UNFINISHED BUSINESS  

Bill No: SB 1085

Author: Skinner (D) and Caballero (D), et al.

Amended: 8/25/20

Vote: 21

SENATE HOUSING COMMITTEE: 9-0, 5/26/20

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

NO VOTE RECORDED: Morrell, Bates

SENATE APPROPRIATIONS COMMITTEE: 5-1, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Jones

NO VOTE RECORDED: Bates

SENATE FLOOR: 31-1, 6/26/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, 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, Wilk

NOES: Jones

NO VOTE RECORDED: Bates, Borgeas, Chang, Dahle, Grove, Melendez, Morrell, Nielsen

ASSEMBLY FLOOR: Not available

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

SOURCE: Author

DIGEST:

This bill makes various changes to Density Bonus Law (DBL), including providing additional benefits to housing developments that include moderate-income rental housing units.

Assembly Amendments

provide that the types of for-sale moderate-income housing units that can benefit from a density bonus are not limited to common interest developments (CIDs) and remove a provision prohibiting certain fees on a housing developments affordable units or bonus units.

ANALYSIS:

Existing law:

1. Requires a local planning agency, annually by April 1, to submit a report to the legislative body, the Office of Planning and Research, and the Department of Housing and Community development that includes data points and updates on housing plans and approvals.
2. Requires all cities and counties to adopt an ordinance that specifies how they will implement state DBL. Requires cities and counties to grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least one of the following:
   1. 10% of the total units of a housing development for lower income households;
   2. 5% of the total units of a housing development for very low-income households;
   3. A senior citizen housing development or mobile home park;
   4. 10% of the units in a CID for moderate-income households;
   5. 10% of the total units for transitional foster youth, disabled veterans, or homeless persons; or
   6. 20% of the total units for lower-income students in a student housing development.
3. Requires the city or county to allow an increase in density on a sliding scale from 20% to 35%, depending on the percentage of units affordable to low- and very low-income households, over the otherwise maximum allowable residential density under the applicable zoning ordinance and land use element of the general plan. Requires the increase in density on a sliding scale for moderate-income for-sale developments from 5% to 35% over the otherwise allowable residential density.
4. Provides that upon the request of a developer, a city, county, or city and county shall not require a vehicular parking ratio, inclusive of disabled and guest parking, that meets the following ratios:
   1. Zero to one bedroom — one onsite parking space.
   2. Two to three bedrooms — two onsite parking spaces.
   3. Four and more bedrooms — two and one-half parking spaces.
5. Provides that if a project contains 100% affordable units and is within ½ mile of a major transit stop, the local government shall not impose a parking ratio higher than 0.5 spaces per unit. Provides that if a project contains 100% affordable units and houses persons with special needs or persons who are 62 years or older, the ratio shall not exceed 0.3 spaces or .5 spaces per unit, respectively. The development shall have either paratransit service or unobstructed access, within one-half mile, to fixed bus route service that operates at least eight times per day.
6. Provides that the applicant shall receive the following number of incentives or concessions:
   1. One incentive or concession for projects that include at least 10% of the total units for moderate-income households, 10% of the total units for lower-income households, or at least 5% for very low-income households.
   2. Two incentives or concessions for projects that include at least 20% of the total units for moderate-income households, 20% of the total units for lower income households, or least 10% for very low income households.
   3. Three incentives or concessions for projects that include at least 30% of the total units for moderate-income households 30% of the total units for lower-income households, or at least 15% for very low-income households.
7. Limits the applicability of DBL for moderate-income developments to for-sale units in a CID.
8. Defines “housing development” as development project for five or more residential units.

