do not qualify for existing financing strategies (like home equity loans) due to lack of equity and income. While there are some new tools in the private marketplace, they are often unregulated, raising concerns of fraud and "equity stripping".

Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis' Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects.

How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program would spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product. Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. The Program will be housed in the STO, similar to programs such as TCAC and CDLAC. However, because STO does not have authority to issue the revenue bonds to fund the program, they would be issued by CalHFA.

Concerns about the Program: CalHFA has expressed concerns about the Program, particularly regarding how the bill would reduce its bond rating, raising the cost of borrowing and thereby reducing the amount of affordable housing they could finance. Per CalHFA staff's statement at the CalHFA August 13, 2020 board hearing, "the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA's credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics." CalHFA also notes that the expected bond to facilitate the development of 50,000 units over five years would be approximately $5 to $7 billion, which would be particularly large for a new and untested program. Given the size of the bond and lacking a clear repayment plan, CalHFA is concerned that this Program could jeopardize their other programs.

According to the Author:

According to the Author: "At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families' pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California's housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction."

Arguments in Support:

Supporters argue that this program is necessary to help remove financial impediments to the development of ADUs. According to State Treasure Fiona Ma, AB 69 "will establish an effective tool to untangle the red tape surrounding the financing of accessory dwelling units at a time when the need for affordable housing has never been greater."

Arguments in Opposition:

None on file. However, CalHFA has made the case that this Program will damage its bond rating, and thereby reduce their ability to finance affordable housing. They also note that this not a type of bond they have issued before, and it would be extremely large, and without a clear repayment plan it could put their other programs at risk.

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
2. CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8 percent of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.
3. HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Chiu, Diep, Gabriel, Gloria, Kiley, Limón, Bonta, Mark Stone

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 78-0-2

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia

SENATE FLOOR: 31-7-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Chang, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Dahle, Grove, Melendez, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Borgeas, Jones

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-2-0

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

NO: Diep, Kiley

ASSEMBLY FLOOR: 58-12-9

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Boerner Horvath, Bonta, Burke, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooper, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Waldron, Weber, Wicks, Wood, Rendon

NO: Bigelow, Brough, Choi, Cunningham, Megan Dahle, Diep, Flora, Fong, Gallagher, Kiley, Lackey, Obernolte

ABS, ABST OR NV: Chen, Cooley, Daly, Eggman, Frazier, Mathis, Mayes, Patterson, Voepel

UPDATED:

VERSION: September 4, 2020

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0003736

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 69

Author:(Ting and Bloom)

As Amended Ver:August 25, 2020

Majority vote

SUMMARY:

Establishes a new program in the State Treasurer's Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

The Senate Amendments:

Delete and replace the version passed by the Assembly. Specifically, the amendments:

1. Remove the requirement that the state Department of Housing and Community Development (HCD) submit proposed small building home standards to the California Building Standards Commission (CBSC), on or before January 1, 2021, for accessory dwelling units (ADUs) and homes of less than 800 square feet.
2. Create the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs, as follows:
   1. Require the STO, within six months of the effective date of this bill, to establish the Program. Require the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
   2. Specify that the homeowners eligible for the Program must be an owner of a single-family residential property and that they do not own more than three residential properties that consist of one to four units.
   3. Require the Program to:
      1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
      2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
      3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
      4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
      5. Be designed to add 50,000 units to single-family properties within five years.
      6. Require the STO to establish for the Program
      7. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
      8. Minimum criteria for an originating lender to participate in the program based on the lender's history of originating federally backed construction loans or ADU loans.
      9. The maximum percentage of actual loss guaranteed by the state under this program.
      10. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
      11. That the applicant must be the owner and occupant of the existing primary residence
   4. Require CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establish an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.

Provide that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

COMMENTS:

ADUs a part of the solution to the housing crisis: ADUs are additional living quarters that are independent of the primary dwelling unit on the same lot. ADUs are either attached or detached to the primary dwelling unit, and provide complete independent living facilities for one or more person, including separate access from the property's primary unit. This includes permanent provisions for living, sleeping, eating, cooking, and sanitation. JADUs are ADUs that are no more than 500 square feet and exist within single-family homes and have cooking facilities including a sink and stove but are not required to have a bathroom.

ADUs have been identified as an important piece of the solution to California's housing crisis. According to the Terner Center for Housing Innovation at UC Berkeley, the average cost to build an ADU is relatively inexpensive at $156,000. Because of their size and lower cost to construct, the Terner Center found that 58 percent of ADUs are rented out at below market rate.

Over the past few years, the legislature has passed a number of bills to ease zoning restrictions and expedite the approval processes at the local level, which has contributed to the increased supply of ADUs throughout the state. For example, in the city of Los Angeles, since 2017 a total of 9,247 applications have been received for ADUs. This represents an approximate 30-fold increase as compared to the citywide average in the many years before the state law changed to reduce barriers to ADUs. Similarly, the city of Santa Rosa received 118 applications for ADUs in 2018, compared to 54 total from 2008-2016.

Financing for ADUs. While state laws have made it procedurally easier to build ADUs, there are still substantial financial hurdles. Depending on the size and design, ADUs can cost anywhere from $50,000 to $500,000 to build. Most households do not have that cash on hand, and many also do not qualify for existing financing strategies (like home equity loans) due to lack of equity and income. While there are some new tools in the private marketplace, they are often unregulated, raising concerns of fraud and "equity stripping".

Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis' Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects.

How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program would spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product. Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. The Program will be housed in the STO, similar to programs such as TCAC and CDLAC. However, because STO does not have authority to issue the revenue bonds to fund the program, they would be issued by CalHFA.

Concerns about the Program: CalHFA has expressed concerns about the Program, particularly regarding how the bill would reduce its bond rating, raising the cost of borrowing and thereby reducing the amount of affordable housing they could finance. Per CalHFA staff's statement at the CalHFA August 13, 2020 board hearing, "the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA's credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics." CalHFA also notes that the expected bond to facilitate the development of 50,000 units over five years would be approximately $5 to $7 billion, which would be particularly large for a new and untested program. Given the size of the bond and lacking a clear repayment plan, CalHFA is concerned that this Program could jeopardize their other programs.

According to the Author:

"At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families' pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California's housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction."

Arguments in Support:

Supporters argue that this program is necessary to help remove financial impediments to the development of ADUs. According to State Treasure Fiona Ma, AB 69 "will establish an effective tool to untangle the red tape surrounding the financing of accessory dwelling units at a time when the need for affordable housing has never been greater."

Arguments in Opposition:

None on file. However, CalHFA has made the case that this Program will damage its bond rating, and thereby reduce their ability to finance affordable housing. They also note that this not a type of bond they have issued before, and it would be extremely large, and without a clear repayment plan it could put their other programs at risk

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
2. CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8 percent of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.
3. HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Chiu, Diep, Gabriel, Gloria, Kiley, Limón, Bonta, Mark Stone

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 78-0-2

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia

SENATE FLOOR: 31-7-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Chang, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Dahle, Grove, Melendez, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Borgeas, Jones

UPDATED:

VERSION: August 25, 2020

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0003592

(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA2 Bill Id:AB 69

Author:(Ting and Bloom)

As Amended Ver:August 25, 2020

Majority vote

SUMMARY:

Establishes a new program in the State Treasurer's Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

The Senate Amendments:

Delete and replace the version passed by the Assembly. Specifically, the amendments:

1. Remove the requirement that the state Department of Housing and Community Development (HCD) submit proposed small building home standards to the California Building Standards Commission (CBSC), on or before January 1, 2021, for accessory dwelling units (ADUs) and homes of less than 800 square feet.
2. Create the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs, as follows:
   1. Require the STO, within six months of the effective date of this bill, to establish the Program. Require the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
   2. Specify that the homeowners eligible for the Program must be an owner of a single-family residential property and that they do not own more than three residential properties that consist of one to four units.
   3. Require the Program to:
      1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
      2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
      3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
      4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
      5. Be designed to add 50,000 units to single-family properties within five years.
   4. Require the STO to establish for the Program:
      1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
      2. Minimum criteria for an originating lender to participate in the program based on the lender's history of originating federally backed construction loans or ADU loans.
      3. The maximum percentage of actual loss guaranteed by the state under this program.
      4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
      5. That the applicant must be the owner and occupant of the existing primary residence
   5. Require CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establish an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
   6. Provide that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

COMMENTS:

ADUs a part of the solution to the housing crisis: ADUs are additional living quarters that are independent of the primary dwelling unit on the same lot. ADUs are either attached or detached to the primary dwelling unit, and provide complete independent living facilities for one or more person, including separate access from the property's primary unit. This includes permanent provisions for living, sleeping, eating, cooking, and sanitation. JADUs are ADUs that are no more than 500 square feet and exist within single-family homes and have cooking facilities including a sink and stove but are not required to have a bathroom.

ADUs have been identified as an important piece of the solution to California's housing crisis.

According to the Terner Center for Housing Innovation at UC Berkeley, the average cost to build an ADU is relatively inexpensive at $156,000. Because of their size and lower cost to construct, the Terner Center found that 58% of ADUs are rented out at below market rate.

Over the past few years, the legislature has passed a number of bills to ease zoning restrictions and expedite the approval processes at the local level, which has contributed to the increased supply of ADUs throughout the state. For example, in the city of Los Angeles, since 2017 a total of 9,247 applications have been received for ADUs. This represents an approximate 30-fold increase as compared to the citywide average in the many years before the state law changed to reduce barriers to ADUs. Similarly, the city of Santa Rosa received 118 applications for ADUs in 2018, compared to 54 total from 2008-2016.

Financing for ADUs. While state laws have made it procedurally easier to build ADUs, there are still substantial financial hurdles. Depending on the size and design, ADUs can cost anywhere from $50,000 to $500,000 to build. Most households do not have that cash on hand, and many also do not qualify for existing financing strategies (like home equity loans) due to lack of equity and income. While there are some new tools in the private marketplace, they are often unregulated, raising concerns of fraud and "equity stripping".

Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis' Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects.

How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program would spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product. Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. The Program will be housed in the STO, similar to programs such as TCAC and CDLAC. However, because STO does not have authority to issue the revenue bonds to fund the program, they would be issued by CalHFA.

Concerns about the Program: CalHFA has expressed concerns about the Program, particularly regarding how the bill would reduce its bond rating, raising the cost of borrowing and thereby reducing the amount of affordable housing they could finance. Per CalHFA staff's statement at the CalHFA August 13, 2020 board hearing, "the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA's credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics." CalHFA also notes that the expected bond to facilitate the development of 50,000 units over five years would be approximately $5 to $7 billion, which would be particularly large for a new and untested program. Given the size of the bond and lacking a clear repayment plan, CalHFA is concerned that this Program could jeopardize their other programs.

According to the Author:

According to the Author: "At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families' pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California's housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction."

Arguments in Support:

Supporters argue that this program is necessary to help remove financial impediments to the development of ADUs. According to State Treasure Fiona Ma, AB 69 "will establish an effective tool to untangle the red tape surrounding the financing of accessory dwelling units at a time when the need for affordable housing has never been greater."

Arguments in Opposition:

None on file. However, CalHFA has made the case that this Program will damage its bond rating, and thereby reduce their ability to finance affordable housing. They also note that this not a type of bond they have issued before, and it would be extremely large, and without a clear repayment plan it could put their other programs at risk.

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
2. CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8% of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.

HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Chiu, Diep, Gabriel, Gloria, Kiley, Limón, Bonta, Mark Stone

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 78-0-2

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia

SENATE FLOOR: 31-7-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Chang, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Dahle, Grove, Melendez, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Borgeas, Jones

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-2-0

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

NO: Diep, Kiley

UPDATED:

VERSION: August 25, 2020

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0003696

Date of Hearing: August 30, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 69 (

Author:Ting) – As Amended Ver:August 25, 2020

SUBJECT: Help Homeowners Add New Housing Program: accessory dwelling unit financing.

SUMMARY: Establishes a new program in the State Treasurer’s Office (STO) to help homeowners finance additional housing units and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program. Specifically, this bill:

1. Creates the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs).

1. Requires the STO, within six months of the effective date of this bill, to establish the Program. Requires the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
2. Specifies that the homeowners eligible for the Program must be an owner of a single-family residential property and that they do not own more than three residential properties that consist of one to four units.
3. Requires the Program to:
   1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
   2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
   3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
   4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
   5. Be designed to add 50,000 units to single-family properties within five years.
4. Requires the STO to establish for the Program:
   1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
   2. Minimum criteria for an originating lender to participate in the program based on the lender’s history of originating federally backed construction loans or ADU loans.
   3. The maximum percentage of actual loss guaranteed by the state under this program.
   4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
   5. That the applicant must be the owner and occupant of the existing primary residence
5. Requires CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establishes an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
6. Provides that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

EXISTING LAW:

1. Establishes the Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) under the STO. TCAC administers the federal and state low-income housing tax credit programs, which promote private investment in housing affordable to low-income Californians. CDLAC sets and allocates California’s annual debt ceiling and administers the state’s tax-exempt bond program to issue the debt. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and finance industrial development projects.
2. Establishes CalHFA, which provides first mortgage loans and down payment assistance to first-time homebuyers, as well as financing and programs for affordable rental housing. CalHFA is a self-supporting state agency. Its bonds are repaid by revenues generated through mortgage loans.
3. Under ADU law:
   1. Provides that if a locality adopts a local ADU ordinance, it must meet certain requirements and cannot impose certain requirements, as specified;
   2. Requires a local agency to ministerially approve, within 60 days, an application for a building permit to create an ADU and a JADU, as specified;
   3. Prohibits a local ordinance from requiring an applicant for an ADU to be an owner occupant;
   4. Imposes certain minimum and maximum square footage, height, and setback limits for ADUs; and
   5. Provides for a tiered schedule of impact fees based on the size of the ADU, as specified.

FISCAL EFFECT:

According to the Senate Appropriations Committee:

• The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
• CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8 percent of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.
• HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

COMMENTS:

According to the Author: “At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families’ pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California’s housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction.”

ADUs a part of the solution to the housing crisis: ADUs are additional living quarters that are independent of the primary dwelling unit on the same lot. ADUs are either attached or detached to the primary dwelling unit, and provide complete independent living facilities for one or more person, including separate access from the property’s primary unit. This includes permanent provisions for living, sleeping, eating, cooking, and sanitation. JADUs are ADUs that are no more than 500 square feet and exist within single-family homes and have cooking facilities including a sink and stove but are not required to have a bathroom.

ADUs have been identified as an important piece of the solution to California’s housing crisis.

According to the Terner Center for Housing Innovation at UC Berkeley, the average cost to build an ADU is relatively inexpensive at $156,000. Because of their size and lower cost to construct, the Terner Center found that 58 percent of ADUs are rented out at below market rate.

Over the past few years, the legislature has passed a number of bills to ease zoning restrictions and expedite the approval processes at the local level, which has contributed to the increased supply of ADUs throughout the state. For example, in the city of Los Angeles, since 2017 a total of 9,247 applications have been received for ADUs. This represents an approximate 30-fold increase as compared to the citywide average in the many years before the state law changed to reduce barriers to ADUs. Similarly, the city of Santa Rosa received 118 applications for ADUs in 2018, compared to 54 total from 2008-2016.

Financing for ADUs. While state laws have made it procedurally easier to build ADUs, there are still substantial financial hurdles. Depending on the size and design, ADUs can cost anywhere from $50,000 to $500,000 to build. Most households do not have that cash on hand, and many also do not qualify for existing financing strategies (like home equity loans) due to lack of equity and income. While there are some new tools in the private marketplace, they are often unregulated, raising concerns of fraud and “equity stripping”.

Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis’ Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects.

How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program would spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product. Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. The Program will be housed in the STO, similar to programs such as TCAC and CDLAC. However, because STO does not have authority to issue the revenue bonds to fund the program, they would be issued by CalHFA.

Concerns about the Program: CalHFA has expressed concerns about the Program, particularly regarding how the bill would reduce its bond rating, raising the cost of borrowing and thereby reducing the amount of affordable housing they could finance. Per CalHFA staff’s statement at the CalHFA August 13, 2020 board hearing, “the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA’s credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics.” CalHFA also notes that the expected bond to facilitate the development of 50,000 units over five years would be approximately $5 to $7 billion, which would be particularly large for a new and untested program. Given the size of the bond and lacking a clear repayment plan, CalHFA is concerned that this Program could jeopardize their other programs.

Arguments in Support: Supporters argue that this program is necessary to help remove financial impediments to the development of ADUs. According to State Treasure Fiona Ma, AB 69 “will establish an effective tool to untangle the red tape surrounding the financing of accessory dwelling units at a time when the need for affordable housing has never been greater.”

Arguments in Opposition: None on file. However, CalHFA has made the case that this Program will damage its bond rating, and thereby reduce their ability to finance affordable housing. They also note that this not a type of bond they have issued before, and it would be extremely large, and without a clear repayment plan it could put their other programs at risk.

REGISTERED SUPPORT / OPPOSITION:

Support

Bay Area Council (co-sponsor)

California State Treasurer Fiona Ma (co-sponsor)

American Planning Association, California Chapter
California Apartment Association
California Association of Realtors
California YIMBY
Generation Housing
Habitat for Humanity California
Napa Sonoma ADU Center
North Bay Leadership Council
Terner Center for Housing Innovation at the University of California, Berkeley
The Casita Coalition
The Two Hundred

Opposition

None on file.

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

 THIRD READING  

Bill No: AB 69

Author: Ting (D) and Bloom (D), et al.

Amended: 8/25/20 in Senate

Vote: 21

PRIOR VOTES NOT RELEVANT

SENATE HOUSING COMMITTEE: 8-1, 8/6/20 (Pursuant to Senate Rule 29.10)

AYES: Wiener, Caballero, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Moorlach

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/20/20

AYES: Portantino, Bradford, Durazo, Hill, Wieckowski

NOES: Bates, Jones

SUBJECT: Help Homeowners Add New Housing Program: accessory dwelling unit financing

SOURCE: California State Treasurer Fiona Ma

Bay Area Council

DIGEST:

This bill establishes a new program in the State Treasurer’s Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

Senate Floor Amendments of 8/25/20 provide that a program participant must be an owner and occupant of the primary dwelling.

ANALYSIS:

Existing law:

1. Establishes the Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) under the STO. TCAC administers the federal and state low-income housing tax credit programs, which promote private investment in housing affordable to low-income Californians. CDLAC sets and allocates California’s annual debt ceiling and administers the state’s tax-exempt bond program to issue the debt. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and finance industrial development projects.
2. Establishes CalHFA, which provides first mortgage loans and down payment assistance to first-time homebuyers, as well as financing and programs for affordable rental housing. CalHFA is a self-supporting state agency; its bonds are repaid by revenues generated through mortgage loans.
3. Provides for the following, under ADU law:
   1. Provides that if a locality adopts a local ADU ordinance, it must meet certain requirements and cannot impose certain requirements, as specified.
   2. Requires a local agency to ministerially approve, within 60 days, an application for a building permit to create an ADU and a JADU, as specified.
   3. Prohibits a local ordinance from requiring an applicant for an ADU to be an owner occupant.
   4. Imposes certain minimum and maximum square footage, height, and setback limits for ADUs.
   5. Provides for a tiered schedule of impact fees based on the size of the ADU, as specified.

This bill:

1. Requires the STO, within six months of the effective date of this bill, to establish the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs. Requires the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
2. Requires the Program to:
   1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
   2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
   3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
   4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
   5. Require an applicant to be an owner and occupant of the existing primary residence.
   6. Be designed to add 50,000 units to single-family properties within five years.
3. Requires the STO to establish for the Program:
   1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
   2. Minimum criteria for an originating lender to participate in the program based on the lender’s history of originating federally backed construction loans or ADU loans.
   3. The maximum percentage of actual loss guaranteed by the state under this program.
   4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
4. Requires CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establishes an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
5. Provides that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

Background

ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence. Local ADU ordinances must meet specified parameters outlined in existing state law. Local governments may also adopt ordinances for JADUs, which are no more than 500 square feet and are bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink and stove, but is not required to have a bathroom. HCD notes that “ADUs are an innovative, affordable, effective option for adding much-needed housing in California.”

According to a UC Berkeley study, Yes in My Backyard: Mobilizing the Market for Secondary Units, second units are a means to accommodate future growth and encourage infill development in developed neighborhoods. Despite existing state law, which requires each city in the state to have a ministerial process for approving second units, the study found that local regulations often impede development. Last year, several bills, particularly SB 13 (Wieckowski, Chapter 653, Statutes of 2019) and AB 68 (Ting, Chapter 655, Statutes of 2019), relaxed multiple requirements for the construction and permitting of ADUs and JADUs. The cost of constructing an ADU, however, can still be high.