This bill:

1. Requires a planning agency to report in the housing element annual report the number of units for lower income students that were included in a student housing development for which a developer received a density bonus.
2. Makes a student housing development containing at least 20% of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Expands the types of for-sale moderate-income housing units that can benefit from a density bonus by deleting the existing law requirement that the units be in a "common interest development."
4. Allows moderate-income housing developments that include 35% moderate income for-sale housing and are within in one-half mile of a major transit stop to receive a parking reduction of 0.5 parking spaces per bedroom.
5. Defines "total units" or "total dwelling units" as the calculation of the number of units that:
   1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus; and
   2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
6. Makes findings and declarations that it is intent of the Legislature to make modifications to the DBL to further incentivize the construction of very low-, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the DBL to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. States that the Legislature further intends that these modifications will ensure that the DBL creates incentives for the construction of more housing across all areas of the state.
   

Comments

1. Author’s Statement. According to the author, “[t]he State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”
2. Density Bonus Law. Given California’s high land and construction costs for housing, it is extremely difficult for the private market to provide housing units that are affordable to low- and even moderate-income households. Public subsidy is often required to fill the financial gap on affordable units. DBL allows public entities to reduce or even eliminate subsidies for a particular project by allowing a developer to include more total units in a project than would otherwise be allowed by the local zoning ordinance in exchange for affordable units. Allowing more total units permits the developer to spread the cost of the affordable units more broadly over the market-rate units. The idea of DBL is to cover at least some of the financing gap of affordable housing with regulatory incentives, rather than additional subsidy.

Under existing law, if a developer proposes to construct a housing development with a specified percentage of affordable units, the city or county must provide all of the following benefits: a density bonus; incentives or concessions (hereafter referred to as incentives); waiver of any development standards that prevent the developer from utilizing the density bonus or incentives; and reduced parking standards.

To qualify for benefits under DBL, a proposed housing development must contain a minimum percentage of affordable housing. If one of these five options is met, a developer is entitled to a base increase in density for the project as a whole (referred to as a density bonus) and one regulatory incentive. Under DBL, a market rate developer gets density increases on a sliding scale based on the percentage of affordable housing included in the project. At the low end, a developer receives 20% additional density for 5% very low-income units and 20% density for 10% low-income units. The maximum additional density permitted is 35% (in exchange for 11% very low-income units and 20% low-income units). The developer also negotiates additional incentives and concessions, reduced parking, and design standard waivers with the local government. This helps developers reduce costs while enabling a local government to determine what changes make the most sense for that site and community.

1. Need for Moderate Income Housing. In October 2019, the California Housing Partnership Corporation (CHPC) published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50% AMI can afford modest rents in only one county in California; households earning 60% AMI could afford modest rents in 11 counties; 80% AMI could afford modest rents in 29 counties; and households earning 100% AMI (e.g. at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions. Generally, when low-income households experience severe cost burden and spend most of their income on housing, families have to cut back on essentials such as food, healthcare, childcare, and transportation. These families are often those that are closest to becoming homeless. While CHPC recommends prioritizing assistance to households with the lowest income, they note that there are moderate income households in specific neighborhoods and counties that need help. CHPC recommends assistance for households earning more than 80% AMI to generally be limited to areas of the State where median income households cannot afford modest rents, particularly in the six higher cost coastal counties. This bill seeks to incentivize the development of more moderate-income households, without any additional public funding, by expanding types of for-sale moderate-income housing units that can benefit from a density bonus by deleting the existing law requirement that the units be in a "common interest development.”
   

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

According to the Assembly Appropriations Committee:

1. The Department of Housing and Community Development estimates costs of $217,000 (General Fund (GF)) in 2020-21, and $95,000 (GF) in 2021-22, to update guidance documents for the DBL, provide technical assistance and outreach education to local agencies and affordable housing developers, ensure compliance with the Americans with Disabilities Act, and post information on its website.
2. Unknown state-mandated local costs to make the necessary changes and provide for the additional incentives as required by this bill. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates.