Comments

1. Author’s statement. “At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families’ pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California’s housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction.”
2. Current state funding for ADUs. Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis’ Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects. The home plans, each less than 400 square feet, are intended to orient onto alleys in an effort to both revitalize alleys and create more housing. No other pilots have been implemented at this time.
3. Stimulus package. On July 27, 2020, a coalition of Assembly and Senate Democrats unveiled a joint $100 billion stimulus plan aimed at boosting the economy and protecting jobs, small businesses, and working families. This plan is to be funded through a new tax voucher program and the acceleration of other existing revenue streams. One of the goals of the plan, to “increase affordable housing supply by helping homeowners access financing to build ADUs,” is addressed by this bill.
4. How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program will spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product, such as the HomeReady Program (see below). Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. While the Program will be housed in the STO, similar to programs such as TCAC and CDLAC, the revenue bonds to fund the program will be issued by CalHFA.
5. The HomeReady Program. The HomeReady Mortgage Program, under the Federal National Mortgage Association (Fannie Mae), is a down payment program aimed at helping low- and moderate-income borrowers in designated low-income and disaster-impacted communities. HomeReady offers low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to homebuyers who would otherwise qualify for a mortgage but do not have the resources for a large down payment. To qualify, the borrower’s income must be below 100% AMI, except there is no income limit on properties in low-income Census tracts. The program allows for a credit score as low as 620. HomeReady is offered for owner-occupied primary residences, including single-family homes of one to four units, condominiums, townhomes, and planned unit developments. Manufactured housing mortgages are also available, as well as flexibility for extended family households, such as allowing rental income for an ADU or boarder.
6. CalHFA concerns. The CalHFA board discussed its concerns with this bill at its meeting on August 13, 2020. According to CalHFA, “the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA’s credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics.”
7. Senate Housing Committee concerns. The Senate Housing Committee acknowledges the significant need to create additional housing units across the state.  However, in order to best focus limited state resources, state housing programs are generally targeted to participants or units at lower-income levels.  The Program created by this bill does not restrict rental rates on ADUs financed under the Program; nor does it place any income restrictions on participating homeowners.  To ensure that the Program focuses on homeowners most in need of assistance, the STO may wish to consider the following issues when establishing the Program (please see the Senate Housing Committee analysis for more detail).
   1. Homeowner eligibility.  The STO may wish to consider requiring a certain percentage of the Program to be targeted to homeowners at or below 100% of the area median income of the county in which the home is located.
   2. Eligibility of homes.  The STO may wish to consider restricting the program to homes that do not exceed 150% of the median home price for the area.
   3. Rental requirements.  The STO may wish to explicitly require participating homeowners to rent or lease out ADUs built under this Program, for a minimum number of years.
   4. Geographic distribution.  To ensure that the Program is available statewide, the STO should take measures to ensure a reasonable rate of participation across all areas of the state.
   5. Adoption of Program requirements.  The STO should consult with all interested stakeholders and conduct at least one public meeting prior to adopting Program regulations.
   6. Outreach.  The STO should conduct outreach activities, particularly in disadvantaged communities, to disseminate information about the Program to eligible homeowners.
   7. Program effectiveness.  The STO may wish to consider annually updating the Legislature on its progress toward the stated goal of creating 50,000 ADUs over the next five years, as well as the average income of participating homeowners and their renters.
8. 29.10 referral. This bill originally required HCD to submit proposed small home building standards to the California Building Standards Commission for ADUs and homes of less than 800 square feet. It was amended on July 28, 2020, to remove those provisions and add the current language. Since this bill would also have been referred to the Senate Governance and Finance Committee had it been introduced earlier in the year, comments from that Committee are included in the policy committee analysis. Please see the Senate Housing Committee analysis for more detail.

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

According to the Senate Appropriations Committee:

• The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
• CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8% of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.
• HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

SUPPORT: (Verified 8/25/20)

California State Treasurer Fiona Ma (co-source)
Bay Area Council (co-source)
American Planning Association, California Chapter
California Apartment Association
California Association of Realtors
California YIMBY
Generation Housing
Habitat for Humanity California
Napa Sonoma ADU Center
North Bay Leadership Council
Terner Center for Housing Innovation at the University of California, Berkeley
The Casita Coalition
The Two Hundred
One individual

OPPOSITION: (Verified 8/25/20)

None received

ARGUMENTS IN SUPPORT: State Treasurer Fiona Ma states that this bill will provide an effective tool to untangle the red tape surrounding the financing of ADUs at time when the need for affordable housing has never been greater.

Prepared by: Erin Riches / HOUSING / (916) 651-4124

8/26/20 14:59:57

**** END ****

 THIRD READING  

Bill No: AB 69

Author: Ting (D) and Bloom (D), et al.

Amended: 7/30/20 in Senate

Vote: 21

PRIOR VOTES NOT RELEVANT

SENATE HOUSING COMMITTEE: 8-1, 8/6/20 (Pursuant to Senate Rule 29.10)

AYES: Wiener, Caballero, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Moorlach

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/20/20

AYES: Portantino, Bradford, Durazo, Hill, Wieckowski

NOES: Bates, Jones

SUBJECT: Help Homeowners Add New Housing Program: accessory dwelling unit financing

SOURCE: California State Treasurer Fiona Ma

Bay Area Council

DIGEST:

This bill establishes a new program in the State Treasurer’s Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

ANALYSIS:

Existing law:

1. Establishes the Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) under the STO. TCAC administers the federal and state low-income housing tax credit programs, which promote private investment in housing affordable to low-income Californians. CDLAC sets and allocates California’s annual debt ceiling and administers the state’s tax-exempt bond program to issue the debt. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and finance industrial development projects.
2. Establishes CalHFA, which provides first mortgage loans and down payment assistance to first-time homebuyers, as well as financing and programs for affordable rental housing. CalHFA is a self-supporting state agency; its bonds are repaid by revenues generated through mortgage loans.
3. Provides for the following, under ADU law:
   1. Provides that if a locality adopts a local ADU ordinance, it must meet certain requirements and cannot impose certain requirements, as specified.
   2. Requires a local agency to ministerially approve, within 60 days, an application for a building permit to create an ADU and a JADU, as specified.
   3. Prohibits a local ordinance from requiring an applicant for an ADU to be an owner occupant.
   4. Imposes certain minimum and maximum square footage, height, and setback limits for ADUs.
   5. Provides for a tiered schedule of impact fees based on the size of the ADU, as specified.

This bill:

1. Requires the STO, within six months of the effective date of this bill, to establish the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs. Requires the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
2. Requires the Program to:
   1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
   2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
   3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
   4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
   5. Be designed to add 50,000 units to single-family properties within five years.
3. Requires the STO to establish for the Program:
   1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
   2. Minimum criteria for an originating lender to participate in the program based on the lender’s history of originating federally backed construction loans or ADU loans.
   3. The maximum percentage of actual loss guaranteed by the state under this program.
   4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
4. Requires CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establishes an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
5. Provides that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

Background

ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence. Local ADU ordinances must meet specified parameters outlined in existing state law. Local governments may also adopt ordinances for JADUs, which are no more than 500 square feet and are bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink and stove, but is not required to have a bathroom. HCD notes that “ADUs are an innovative, affordable, effective option for adding much-needed housing in California.”

According to a UC Berkeley study, Yes in My Backyard: Mobilizing the Market for Secondary Units, second units are a means to accommodate future growth and encourage infill development in developed neighborhoods. Despite existing state law, which requires each city in the state to have a ministerial process for approving second units, the study found that local regulations often impede development. Last year, several bills, particularly SB 13 (Wieckowski, Chapter 653, Statutes of 2019) and AB 68 (Ting, Chapter 655, Statutes of 2019), relaxed multiple requirements for the construction and permitting of ADUs and JADUs. The cost of constructing an ADU, however, can still be high.

Comments

1. Author’s statement. “At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families’ pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California’s housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction.”
2. Current state funding for ADUs. Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis’ Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects. The home plans, each less than 400 square feet, are intended to orient onto alleys in an effort to both revitalize alleys and create more housing. No other pilots have been implemented at this time.
3. Stimulus package. On July 27, 2020, a coalition of Assembly and Senate Democrats unveiled a joint $100 billion stimulus plan aimed at boosting the economy and protecting jobs, small businesses, and working families. This plan is to be funded through a new tax voucher program and the acceleration of other existing revenue streams. One of the goals of the plan, to “increase affordable housing supply by helping homeowners access financing to build ADUs,” is addressed by this bill.
4. How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program will spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product, such as the HomeReady Program (see below). Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. While the Program will be housed in the STO, similar to programs such as TCAC and CDLAC, the revenue bonds to fund the program will be issued by CalHFA.
5. The HomeReady Program. The HomeReady Mortgage Program, under the Federal National Mortgage Association (Fannie Mae), is a down payment program aimed at helping low- and moderate-income borrowers in designated low-income and disaster-impacted communities. HomeReady offers low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to homebuyers who would otherwise qualify for a mortgage but do not have the resources for a large down payment. To qualify, the borrower’s income must be below 100% AMI, except there is no income limit on properties in low-income Census tracts. The program allows for a credit score as low as 620. HomeReady is offered for owner-occupied primary residences, including single-family homes of one to four units, condominiums, townhomes, and planned unit developments. Manufactured housing mortgages are also available, as well as flexibility for extended family households, such as allowing rental income for an ADU or boarder.
6. CalHFA concerns. The CalHFA board discussed its concerns with this bill at its meeting on August 13, 2020. According to CalHFA, “the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants CalHFA has made to its bondholders…and impinges on our fiscal independence. For this reason, we consider it also has the potential effect of harming CalHFA’s credit ratings…any effect on our credit ratings directly impacts our ability to finance affordable housing. In addition, CalHFA is not authorized to, and has never, issued revenue bonds as mandated in this bill. The bill does not say what the source of repayment would be for those bonds, or how the bond proceeds should be used, or really give any specifics.”
7. Committee concerns. The Senate Housing Committee acknowledges the significant need to create additional housing units across the state. However, in order to best focus limited state resources, state housing programs are generally targeted to participants or units at lower-income levels. The Program created by this bill does not restrict rental rates on ADUs financed under the Program; nor does it place any income restrictions on participating homeowners. Moving forward, to ensure that the Program focuses on homeowners most in need of assistance, the author may wish to consider amending this bill to address the following issues (please see the Housing Committee analysis for more detail).
   1. Homeowner eligibility. The author may wish to consider requiring a certain percentage of the Program to be targeted to homeowners at or below 100% of the area median income of the county in which the home is located.
   2. Eligibility of homes. The author may wish to consider restricting the program to homes that do not exceed 150% of the median home price for the area.
   3. Rental requirements. The author may wish to explicitly require participating homeowners to rent or lease out ADUs built under this Program, for a minimum number of years.
   4. Geographic distribution. To ensure that the Program is available statewide, the author may wish to consider requiring the STO to ensure a reasonable rate of participation across all areas of the state.
   5. Adoption of Program requirements. The author may wish to make development of regulations for this Program subject to the Administrative Procedure Act (APA). Alternatively, the author may wish to require the STO to consult with other interested stakeholders and to conduct at least one public meeting prior to adopting Program regulations.
   6. Outreach. The author may wish to consider requiring the STO to conduct outreach activities, particularly in disadvantaged communities, to disseminate information about the Program to eligible homeowners.
   7. Program effectiveness. The author may wish to consider requiring the STO to submit an annual report to the Legislature detailing progress toward the stated goal of creating 50,000 ADUs over the next five years, as well as the average income of participating homeowners and their renters.
8. 29.10 referral. This bill originally required HCD to submit proposed small home building standards to the California Building Standards Commission for ADUs and homes of less than 800 square feet. It was amended on July 28, 2020 to remove those provisions and add the current language. Since this bill would also have been referred to the Governance and Finance Committee had it been introduced earlier in the year, comments from that committee are included in the policy committee analysis. Please see the Senate Housing Committee analysis for more detail.

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

According to the Senate Appropriations Committee:

• The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
• CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8% of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund). CalHFA indicates that the bill would negatively impact its credit rating and existing programs.
• HCD estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

SUPPORT: (Verified 8/20/20)

California State Treasurer Fiona Ma (co-source)
Bay Area Council (co-source)
American Planning Association, California Chapter
California Apartment Association
California Association of Realtors
California YIMBY
Generation Housing
Habitat for Humanity California
Napa Sonoma ADU Center
North Bay Leadership Council
Terner Center for Housing Innovation at the University of California, Berkeley
The Casita Coalition
The Two Hundred
One individual

OPPOSITION: (Verified 8/20/20)

None received

ARGUMENTS IN SUPPORT: State Treasurer Fiona Ma states that this bill will provide an effective tool to untangle the red tape surrounding the financing of ADUs at time when the need for affordable housing has never been greater.

Prepared by: Erin Riches / HOUSING / (916) 651-4124

8/21/20 17:30:10

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 69 (Ting) - Help Homeowners Add New Housing Program: accessory dwelling unit financing

Bill Summary:

AB 69 would require the State Treasurer’s Office (STO) to establish and administer the Help Homeowners Add New Housing Program (Program) to assist homeowners in qualifying for loans to construct additional housing units on their property, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs). The bill would require the California Housing Finance Agency (CalHFA) to issue revenue bonds to provide sufficient funding for the program, as specified.

Fiscal Impact:

• The STO estimates one-time consulting costs of approximately $675,000 and ongoing costs of approximately $170,000 annually, beginning in 2020-21, for 1.0 PY of staff to establish and administer the program. Staff estimates, however, that personnel costs would likely be significant to coordinate with specified entities to develop and establish the Program within six months of enactment, as well as ongoing duties to coordinate bond sales, and administer and monitor 50,000 loan agreements statewide over five years. The Program would also likely require significant one-time expenditure for IT upgrades. (General Fund)
  
• CalHFA estimates that funding for the construction of 50,000 ADUs/JADUs over five years would require the issuance of approximately $5-$7 billion in bonds, resulting in financing costs of approximately $40-$60 million (approximately 0.8% of the issuance amount). It is unclear whether these costs could be offset by revenues generated by operating the Program. (California Housing Finance Fund)
  CalHFA indicates that the bill would negatively impact its credit rating and existing programs. (See staff comments)
  
• The Department of Housing and Community Development (HCD) estimates first year costs of approximately $101,000 and $95,000 annually thereafter for 0.5 PY of staff time to consult with the STO and CalHFA in establishing the program, and for ongoing increased technical assistance related to the increased construction of ADUs and JADUs. (General Fund)

Background:

Existing law establishes the Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) under the STO. TCAC administers the federal and state low-income housing tax credit programs, which promote private investment in housing affordable to low-income Californians. CDLAC sets and allocates California’s annual debt ceiling and administers the state’s tax-exempt bond program to issue the debt. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and finance industrial development projects.

CalHFA is an independent entity within HCD that was established in 1975 and is financially self-supporting; funding for its programs and operations comes from the sales of tax-exempt and taxable revenue bonds, and it sets its loan interest rates slightly higher than debt service costs and charges fees for specific services to cover its lending costs and risks. Historically, CalHFA has provided housing assistance in three areas: (1) below-market interest rate mortgages and downpayment assistance for first-time homebuyers, most of whom were low- and moderate income families and ethnic minorities not well-served by market rate products, (2) insurance for single-family home purchase mortgages, and (3) loans for the development of multifamily rental housing. These financial products were funded through sale of revenue bonds secured by the mortgage products and the underlying property. The operating costs of the agency are funded by origination and service fees, and the spread between the interest paid on its outstanding debt and the interest charged on the loans made. CalHFA also provides downpayment assistance loans, sometimes referred to as silent second mortgages, from the proceeds of general obligation housing bonds.

Accessory Dwelling Units (ADUs), also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to or detached from the primary residence. This form of housing is often used by additional family members, students, the elderly, in-home health care providers, the disabled, and others, at below market prices within existing neighborhoods.

Existing law requires local agencies to ministerially permit the development of ADUs and JADUs on residential parcels, either within the space of an existing single family home or in a new or converted structure in the rear of a property, or both, regardless of local zoning restrictions. ADU law places numerous specified limitations on the ability of local governments to impose requirements on ADUs to encourage small-scale neighborhood development. ADUs are gaining in popularity, and the recent efforts to promote ADU construction and limit local constraints have resulted in substantial increases in permit applications in some jurisdictions.

Proposed Law:

AB 69 would do the following:

• Require the STO, within six months of the effective date of the bill, to establish the Help Homeowners Add New Housing Program to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs. The STO is required to consult with HCD and CalHFA in establishing and administering the Program, and may also consult with private lenders in developing the Program.
• Require the Program to:
  • Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
  • Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans
  • Require originating lenders to retain a percentage of risk in an amount determined by the STO.
  • Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
  • Be designed to add 50,000 units to single-family properties within five years.
• Require the STO to establish all of the following when developing the Program:
  • Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
  • Minimum criteria for an originating lender to participate in the program based on the lender’s history of originating federally backed construction loans or ADU loans.
  • The maximum percentage of actual loss guaranteed by the state under this program.
  • A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
• Establish The Help Homeowners Add New Housing Account within CalHFA’s California Housing Finance Fund, continuously appropriate the funds for the bill’s purposes, and authorize the STO to pledge any or all of the moneys in the account as security for payment of the principal of, interest on, and redemption premiums on, any debt issued pursuant to the bill.
• Require CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program.
• Specify that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

Staff Comments:

This bill is intended to provide bridge loans for the construction of ADUSs to homeowners who have difficulty qualifying for traditional financing with the goal of incentivizing construction of 50,000 additional housing units over five years. Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis’ Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects. The home plans, each less than 400 square feet, are intended to orient onto alleys in an effort to both revitalize alleys and create more housing.

CalHFA, under advisement from its bond counsel, notes that the ability of an outside party to direct CalHFA to issue an unspecified amount of bonds for a non-CalHFA program violates the covenants it has made to its bondholders and impinges on its fiscal independence. As such, it has the potential to harm CalHFA’s bond rating, increasing the cost of borrowing, and impacting its ability to finance affordable housing through its existing programs. Typically, revenue bonds to construct public infrastructure that generates direct revenues, such as parking lots, bridges or roads that generate toll revenues, or mortgage revenue bonds for housing projects. CalHFA notes that the revenue bonds issued by this bill do not have a clear source for repayment, and should not be confused with traditional mortgage revenue bonds, which cannot be used to fund loan guarantees and require a CDLAC volume cap allocation.

Staff notes that the AB 69 was previously heard by this Committee, and approved on August 30, 2019. The previous version would have required HCD to submit proposed small home building standards to the California Building Standards Commission for ADUs and homes of less than 800 square feet. It was amended on July 28, 2020 to remove those provisions and add the current language.

-- END --

SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2019 - 2020 Regular

Bill No: AB 69 Hearing Date: 8/6/2020

SUBJECT: Help Homeowners Add New Housing Program: accessory dwelling unit financing

DIGEST: This bill establishes a new program in the State Treasurer’s Office (STO) to help homeowners finance additional housing units, including accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs), and authorizes the California Housing Finance Agency (CalHFA) to issue revenue bonds to fund the program.

ANALYSIS:

Existing law:

1. Establishes the Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) under the STO. TCAC administers the federal and state low-income housing tax credit programs, which promote private investment in housing affordable to low-income Californians. CDLAC sets and allocates California’s annual debt ceiling and administers the state’s tax-exempt bond program to issue the debt. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and finance industrial development projects.
2. Establishes CalHFA, which provides first mortgage loans and down payment assistance to first-time homebuyers, as well as financing and programs for affordable rental housing. CalHFA is a self-supporting state agency; its bonds are repaid by revenues generated through mortgage loans.
3. Under ADU law:
   1. Provides that if a locality adopts a local ADU ordinance, it must meet certain requirements and cannot impose certain requirements, as specified.
   2. Requires a local agency to ministerially approve, within 60 days, an application for a building permit to create an ADU and a JADU, as specified.
   3. Prohibits a local ordinance from requiring an applicant for an ADU to be an owner occupant.
   4. Imposes certain minimum and maximum square footage, height, and setback limits for ADUs.
   5. Provides for a tiered schedule of impact fees based on the size of the ADU, as specified.

This bill:

1. Requires the STO, within six months of the effective date of this bill, to establish the Help Homeowners Add New Housing Program (Program) to help homeowners qualify for loans to construct additional housing units on their property, including ADUs and JADUs. Requires the STO to consult with the state Department of Housing and Community Development (HCD) and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program.
2. Requires the Program to:
   1. Provide partial loan guarantees and other credit enhancements for residential property owners in order to induce private lenders to issue loans for the construction of additional units, which will then be rented out.
   2. Require the state to partner with private lenders with a history of originating federally backed construction loans or ADU loans.
   3. Require originating lenders to retain a percentage of risk in an amount determined by the STO.
   4. Charge premiums, fees, and interest sufficient to cover the administrative costs of the program and the risk of defaults associated with the program.
   5. Be designed to add 50,000 units to single-family properties within five years.
3. Requires the STO to establish for the Program:
   1. Minimum criteria for a homeowner to participate in the program based on income, credit worthiness, home equity, potential rental income of the proposed unit, and any other criteria deemed relevant by the STO.
   2. Minimum criteria for an originating lender to participate in the program based on the lender’s history of originating federally backed construction loans or ADU loans.
   3. The maximum percentage of actual loss guaranteed by the state under this program.
   4. A premium structure to adequately cover the administrative costs of the program and the risk of defaults associated with the program.
4. Requires CalHFA, in coordination with the STO, to issue revenue bonds in a principal amount determined by the STO to provide sufficient funding for the Program. Establishes an account for the Program in the California Housing Finance Account, administered by CalHFA, and provides for continuous appropriation of funds to the Program.
5. Provides that bonds issued pursuant to this bill do not constitute a debt or liability of the state and do not constitute a pledge of the full faith and credit of the state, but are payable solely from the funds provided to the Program.

COMMENTS

1. Author’s statement. “At a time when more families are struggling to make ends meet and the consequences of homelessness are growing, AB 69 will help get more affordable units online and money in families’ pockets. As the demand for housing continues to outpace supply, ADUs have surged in popularity as a way to address California’s housing crisis. AB 69 will help create an anticipated 50,000 ADUs over the next five years and provide just as many families with additional rental income by providing homeowners with bridge loans to finance ADU construction.”
2. Background: ADUs. ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence. Local ADU ordinances must meet specified parameters outlined in existing state law. Local governments may also adopt ordinances for JADUs, which are no more than 500 square feet and are bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink and stove, but is not required to have a bathroom. HCD notes that “ADUs are an innovative, affordable, effective option for adding much-needed housing in California.”

According to a UC Berkeley study, Yes in My Backyard: Mobilizing the Market for Secondary Units, second units are a means to accommodate future growth and encourage infill development in developed neighborhoods. Despite existing state law, which requires each city in the state to have a ministerial process for approving second units, the study found that local regulations often impede development. Last year, several bills, particularly SB 13 (Wieckowski) and AB 68 (Ting), relaxed multiple requirements for the construction and permitting of ADUs and JADUs.

The cost of constructing an ADU, however, can still be high. The STO, co-sponsor of this bill, notes that many lower income homeowners, as well as homeowners who have not yet built up significant equity in their homes, are struggling to obtain loans to construct ADUs.