SUPPORT: (Verified 8/29/20)

All Home

American Planning Association, California Chapter

Associated Builders and Contractors Northern California Chapter

Bay Area Council

Bridge Housing Corporation

Build Affordable Faster CA

California Association of Realtors

California Building Industry Association

California Community Builders

California YIMBY

Central City Association

Chan Zuckerberg Initiative

Facebook

Generation Housing

Habitat for Humanity California

Los Angeles Business Council

Non-Profit Housing Association of Northern California

San Francisco Bay Area Planning and Urban Research Association

San Francisco Foundation

San Francisco Housing Action Coalition

Schneider Electric

Silicon Valley At Home

Silicon Valley Community Foundation

South Pasadena Residents for Responsible Growth

Southern California Leadership Council

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

TMG Partners

Valley Industry & Commerce Association

One individual

OPPOSITION: (Verified 8/29/20)

A Better Way Forward to House California

Alliance of Californians for Community Empowerment

Angeles Mesa Homeowners Community Group

Asian Pacific Environmental Network

Bend the Arc: Jewish Action

Berkeley Tenants Union

Brynhurst Avenue Bock Club

By the Beach Tamarack Group

California Renters' Caucus

Cities of Beverly Hills, Campbell, Cerritos, Cupertino, Hidden Hills, Newport Beach, Pasadena, Pleasanton, Rancho Palos Verdes, Redondo Beach, San Dimas, Solana Beach, Thousand Oaks, and Torrance

Citizens Protecting San Pedro

Clergy and Laity United for Economic Justice

Council of Community Housing Organizations

Empowering Pacific Islander Communities

Faith in the Valley

Families of Park Mesa Heights

Friends of Sunset Park

Ground Game LA

Housing Equality & Advocacy Resource Team

Housing Now! CA

Hyde Park Organizational Partnership for Empowerment

LA Forward

Long Beach Residents Empowered

Manufactured Housing Action

Mission Street Neighbors

National Association of Social Workers, California Chapter

New Livable California dba Livable California

North Santa Ana Preservation Alliance

Northeast San Fernando Valley Activists

One Redwood City

Orange County Communities Organized for Responsible Development

Pacifica Housing 4 All

People Organized for Westside Renewal

Pico California

Rampart Village Neighborhood Council

Riviera Homeowners Association

San Francisco Board of Supervisors

Shadow Hills Property Owners Association

Sherman Oaks Homeowners Association

South Bay Cities Council of Governments

Sunset-Parkside Education and Action Committee

Sustainable Tamalmonte

Tamalpais Design Review Board

TODCO

Victoria/54th Ave Block Club

WCH Association

Western Quadrant of North Leimert Park

Westwood Hills Property Owners Association

27 individuals

ARGUMENTS IN SUPPORT: Supporters argue that density bonus is underutilized in many parts of the state because the percentage of low- and very low-income units required to receive the density bonus and concessions and incentives is not feasible in light of the cost of construction.

ARGUMENTS IN OPPOSITION: Opponents had raised concerns with provisions of this bill that prohibited affordable housing fees on market rate units that result from a density bonus; however, that provision was removed from this bill.

Prepared by: Alison Hughes / HOUSING / (916) 651-4124

8/31/20 18:02:04

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1085

Author:(Skinner and Caballero)

As Amended Ver:August 25, 2020

Majority vote

SUMMARY:

This bill makes various changes to density bonus law, including providing additional benefits to housing developments that include moderate-income rental housing units.

Major Provisions

1. Requires a planning agency to report in the housing element annual report the number of units for lower income students that were included in a student housing development for which a developer received a density bonus.
2. Makes a student housing development containing at least 20% of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Expands the types of for-sale moderate-income housing units that can benefit from a density bonus by deleting the existing law requirement that the units be in a "common interest development."
4. Allows moderate-income housing developments that include 35% moderate income for-sale housing and are within in one-half mile of a major transit stop to receive a parking reduction of 0.5 parking spaces per bedroom.
5. Defines "total units" or "total dwelling units" as the calculation of the number of units that:
   1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus; and
   2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
6. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low-, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. States that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.
7. Includes language to avoid chaptering out AB 2345 (Gonzalez and Chiu) and SB 168 (Wieckowski), both of the current legislative session.