1. Current state funding for ADUs. Currently, the only state program that provides funding for ADU construction is a pilot program under CalHFA. Under this program, CalHFA is partnering with Self-Help Housing Enterprises, a community development organization based in the San Joaquin Valley, to use $2.5 million in CalHFA funding to act as the construction lender for the City of Clovis’ Cottage Home Program. The city is providing three design templates to homeowners at no cost, in addition to expedited reviews and fee waivers, for ADU projects. The home plans, each less than 400 square feet, are intended to orient onto alleys in an effort to both revitalize alleys and create more housing. No other pilots have been implemented at this time.
2. Stimulus package. On July 27, 2020, a coalition of Assembly and Senate Democrats unveiled a joint $100 billion stimulus plan aimed at boosting the economy and protecting jobs, small businesses, and working families. This plan is to be funded through a new tax voucher program and the acceleration of other existing revenue streams. One of the goals of the plan, to “increase affordable housing supply by helping homeowners access financing to build ADUs,” is addressed by this bill.
3. How would the Program work? The intent of this bill is to provide homeowners with bridge loans to finance ADU construction until they can begin generating rental income from the ADU and thereby qualify for existing loan programs. Specifically, the state will partner with private mortgage lenders with existing track records of originating federally-backed construction and ADU loans. The Program will spur private market lending by providing lenders with financing, a credit guarantee, or both, for short-term loans to homeowners for the construction period and until homeowners are eligible for an existing federally-backed mortgage product, such as the HomeReady Program (see below). Initial capitalization of the Program will be provided through the issuance of revenue bonds; the bonds will be repaid through revenues generated by fees or interest, or both, charged by the state to participating lenders and homeowners. While the Program will be housed in the STO, similar to programs such as TCAC and CDLAC, the revenue bonds to fund the program will be issued by CalHFA.
4. The HomeReady Program. The HomeReady Mortgage Program, under the Federal National Mortgage Association (Fannie Mae), is a down payment program aimed at helping low- and moderate-income borrowers in designated low-income and disaster-impacted communities. HomeReady offers low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to homebuyers who would otherwise qualify for a mortgage but do not have the resources for a large down payment. To qualify, the borrower’s income must be below 100% AMI, except there is no income limit on properties in low-income Census tracts. The program allows for a credit score as low as 620. HomeReady is offered for owner-occupied primary residences, including single-family homes of one to four units, condominiums, townhomes, and planned unit developments. Manufactured housing mortgages are also available, as well as flexibility for extended family households, such as allowing rental income for an ADU or boarder.
5. Committee concerns. The committee acknowledges the significant need to create additional housing units across the state. However, in order to best focus limited state resources, state housing programs are generally targeted to participants or units at lower-income levels. The Program created by this bill does not restrict rental rates on ADUs financed under the Program; nor does it place any income restrictions on participating homeowners. Moving forward, to ensure that the Program focuses on homeowners most in need of assistance, the author may wish to consider amending this bill to address the following issues.
   1. Homeowner eligibility. This bill defines an eligible homeowner as an owner of a single-family residential property who does not own more than three 1-4 unit residential properties. While limiting the Program to lower-income homeowners could either make lenders unwilling to participate, or drive the state guarantee higher to help address loan default risk, the author may wish to consider requiring a certain percentage of the Program to be targeted to homeowners at or below 100% of the area median income of the county in which the home is located.
      
   2. Eligibility of homes. The author may wish to consider restricting the program to homes that do not exceed 150% of the median home price for the area.
   3. Rental requirements. The committee understands that the author prefers not to place rental restrictions on the Program, since participating homeowners will use the ADU rental income to repay the loans. That said, it is important to ensure that the Program actually results in new units of housing. To that end, the author may wish to explicitly require participating homeowners to rent or lease out ADUs built under this Program, for a minimum number of years.
      
   4. Geographic distribution. To ensure that the Program is available statewide, the author may wish to consider requiring the STO to ensure a reasonable rate of participation across all areas of the state.
      
   5. Adoption of Program requirements. State programs are generally subject to the Administrative Procedure Act (APA), which establishes rulemaking procedures and standards for state agencies in California. The requirements set forth in the APA are designed to provide the public with a meaningful opportunity to participate in the adoption of state regulations and to ensure that regulations are clear, necessary, and legally valid. Currently, of the two main housing programs under the STO, TCAC is not subject to the APA, while CDLAC is.

This bill requires the STO to consult with HCD and CalHFA, and authorizes the STO to consult with private lenders, in developing the Program. The author may wish to make development of regulations for this Program subject to the APA. Alternatively, the author may wish to require the STO to consult with other interested stakeholders and to conduct at least one public meeting prior to adopting Program regulations.

• 1. Outreach. The author may wish to consider requiring the STO to conduct outreach activities, particularly in disadvantaged communities, to disseminate information about the Program to eligible homeowners.
     
  2. Program effectiveness. The author may wish to consider requiring the STO to submit an annual report to the Legislature detailing progress toward the stated goal of creating 50,000 ADUs over the next five years, as well as the average income of participating homeowners and their renters.

1. 29.10 referral. This bill originally required HCD to submit proposed small home building standards to the California Building Standards Commission for ADUs and homes of less than 800 square feet. It was amended on July 28, 2020 to remove those provisions and add the current language. Since this bill would also have been referred to the Governance and Finance Committee had it been introduced earlier in the year, comments from that committee are included in this analysis.

According to the Governance and Finance Committee:

"California operates several loan loss reserve programs: the California Alternative Energy and Advanced Transportation Authority guarantees loans made under the Property Assessed Clean Energy program to support financing of energy or water efficiency property improvements, the California Pollution Control Financing Authority administers the Capital Access Program for Small Business, also known as CalCAP, which guarantees loans to small businesses, and the California Infrastructure and Economic Development Bank guarantees different kinds of loans under its Small Business Finance Center, among others. These programs reimburse lenders for some or all of their losses when borrowers default on qualifying loans, resulting in a broader extension of credit and lower interest rates than would be available but for these programs. Programs generally reimburse lenders from pre-existing trust funds or moneys appropriated by the Legislature; each program only guarantees as much loans based on overall default risk as can be supported by current resources.

AB 69 departs from this model by using the proceeds from the issuance of revenue bonds repaid by fees derived from lenders and borrowers under the bill's program to guarantee loans, which presents potential barriers for its program that do not apply to these other programs. First, issuing bonds takes time, and loans cannot be guaranteed under the bill until cash from a bond sale is available to do so. Second, investor demand for revenue bonds under this program is unclear. Governments around the world use revenue bonds to construct public infrastructure that generates direct revenues such as parking lots, bridges or roads which generate toll revenue, or mortgage revenue bonds for housing projects, and investors look directly to the revenues derived from these projects when deciding if, and at what price, to purchase a bond. If borrowers or lenders do not participate in AB 69's lending program, or if its underwriting requirements misprice default risk, investors purchasing an AB 69 bond may not be repaid without other forms of credit enhancement, which could pose too much risk for many investors."

Related Legislation:

SB 1400 (Umberg, 2020) — would have authorized the issuance of $500 million in general obligation bonds for ADU construction, subject to approval by voters in the next statewide general election. This bill was dropped by the author.

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

POSITIONS: (Communicated to the committee before noon on Thursday, July 30, 2020.)

SUPPORT:

Bay Area Council (Co-Sponsor)
California State Treasurer Fiona Ma (Co-Sponsor)
California Association of Realtors
California YIMBY
Generation Housing
Habitat for Humanity California
North Bay Leadership Council
The Casita Coalition
The Two Hundred

OPPOSITION:

None received.

-- END --

 THIRD READING  

Bill No: AB 69

Author: Ting (D) and Quirk-Silva (D), et al.

Amended: 6/20/19 in Senate

Vote: 21

SENATE HOUSING COMMITTEE: 11-0, 6/18/19

AYES: Wiener, Morrell, Bates, Caballero, Durazo, McGuire, Moorlach, Roth, Skinner, Umberg, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 78-0, 5/22/19 - See last page for vote

SUBJECT: Land use: accessory dwelling units

SOURCE: Author

DIGEST:

This bill requires the state Department of Housing and Community Development (HCD) to submit proposed small building home standards to the California Building Standards Commission (CBSC), on or before January 1, 2021, for accessory dwelling units (ADUs) and homes of less than 800 square feet.

ANALYSIS:

Existing law:

Building Standards

1. Establishes the CBSC within the Department of General Services and requires any building standards adopted or proposed by state agencies to be submitted to, and approved by, the CBSC prior to codification into the California Building Standards Code.
2. Requires the CBSC to adopt, approve, codify, and publish building standards providing the minimum standards for the design and construction of state buildings.
3. Requires the State Fire Marshal to develop building standards to implement the state’s fire and life safety policy, and transfers any responsibilities of the State Fire Marshal to adopt building standards through a formal rulemaking process to the CBSC.
4. Requires HCD to propose the adoption, amendment, or repeal of building standards to the CBSC and to adopt, amend, and repeal other rules and regulations to protect the health, safety, and welfare of occupants and to the public.

ADUs and Junior ADUs (JADUs)

1. Provides that if a locality adopts an ADU ordinance in areas zoned for single-family or multifamily, it must designate areas where ADUs may be permitted; impose certain standards on ADUs such as parking (within certain parameters) and size requirements; prohibit an ADU from exceeding the allowable density for the lot; and require ADUs to comply with certain requirements such as setbacks.
2. Requires a locality to ministerially approve an ADU permit within 120 days.
3. Allows a locality to:
   1. Establish minimum and maximum unit sizes for ADUs.
   2. Require that an applicant to construct an ADU be an owner-occupant.
   3. Require that the ADU be used for rentals of terms longer than 30 days.
4. Provides that an ADU shall not be considered by a local agency, special district, or water corporation to be a new residential use for purposes of calculating connection fees or capacity charges for utilities, including water and sewer service.
5. Permits local agencies to adopt a JADU ordinance for areas zoned for single-family. The JADU must be no more than 500 square feet in size and contained entirely within an existing single-family structure.

This bill:

1. Requires HCD to submit proposed small home building standards to the CBSC on or before January 1, 2021.
2. Requires the small home building standards to:
   1. Include standards for ADUs of less than 800 square feet and JADUs that include allowances for small kitchens and bathrooms with small appliances.
   2. Be drafted to achieve the most cost-effective construction standards possible while taking health and safety into consideration.
3. Defines “small home” as an ADU less than 800 square feet, a JADU, and any other attached dwelling unit less than 800 square feet.

Background

ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence. Local ADU ordinances must meet specified parameters outlined in existing state law. Local governments may also adopt ordinances for JADUs, which are no more than 500 square feet and are bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink and stove, but is not required to have a bathroom. HCD notes that “ADUs are an innovative, affordable, effective option for adding much-needed housing in California.”

The California Building Standards Code (Title 24) serves as the basis for the design and construction of buildings in the state. California’s building codes are published in their entirety every three years. Intervening code adoption cycles produce supplement pages halfway (18 months) into each triennial period. Amendments to California’s building standards are subject to a lengthy and transparent public participation process throughout each code adoption cycle. Through this process, relevant state agencies propose amendments to building codes, which the CBSC must then adopt, modify, or reject. HCD is the relevant state agency for residential building codes.

Comments

1. Purpose of the bill. The author states that ADUs have surged in popularity as a way to address California’s housing crisis. ADUs are much smaller in scale, but they are unnecessarily subject to the same building standards as traditional homes. This bill expedites ADU construction by creating a Small Home Building Code that reflects the unique nature of these units.
2. Why a separate building standards code? According to a white paper by the University of California, Berkeley, Terner Center for Housing Innovation, ADU Update, Early Lessons and Impacts of California’s State and Local Policy Changes (December 2017), ADUs can increase the housing supply in areas where there are fewer opportunities for large developments, such as neighborhoods that are predominantly zoned for single-family homes. The Terner Center found a significant increase in interest in ADUs related to the passage of 2017 legislation, which raised the profile of ADUs and removed some specific barriers. However, homeowners interested in constructing an ADU still face barriers; the Terner Center notes that the new 2016 building code requirements in many instances do not scale well to small structures, causing added costs and complications to ADU construction. According to the Terner Center, “state leaders should consider an alternative code or classification for ADUs that facilitates energy efficient structures without hindering their construction and proliferation in communities that could benefit from them most.” This bill addresses that recommendation.

Related/Prior Legislation

SB 13 (Wieckowski, 2019) makes a number of changes to law governing ADUs. The bill is on the Assembly Floor.