COMMENTS:

Density bonus law: Density bonus law was originally enacted in 1979, to help address a shortage of affordable housing. Over 40 years later, the state faces the same if not worse affordable housing challenges. Density bonus is a tool to encourage the production of affordable housing by market rate developers, although it is used by developers building 100 percent affordable developments as well. In return for including affordable units in a development, developers are given an increase in density over a city's zoned density, concessions and incentives, and reductions in parking. The increase in density and concessions and incentives are intended to financially support the inclusion of the affordable units.

All local governments are required to adopt an ordinance that provides concessions and incentives to developers that seek a density bonus on top of the zoned density in exchange for including extremely low-, very low-, low-, and moderate-income housing. In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Failure to adopt an ordinance does not relieve a local government from complying with state density bonus law.

Related legislation:

AB 2345 (Gonzalez and Chiu) of the current legislative session would amend density bonus law to create additional incentives to build very low and lower income housing. This bill is pending hearing in Senate Appropriations Committee.

According to the Author:

According to the author, "The State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production."

Arguments in Support:

Supporters argue that density bonus is underutilized in many parts of the state because the percentage of low- and very low-income units required to receive the density bonus and concessions and incentives is not feasible in light of the cost of construction.

Arguments in Opposition:

Opponents had raised concerns with provisions of the bill that prohibited affordable housing fees on market rate units that result from a density bonus; however, that provision was removed from the bill.

FISCAL COMMENTS:

According to the Assembly Committee on Appropriations:

1. The Department of Housing and Community Development (HCD) estimates costs of $217,000 (General Fund (GF)) in 2020-21, and $95,000 (GF) in 2021-22, to update guidance documents for the Density Bonus Law, provide technical assistance and outreach education to local agencies and affordable housing developers, ensure compliance with the Americans with Disabilities Act, and post information on its website.
2. Unknown state-mandated local costs to make the necessary changes and provide for the additional incentives as required by this bill. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates.

VOTES:

SENATE FLOOR: 31-1-8

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, 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, Wilk

NO: Jones

ABS, ABST OR NV: Bates, Borgeas, Chang, Dahle, Grove, Melendez, Morrell, Nielsen

ASM HOUSING AND COMMUNITY DEVELOPMENT: 8-0-0

YES: Chiu, Diep, Gabriel, Gloria, Kiley, Limón, Bonta, Quirk-Silva

ASM APPROPRIATIONS: 10-1-7

YES: Gonzalez, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Quirk, Robert Rivas

NO: Bigelow

ABS, ABST OR NV: Bauer-Kahan, Bloom, Megan Dahle, Diep, Fong, Petrie-Norris, Voepel

UPDATED:

VERSION: August 25, 2020

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0003400

Date of Hearing: August 11, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 1085

Author:(Skinner and Caballero) – As Amended Ver:August 3, 2020

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

SUMMARY:

This bill makes various changes to density bonus law, including providing additional benefits to certain moderate-income housing developments. Among its provisions, this bill:

1. Defines “total units” or “total dwelling units” in a density bonus project as a calculation of the number of units that excludes a unit added by a specified density bonus and includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
2. Expands the types of for-sale moderate-income housing units that can benefit from a density bonus by deleting the existing law requirement that the units be in a “common interest development.”
3. Requires a planning agency of a city or county to report in its housing element annual report the number of units for lower-income students that were included in a student housing development for which a developer received a density bonus.
4. Prohibits a local government from charging affordable housing impact fees, including inclusionary zoning fees, in lieu fees, and public benefit fees on a housing development’s affordable units or bonus units.
5. Allows moderate-income housing developments that include 35% moderate income for-sale housing and are within in one-half mile of a major transit stop to receive a parking reduction of 0.5 parking spaces per bedroom.