AB 68 (Ting, 2019) makes a number of changes to ADU law. The bill is on the Senate Floor.

AB 587 (Friedman, 2019) authorizes an ADU to be sold separately from the primary residence under certain conditions. The bill is on the Senate Floor.

AB 670 (Friedman, 2019) prohibits common interest developments from banning construction of ADUs and JADUs, but allows homeowner associations to impose reasonable restrictions on them, as specified. The bill was presented to the Governor.

AB 881 (Bloom, 2019) makes several changes to ADU law. The bill is on the Senate Floor.

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

According to the Senate Appropriations Committee:

• HCD estimates one-time costs of approximately $329,000 over two years ($172,000 in year one and $157,000 in year two) in staff time to research, develop, and propose a small home building standard for adoption by the CBSC. (General Fund)
• Minor and absorbable costs for the CBSC to consider and adopt the small home building standard into the Building Standards Code. (Building Standards Administration Revolving Fund)

SUPPORT: (Verified 8/30/19)

AARP California

ADU Task Force East Bay

American Planning Association, California Chapter

Association of Bay Area Governments

Bay Area Housing Advocacy Coalition 

Bay Area Regional Health Inequities Initiative

Bridge Housing Corporation

Building Industry Association of the Bay Area

CalAsian Chamber of Commerce

California Apartment Association

California Association of Realtors

California Building Industry Association

California Community Builders

California Forward Action Fund

California State Association of Counties

California YIMBY

Center on Policy Initiatives

Central Coast Alliance United for a Sustainable Economy

Chan Zuckerberg Initiative

Community Legal Services in East Palo Alto

EAH Housing

East Bay Housing Organizations

Eden Housing

Emerald Fund

Enterprise Community Partners, Inc.

Facebook, Inc.

Greenbelt Alliance

Habitat for Humanity California

Hamilton Families

Hello Housing

Keith Carson, Alameda County Supervisor, District 5

LA Mas

League of Women Voters of California

Los Angeles Alliance for a New Economy

Metropolitan Transportation Commission

MidPen Housing Corporation

Non-Profit Housing Association of Northern California

North Bay Leadership Council

Northern California Carpenters Regional Council

Oakland Chamber of Commerce

OpenScope Studio

Orange County Communities Organized for Responsible Development

Partnership for Working Families

Pico California

PreFabADU

Related California

San Francisco Housing Action Coalition

Silicon Valley at Home

Silicon Valley Community Foundation

Spur

Tent Makers

Terner Center for Housing Innovation at the University Of California, Berkeley

The Casita Coalition

The Two Hundred

TMG Partners

Transform

Urban Counties of California

Urban Displacement Project, University of California, Berkeley

Warehouse Worker Resource Center

Working Partnerships USA

OPPOSITION: (Verified 8/30/19)

California Fire Chiefs Association
Fire Districts Association of California

ARGUMENTS IN SUPPORT: Supporters state that incremental cost increases from building code standards can add proportionately more cost to smaller homes and therefore incentivize construction of larger, more expensive homes. A building code designed specifically for small homes will be as cost-effective as possible, therefore making it more affordable to build smaller homes, ADUs, and JADUs to help increase the state’s affordable housing supply.

ARGUMENTS IN OPPOSITION: The California Fire Chiefs Association and Fire Districts Association of California state that creating a small home building standards code will expedite the construction of ADUs, which will create an increased population and greater demand for fire services that departments with insufficient resources will be unable to provide.

ASSEMBLY FLOOR: 78-0, 5/22/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia

Prepared by: Erin Riches / HOUSING / (916) 651-4124

9/1/19 10:13:55

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 69 (Ting) - Land use: accessory dwelling units

Bill Summary:

AB 69 would require the Department of Housing and Community Development (HCD) to propose specified small home building standards for adoption by the Building Standards Commission (BSC) by January 1, 2021.

Fiscal Impact:

• HCD estimates one-time costs of approximately $329,000 over two years ($172,000 in year one and $157,000 in year two) in staff time to research, develop, and propose a small home building standard for adoption by the BSC. (General Fund)
  
• Minor and absorbable costs for the BSC to consider and adopt the small home building standard into the Building Standards Code. (Building Standards Administration Revolving Fund)

Background:

Existing law, the California Building Standards Law, authorizes the BSC to approve and adopt building standards through a triennial rulemaking process to revise and update the California Building Standards Code. There are approximately twenty state agencies that develop building standards for submittal to the BSC for review, approval, and adoption. HCD is responsible for proposing building standards to the BSC for residential buildings including, hotels, motels, lodging houses, apartment houses, dwellings, buildings and structures. In the absence of a designated state agency, the BSC is required to adopt specific building standards, as prescribed. Building standards take effect 180 days after they are published, unless a different date is specified. The most recent update to the Building Standards Code, the 2016 Triennial Edition, went into effect on January 1, 2017. The 2019 Triennial Edition will be published on July 1, 2019, and go into effect on January 1, 2020.

Accessory Dwelling Units (ADUs), also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to or detached from the primary residence. This form of housing is often used by additional family members, students, the elderly, in-home health care providers, the disabled, and others, at below market prices within existing neighborhoods. In 1982, the Legislature first provided a framework for local governments to enact ordinances that permit the construction of ADUs, while preserving local government flexibility to regulate the units as necessary. Initially, fewer ADUs than anticipated were developed; in response, the Legislature significantly amended ADU law to address some of the barriers that local agencies imposed on property owners proposing an ADU (AB 1866, Wright, 2002). Specifically, AB 1866 allowed local governments (1) to adopt an ordinance that allows the creation of ADUs in single-family and multi-family residential zones, and (2) to set standards on the units regarding parking, height, setback, maximum size, and potential adverse impacts on historic places. AB 1866 also prohibited local agencies from adopting an ordinance that entirely prohibits ADUs unless it made specific findings regarding adverse impacts from the units. Nevertheless, some local governments continued to impose onerous requirements or prohibit ADUs entirely.

In 2016, the Legislature again revised ADU law to address some of the barriers to ADU creation that had been adopted by local governments (SB 1069,Wieckowski, and SB 2299, Bloom). These laws, as well as subsequent cleanup legislation, prohibited local ordinances that entirely ban ADUs and required a local agency to do the following: (1) designate areas within the jurisdiction where ADUs may be permitted, (2) impose standards on ADUs, including minimum lot sizes and requiring ADUs to be set back from the property line, (3) consider permit applications within 120 days, (4) approve or disapprove an application for an ADU ministerially without discretionary review if the local government does not have an ADU ordinance when it receives a permit application, and (5) approve building permits to create an ADU ministerially if the ADU is within an existing residence, has independent exterior access, and meets certain fire safety requirements. These bills also limited local agencies’ ability to require new utility connections for water and sewer, and required the fees to be proportionate to the burden created by the ADU.

California’s production of housing continues to lag demand. This lack of housing is impacting affordability; average housing costs in California exceed the rest of the nation. As affordability becomes more problematic, people drive longer distances between a home that is affordable and where they work, or double up to share space, both of which reduces quality of life and produces negative environmental impacts. Consequently, ADUs are gaining in popularity, and the recent efforts to promote ADU construction and limit local constraints have resulted in substantial increases in permit applications in some jurisdictions.

Proposed Law:

AB 69 would require HCD to propose small home building standards for adoption by the BSC. Specifically, this bill would do the following:

• Define “small home” as an ADU less than 800 square feet, a junior ADU and any other detached dwelling unit less than 800 square feet.
• Require the building standards to include standards for ADUs of less than 800 square feet and junior ADUs that include allowances for small kitchens and bathrooms with small appliances.
• Require the building standards to be drafted to achieve the most cost-effective construction standards possible, while also taking health and safety into consideration.
• Require the building standards to be submitted to the BSC for adoption by January 1, 2021.

Related Legislation:

SB 1469 (Skinner) and AB 2890 (Ting), both of which were considered during the 2017-18 legislative session, included provisions that would have required HCD to develop and propose cost-effective small home building standards for adoption by the BSC by January 1, 2020. Both bills also included numerous provisions that would have placed additional restrictions on the conditions that local governments may impose on ADUs. AB 1469 (Skinner) was held on the Suspense File in this committee (although certain provisions were amended into SB 831 (Wieckowski) when it was approved by this committee). AB 2890 (Ting) was held in the Senate Rules Committee.

Staff Comments:

This bill would respond to a recommendation noted in a white paper published in December of 2017 by the UC Berkeley Terner Center for Housing Innovation, ADU Update, Early Lessons and Impacts of California’s State and Local Policy Changes. Specifically, the white paper notes that the 2016 building code requirements that were intended to raise energy efficiency standards in new construction and rehabilitation oftentimes do not scale well to small structures, causing added costs and complications to ADU construction. The white paper recommends that “state leaders should consider an alternative code or classification for ADUs that facilitates energy efficient structures without hindering their construction and proliferation in communities that could benefit from them most.” This bill requires that the building standards be drafted to achieve the most cost-effective construction standards possible, while also considering health and safety.

HCD indicates that it would require 1.0 PY of staff for a two-year limited term to develop and propose small home building standards for adoption by the BSC. The estimate assumes a six-month internal process for the development of the building standard, and an 18-month process to coordinate with the BSC through final adoption in the 2021 Triennial Code Adoption Cycle. These standards would be effective on January 1, 2023.

Recommended Amendments:

The committee may wish to recommend that the bill be amended to clarify a drafting ambiguity. Specifically, as drafted, it is not entirely clear whether the small home building standards must be submitted to BSC by January 1, 2021, or that the standards must be adopted by that date. This analysis assumes that the intent is for HCD to submit the building standards to BSC by January 1, 2021.

-- END --

SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2019 - 2020 Regular

Bill No: AB 69 Hearing Date: 6/18/2019

SUBJECT: Land use: accessory dwelling units

DIGEST: This bill requires the state Department of Housing and Community Development (HCD) to submit proposed small building home standards to the California Building Standards Commission (CBSC), on or before January 1, 2021, for accessory dwelling units (ADUs) and homes of less than 800 square feet.

ANALYSIS:

Existing law relating to building standards:

1. Establishes the CBSC within the Department of General Services and requires any building standards adopted or proposed by state agencies to be submitted to, and approved by, the CBSC prior to codification into the California Building Standards Code.
2. Requires the CBSC to adopt, approve, codify, and publish building standards providing the minimum standards for the design and construction of state buildings.
3. Requires the State Fire Marshal to develop building standards to implement the state’s fire and life safety policy, and transfers any responsibilities of the State Fire Marshal to adopt building standards through a formal rulemaking process to the CBSC.
4. Requires HCD to propose the adoption, amendment, or repeal of building standards to the CBSC and to adopt, amend, and repeal other rules and regulations to protect the health, safety, and welfare of occupants and to the public.

Existing law relating to ADUs and JADUs:

1. Provides that if a locality adopts an ADU ordinance in areas zoned for single-family or multifamily, it must designate areas where ADUs may be permitted; impose certain standards on ADUs such as parking (within certain parameters) and size requirements; prohibit an ADU from exceeding the allowable density for the lot; and require ADUs to comply with certain requirements such as setbacks.
2. Requires a locality to ministerially approve an ADU permit within 120 days.
3. Allows a locality to:
   1. Establish minimum and maximum unit sizes for ADUs.
   2. Require that an applicant to construct an ADU be an owner-occupant.
   3. Require that the ADU be used for rentals of terms longer than 30 days.
4. Provides that an ADU shall not be considered by a local agency, special district, or water corporation to be a new residential use for purposes of calculating connection fees or capacity charges for utilities, including water and sewer service.
5. Permits local agencies to adopt a JADU ordinance for areas zoned for single-family. The JADU must be no more than 500 square feet in size and contained entirely within an existing single-family structure.

This bill:

1. Requires HCD to submit proposed small home building standards to the CBSC on or before January 1, 2021.
2. Requires the small home building standards to:
   1. Include standards for ADUs of less than 800 square feet and JADUs that include allowances for small kitchens and bathrooms with small appliances.
   2. Be drafted to achieve the most cost-effective construction standards possible. For standards applicable to detached dwelling units less than 800 square feet, the standards shall be similar or more cost-effective than the standards in the 2007 edition of the California Building Standards Code.
3. Defines “small home” as an ADU less than 800 square feet, a JADU, and any other attached dwelling unit less than 800 square feet.

COMMENTS

1. Purpose of the bill. The author states that ADUs have surged in popularity as a way to address California’s housing crisis. ADUs are much smaller in scale, but they are unnecessarily subject to the same building standards as traditional homes. This bill expedites ADU construction by creating a Small Home Building Code that reflects the unique nature of these units.
2. ADUs and JADUs. ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence. Local ADU ordinances must meet specified parameters outlined in existing state law. Local governments may also adopt ordinances for JADUs, which are no more than 500 square feet and are bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink and stove, but is not required to have a bathroom. The state Department of Housing and Community Development (HCD) notes that “ADUs are an innovative, affordable, effective option for adding much-needed housing in California.”
3. Why a separate building standards code? According to a white paper by the UC Berkeley Terner Center for Housing Innovation, ADU Update, Early Lessons and Impacts of California’s State and Local Policy Changes (December 2017), ADUs can increase the housing supply in areas where there are fewer opportunities for large developments, such as neighborhoods that are predominantly zoned for single-family homes. The Terner Center found a significant increase in interest in ADUs related to the passage of 2017 legislation, which raised the profile of ADUs and removed some specific barriers. However, homeowners interested in construction an ADU still face barriers; the Terner Center notes that the new 2016 building code requirements in many instances do not scale well to small structures, causing added costs and complications to ADU construction. According to the Terner Center, “state leaders should consider an alternative code or classification for ADUs that facilitates energy efficient structures without hindering their construction and proliferation in communities that could benefit from them most.” This bill addresses that recommendation.
4. The building standards adoption process. The California Building Standards Code (Title 24) serves as the basis for the design and construction of buildings in the state. California’s building codes are published in their entirety every three years. Intervening code adoption cycles produce supplement pages halfway (18 months) into each triennial period. Amendments to California’s building standards are subject to a lengthy and transparent public participation process throughout each code adoption cycle. Through this process, relevant state agencies propose amendments to building codes, which the CBSC must then adopt, modify, or reject. HCD is the relevant state agency for residential building codes.
5. Templates. The Metropolitan Transportation Commission and Association of Bay Area Governments, writing in support, ask for a “friendly amendment” to require HCD to develop and share template ADU design prototypes consistent with the new standards. It may be more appropriate, however, for localities to develop such templates. For example, the City of Encinitas has developed a Permit-Ready Accessory Dwelling Unit Program (PRADU) that offers eight pre-approved ADU building plans for residents to choose from. By choosing one of these customizable plans, the property owner can dramatically reduce pre-construction costs and receive expedited building permits.
6. Committee amendments. This bill directs HCD to draft the standards to be as cost-effective as possible, but explicitly limits standards for units under 800 square feet to the cost-effectiveness level of the 2007 building standards. The CBSC has adopted three sets of standards (2010, 2013, and 2016) since 2007; these standards include additions such as energy efficiency, sprinklers, and wildland-urban interface safety. These additions have resulted in increased construction costs, but at the same time have helped make new homes much safer and more energy-efficient. For this reason, the author will accept amendments to strike the limitation to the 2007 standards and instead direct HCD to draft standards that are as cost-effective as possible but also take health and safety into consideration. The amendments also add Assemblymember Quirk-Silva as a joint author and Assemblymember Reyes as a coauthor.

Related Legislation:

SB 13 (Wieckowski, 2019) — makes a number of changes to law governing ADUs. This bill is in the Assembly Local Government Committee.

AB 68 (Ting, 2019) — makes a number of changes to ADU law. This bill will also be heard in this committee today.

AB 587 (Friedman, 2019) — authorizes an ADU to be sold separately from the primary residence under certain conditions. This bill is in the Governance and Finance Committee.

AB 670 (Friedman, 2019) — prohibits common interest developments from banning construction of ADUs and JADUs, but allows homeowner associations to impose reasonable restrictions on them, as specified. This bill is in the Judiciary Committee.

AB 881 (Bloom, 2019) — makes several changes to ADU law. This bill will also be heard in this committee today.

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

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

June 12, 2019.)

SUPPORT:

AARP California
ADU Task Force East Bay
American Planning Association, California Chapter
Association Of Bay Area Governments
Bay Area Housing Advocacy Coalition 
Bay Area Regional Health Inequities Initiative
Building Industry Association Of The Bay Area
CalAsian Chamber Of Commerce
California Apartment Association
California Association Of Realtors
California Building Industry Association
California Community Builders
California Forward Action Fund
California State Association Of Counties
California YIMBY
Community Legal Services In East Palo Alto
EAH Housing

East Bay Housing Organizations
Eden Housing
Emerald Fund
Enterprise Community Partners, Inc.
Facebook, Inc.
Greenbelt Alliance
Habitat For Humanity California
Hamilton Families
Hello Housing
Keith Carson, Alameda County Supervisor, District 5
League Of Women Voters Of California
Metropolitan Transportation Commission
MidPen Housing Corporation
Non-Profit Housing Association Of Northern California
Northern California Carpenters Regional Council
Oakland Chamber of Commerce
OpenScope Studio
PreFab ADU
San Francisco Housing Action Coalition
Silicon Valley At Home
Silicon Valley Community Foundation
Spur
Tent Makers
Terner Center For Housing Innovation At The University Of California, Berkeley
The Two Hundred
TMG Partners
Transform
Urban Counties Of California
Urban Displacement Project, UC-Berkeley
Working Partnerships USA

OPPOSITION:

California Fire Chiefs Association

Fire Districts Association of California

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 69

Author:(Ting)

As Amended Ver:April 4, 2019

Majority vote

SUMMARY:

Creates building standards specific to accessory dwelling units (ADUs) and small homes.

Major Provisions

1. Requires the Department of Housing and Community Development (HCD) to propose "small home building standards" that would achieve the most cost-effective construction standards possible, and would:
   1. Include allowances for small kitchens and bathrooms with small appliances for ADUs of less than 800 square feet and junior accessory dwelling units (JADUs);
   2. Allow detached ADUs and other detached dwelling units less than 800 square feet (sf) to use standards that are similar or more cost effective than standards in the 2007 edition of the California Building Standards Code; and
   3. Be submitted to the California Building Standards Commission for adoption on or before January 1, 2021.

COMMENTS:

ADUs can provide naturally affordable housing. Because of their size, they are cheaper and faster to build than other forms of housing. According to the Terner Center for Housing Innovation at UC Berkeley's "ADU Update: Early Lessons and Impacts of California's State and Local Policy Changes" (December 2017), the average cost to build an ADU in California ($156,000) is less than half of the average cost to build a unit of affordable housing. A separate Terner Center survey reported that 83% of ADUs were designed and built in 18 months or less.

The Terner Center report then speaks to how costs to build could be reduced further, stating that "the new 2016 Title 24 requirements – intended to raise standards of energy efficiency in new construction and rehabilitation – actually inhibit the ability of builders to deliver affordable and attractive ADUs. The 2016 Title 24 requirements pose several specific barriers. When applied to typically-sized new homes (2,500sf), the new allowable glass area standards in Title 24 are easier to meet as the homes' glass can be spread across a relatively large square footage. However, for ADU-sized structures (which average just over 600sf), Title 24 requires builders to compensate for a standard number of windows by incorporating other energy efficiency features that can substantially raise the overall cost of the ADU. In many instances, these features include greater wall thickness or insulation. Given the need to maximize the usable space of these smaller ADU units – particularly as they may be located in an existing detached structure with a limited footprint – these insulation requirements pose dilemmas for builders, as well as added cost for the owner. In some instances, the required additional insulation or wall thickness forces builders to compensate for the added wall thickness by moving the unit to maintain setbacks, or reduce the already limited interior living space. This is just one example of many instances where 2016 Title 24 requirements do not scale well to small structures, causing added costs and complications to homeowners considering an ADU."

This bill would require HCD to propose "small home building standards" that would achieve the most cost-effective construction standards possible. It would include allowances for small kitchens and bathrooms with small appliances for ADUs of less than 800 square feet and JADUs. It would also allow detached ADUs and other detached dwelling units less than 800 square feet to use standards that are similar or more cost effective than standards in the 2007 edition of the California Building Standards Code. The small home building standards would need to be submitted to the California Building Standards Commission for adoption on or before January 1, 2021.

According to the Author:

Currently, accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs) are subject to the same building standards as traditional homes despite their smaller scale. This bill would create new Building Code standards to make these smaller units easier and cheaper to build.

Arguments in Support:

According to the Casita Coalition, "we believe this bill will help address California's housing crisis by creating a small homes building code chapter that will adjust standards currently designed for large single family homes in order to lower building code costs and barriers for smaller housing forms which are more naturally cost-effective and quicker to build."

Arguments in Opposition:

None on file

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, estimated costs to HCD of $350,000 over two years for 1.0 PY two-year limited term position to develop and propose for adoption the small home building standard to the CBSC. This includes time to complete the adoption process with the CBSC and assumes January 1, 2021, is the deadline for submitting the proposed standards to CBSC.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Chiu, Diep, Gabriel, Gloria, Kiley, Limón, Bonta, Mark Stone

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

UPDATED:

VERSION: April 4, 2019

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0000715

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 69

Author:(Ting) – As Amended Ver:April 4, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the Department of Housing and Community Development (HCD) to propose small home building standards governing accessory dwelling units (ADUs) smaller than 800 square feet, junior accessory dwelling units and detached dwelling units smaller than 800 square feet. These standards must include allowances for small kitchens and bathrooms with small appliances and achieve the most cost-effective construction standards possible. The standards must be submitted to the California Building Standards Commission (CBSC) for adoption by January 1, 2021.

FISCAL EFFECT:

Estimated costs to HCD of $350,000 over two years for 1.0 PY two-year limited term position to develop and propose for adoption the small home building standard to the CBSC. This includes time to complete the adoption process with the CBSC and assumes January 1, 2021, is the deadline for submitting the proposed standards to CBSC.

COMMENTS:

1. Purpose. According to the author “Currently, accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs) are subject to the same building standards as traditional homes despite their smaller scale.” This bill would create new Building Code standards to make these smaller units easier and cheaper to build.
2. Background. ADUs, also known as accessory apartments, accessory dwellings, mother-in-law units or granny flats, are additional living spaces on single-family lots that have a separate kitchen, bathroom and exterior access independent of the primary residence. These spaces can either be attached to, or detached from, the primary residence.

ADUs can provide naturally affordable housing and have been identified as an important piece of the solution to California’s housing crisis. According to the Terner Center for Housing Innovation at UC Berkeley, the average cost to build an ADU in California ($156,000) is less than half of the average cost to build a unit of affordable housing, 83% of ADUs are designed and built in 18 months or less, and 58% of ADUs are rented out at below market rate. The Terner Center also indicates ADU building costs could be further reduced by removing barriers in existing building standards that do not scale well to small structures. For example, the center reports:

The new 2016 Title 24 requirements – intended to raise standards of energy efficiency in new construction and rehabilitation – actually inhibit the ability of builders to deliver affordable and attractive ADUs. When applied to typically-sized new homes (2,500sf), the new allowable glass area standards in Title 24 are easier to meet as the homes’ glass can be spread across a relatively large square footage. However, for ADU-sized structures (which average just over 600sf), Title 24 requires builders to compensate for a standard number of windows by incorporating other energy efficiency features, such as greater wall thickness or insulation, that can substantially raise the overall cost of the ADU.

To address these issues, this bill requires HCD to propose building standards that best achieve cost-efficient construction for small homes.

1. Related Legislation. This bill is one of several bills being considered in this legislative session seeking to reduce barriers to the production, sale and occupancy of ADUs. Others include AB 68 (Ting) and AB 881 (Bloom), both before this committee today; AB 570 (Friedman) and AB 671 (Friedman) both pending in the Assembly Local Government Committee; AB 587 (Friedman), pending on the Assembly Floor; and SB 13 (Wieckowski), pending in the Senate Governance and Finance Committee.
2. Prior Legislation.

During the 2017-18 Legislative Session, the Legislature considered three ADU bills: SB 831 (Wieckowski), SB 1469 (Skinner) and AB 2890 (Ting). Those bills contained similar provisions to several of the measures being considered this session. SB 831 was held in the Assembly Local Government Committee, and SB 1469 and AB 2890 were held on the Senate Appropriations Committee’s Suspense File.

SB 1069 (Wieckowski), Chapter 720, Statutes of 2016, made several changes to reduce barriers to the development of ADUs and expanded capacity for their development, including changes to parking, fees, fire requirements and process.

AB 2299 (Bloom), Chapter 735, Statutes of 2016, requires a local government to ministerially approve ADUs if the unit complies with certain parking requirements, the maximum allowable size of an attached ADU, and setback requirements.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 3, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 69 (

Author:Ting) – As Amended Ver:March 27, 2019

SUBJECT: Land use: accessory dwelling units

SUMMARY: Creates building standards specific to accessory dwelling units (ADUs) and small homes. Specifically, this bill:

1. Requires the Department of Housing and Community Development (HCD) to propose “small home building standards” to for ADUs and homes smaller than 800 square feet.
2. Requires the building standards to do all of the following:
   1. Be drafted to achieve the most cost-effective construction standards possible, and be similar or more cost effective than standards in the 2007 edition of the California Building Standards Code;
   2. Include allowances for small kitchens and bathrooms with small appliances; and,
   3. Be submitted to the California Building Standards Commission for adoption on or before January 1, 2021.

EXISTING LAW:

1. States that ADUs are an essential component of California’s housing supply (Government Code Section 65852.150).
2. Authorizes the California Building Standards Commission (CBSC) to approve and adopt building standards. Every three years building standards rulemaking is undertaken to revise and update the California Building Standards Code (BSC). (Title 24 of the California Code of Regulations)
3. Directs HCD to propose the adoption, amendment, or repeal of building standards to the CBSC for all hotels, motels, lodging houses, apartment houses, and dwellings, and structures accessory thereto. (Health & Safety Code Section 17921)

FISCAL EFFECT: Unknown

COMMENTS:

Purpose of the Bill: According to the author, “Currently, accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs) are subject to the same building standards as traditional homes despite their smaller scale.” This bill would create new Building Code standards to make these smaller units easier and cheaper to build.

Background: ADUs are additional living quarters that are independent of the primary dwelling unit on the same lot. ADUs are either attached or detached to the primary dwelling unit, and provide complete independent living facilities for one or more person, including separate access from the property’s primary unit. This includes permanent provisions for living, sleeping, eating, cooking, and sanitation.

ADUs have been identified as an important piece of the solution to California’s housing crisis.

Because of their size and lower cost to construct, the Terner Center for Housing Innovation at UC Berkeley found that 58% of ADUs are rented out at below market rate.

Over the past few years, the legislature has passed a number of bills to ease zoning restrictions and expedite approval processes at the local level, which has contributed to the increased supply of ADUs throughout the state. For example, in the city of Los Angeles, since 2017 a total of 9,247 applications have been received for ADUs. This represents an approximate30-fold increase as compared to the citywide average in the many years before the state law was amended to remove barriers to ADUs. Similarly, the city of Santa Rosa received 118 applications for ADUs in 2018, compared to 54 total from 2008-2016.

ADU Costs and Efficiencies: ADUs can provide naturally affordable housing. Because of their size, they are cheaper and faster to build than other forms of housing. According to the Terner Center for Housing Innovation at UC Berkeley’s “ADU Update: Early Lessons and Impacts of California’s State and Local Policy Changes” (December 2017), the average cost to build an ADU in California ($156,000) is less than half of the average cost to build a unit of affordable housing. A separate Terner Center survey reported that 83 percent of ADUs were designed and built in 18 months or less.

The Terner Center report then speaks to how costs to build could be reduced further, stating that “the new 2016 Title 24 requirements – intended to raise standards of energy efficiency in new construction and rehabilitation – actually inhibit the ability of builders to deliver affordable and attractive ADUs. The 2016 Title 24 requirements pose several specific barriers. When applied to typically-sized new homes (2,500sf), the new allowable glass area standards in Title 24 are easier to meet as the homes’ glass can be spread across a relatively large square footage. However, for ADU-sized structures (which average just over 600sf), Title 24 requires builders to compensate for a standard number of windows by incorporating other energy efficiency features that can substantially raise the overall cost of the ADU. In many instances, these features include greater wall thickness or insulation. Given the need to maximize the usable space of these smaller ADU units – particularly as they may be located in an existing detached structure with a limited footprint – these insulation requirements pose dilemmas for builders, as well as added cost for the owner. In some instances, the required additional insulation or wall thickness forces builders to compensate for the added wall thickness by moving the unit to maintain setbacks, or reduce the already limited interior living space. This is just one example of many instances where 2016 Title 24 requirements do not scale well to small structures, causing added costs and complications to homeowners considering an ADU.”

This bill would require HCD to propose for adoption “small home building standards” to apply to ADUs and homes smaller than 800 square feet. These standards would need to be drafted to achieve the most cost-effective construction standards possible, and be similar or more cost effective than standards in the 2007 edition of the California Building Standards Code. They also must include allowances for small kitchens and bathrooms with small appliances. These standards would need to be submitted to the California Building Standards Commission for adoption on or before January 1, 2021.

Staff Comments: As written, it is unclear whether this bill would apply to all ADUs or just those smaller than 800 feet. The Committee may consider clarifying that this only applies to ADUs smaller than 800 feet.

The bill does not include a definition of small home, meaning that it could be construed to apply to small units in larger buildings. Application of the 2007 edition of the California Building Standards Code could result in a substantial reduction in energy efficiency and other standards. Additionally, many ADUs and all JADUs are built within existing residential buildings. For those, the application of the 2007 edition of the California Building Standards Code could create inconsistent systems and requirements within the same building. As such, the Committee may consider amending the bill to only apply the 2007 edition of the California Building Standards Code to ADUs and other small homes that are detached from other dwelling, including those built in existing uninhabited structures. Additionally, the Committee may wish to consider clarifying that the allowances for small kitchens and bathrooms with small appliances should only apply to ADUs and JADUs and not other small homes.

Committee Amendments: To address the issues raised above, the Committee may wish to consider the following amendments:

• Clarify that this bill only applies to ADUs smaller than 800 feet;
• Amend the bill to only apply the 2007 edition of the California Building Standards Code to ADUs and other small homes that are detached from other dwelling, including those built in existing uninhabited structures; and
• Clarify that the allowances for small kitchens and bathrooms with small appliances should only apply to ADUs and JADUs and not other small homes.

Related Legislation: The following bills related to ADUs have been introduced and are currently being considered by the legislature:

AB 68 (Ting) (2019): This bill would make several changes to further reduce barriers to production of ADUs. It would expand the definition of owner-occupancy to include members of trusts as well as units owned by a non-profit and deed restricted for affordability. It would increase enforcement capacity against local jurisdictions regarding their ADU ordinances. This bill is pending hearing in this committee.

AB 587 (Friedman) (2019): This bill would allow ADUs to be sold or conveyed separately from the primary residence where the house and ADU are built by a non-profit whose mission is to sell those units to low-income families, that both the primary house and the ADU are sold to low-income families, and that any subsequent sale also be to a low-income family. This bill was heard in this committee on March 27, 2019 and was passed out by a vote of 8-0. The bill is pending hearing at the Assembly Committee on Local Government.

AB 670 (Friedman): AB 670 (Friedman) (2019): This bill would make it illegal for new or amended governing documents of common interest developments to prohibit the construction of ADUs or JADUs. This bill is pending hearing in this committee.

AB 671 (Friedman) (2019): This bill would require local jurisdictions to require in their Housing Elements a plan that incentivizes and promotes production of ADUs for very-low, low-, and moderate-income households. Requires the Department of Housing and Community Development to develop and post to its website a list of state programs that could help subsidize ADUs for very-low, low-, and moderate-income households. This bill is pending hearing in this committee.

AB 881 (Bloom) (2019): This bill would make several changes to further reduce barriers to production of ADUs. It would remove the ability for local jurisdictions to create owner occupancy requirements for ADUs. This bill is pending hearing in this committee.

SB 13 (Wieckowski) ( 2019): This bill would make several changes to further reduce barriers to production of ADUs. It would remove the ability for local jurisdictions to create owner occupancy requirements for ADUs. This bill is pending hearing in Senate Housing Committee.

Previous Legislation:

SB 1069 (Wieckowski), Chapter 720, Statutes of 2016: This bill made several changes to reduce the barriers to the development of ADUs and expanded capacity for their development, including changes to parking, fees, fire requirements, and process.

AB 2299 (Bloom), Chapter 735, Statutes of 2016: This bill requires a local government to ministerially approve ADUs if the unit complies with certain parking requirements, the maximum allowable size of an attached ADU, and setback requirements.

Double referred: This bill was also referred to the Assembly Committee on Local Government where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

AARP California
ADU Task Force (East Bay)
Bay Area Council
BRIDGE Housing
Building Industry Association of the Bay Area
California Apartment Association
California Association of Realtors
California Community Builders
California YIMBY

Casita Coalition
Community Legal Services in East Palo Alto
EAH Housing
Eden Housing
Enterprise Community Partners
Greenbelt Alliance
Habitat for Humanity California
Hello Housing
La-Mas
League of Women Voters of California
Non-Profit Housing Association of Northern California
North Bay Leadership Council
OpenScope Studio
PICO California
PrefabADU
Related California
San Francisco Housing Action Coalition
SV@Home
SPUR
Tent Makers

The Two Hundred
TMG Partners

Turner Center for Housing Innovation
Urban Displacement Project

Working Partnerships USA

Individual(s) 1

Support If Amended

Habitat for Humanity East Bay/Silicon Valley
San Francisco Foundation

Opposition

None on file

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