FISCAL EFFECT:

1. The Department of Housing and Community Development (HCD) estimates costs of $217,000 (GF) in 2020-21, and $95,000 (GF) in 2021-22, to update guidance documents for the Density Bonus Law, provide technical assistance and outreach education to local agencies and affordable housing developers, ensure compliance with the Americans with Disabilities Act, and post information on its website.
2. Unknown state-mandated local costs to make the necessary changes and provide for the additional incentives as required by this bill. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates.

COMMENTS:

1. Purpose. This bill seeks to increase affordable housing production in the state by improving and clarifying Density Bonus Law, in order to expand its use.
2. Background. Existing law requires a city or county to adopt an ordinance that specifies how it will implement state Density Bonus Law, which requires the granting of a specified density bonus when an applicant for a housing development of five or more units agrees to construct a project with at least any of the following: (a) 10% of the total units for lower-income households, (b) 5% of the total units for very low-income households, (c) a senior citizen development or mobilehome park, (d) 10% of the units in a common interest development for moderate income households, (e) 10% of the total units for transitional foster youth, disabled veterans, or homeless persons, or (f) 20% of the total units for lower-income students in a student housing development.

One-hundred percent affordable developments can receive an enhanced density bonus of up to 80% anywhere in the state or unlimited density near transit. Otherwise, existing law requires a city or county to allow an increase in density of 20% to 35% on a sliding scale, depending on the percentage of units affordable to very low- and low-income households. In addition, developers can access concessions and incentives and parking reductions provided they include the required amount of affordable housing.

Existing housing element law requires every city and county to annually submit a report to HCD and the Governor’s Office of Planning and Research on its implementation and progress towards meeting its share of the regional housing needs assessment amount and removing governmental obstacles to housing development.

1. Support and Opposition. At the policy committee hearing, supporters, primarily developers and builders, argued density bonus is underutilized in many parts of the state because the requirements to receive the density bonus are not feasible in light of the cost of construction. Opponents, primarily cities, neighborhood groups and affordable housing advocates, argued the bill allowed developers to choose to include moderate-income rental units rather than units affordable to low- and very low-income households. As the bill passed out of committee it was substantially amended. It is currently unclear how the support and opposition positions may have changed in response to the amendments.
2. Related Legislation. AB 2345 (Gonzalez), of this legislative session, revises Density Bonus Law to increase the maximum allowable density bonus and the number of concessions and incentives a developer can seek, as specified. That bill is pending hearing is the Senate Housing Committee.
3. Prior Legislation. AB 1763 (Chiu), Chapter 666, Statutes of 2019, revised Density Bonus Law to require a city or county to award a developer additional density, concessions and incentives and height increases if 100% of the units in a development are restricted to lower-income households.

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

Date of Hearing: July 29, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

SBPCA Bill Id:SB 1085

Author:(Skinner) – As Amended Ver:June 18, 2020

SENATE VOTE: 31-1

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

SUMMARY: Makes various changes to density bonus law, including providing additional benefits to housing developments that include moderate-income rental housing units. Specifically, this bill:

1. Requires a planning agency to report in the housing element annual report the number of units for lower income students that were included in a student housing development for which a developer received a density bonus.
2. Makes a student housing development containing at least 20 percent of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Provides that a development containing 20 percent moderate-income rental units must receive the following:
4. A 35-percent density bonus; and
5. For projects located within one-half mile from a major transit stop, a local government cannot impose a parking ratio inclusive of handicapped and guest parking that exceeds 0.5 spaces per bedroom.
6. Provides that the inclusion of the specified percentage of moderate-income rental units entitles a developer to the specified amounts of concessions and incentives, as follows:
   1. One incentive or concession for projects that include at least 20 percent of the total rental units for moderate-income households.
   2. Two concessions or incentives for projects that include at least 30 percent of the total rental units for moderate-income households.
   3. Three concessions or incentives for projects that include at least 40 percent of the total rental units for moderate-income households.
7. Increases the amount of density bonus for a development that restricts 11 percent of the total units at very-low income from 35 percent to 40 percent.
8. Provides that in order for a development with moderate-income rental units to be eligible for the benefits in (4) above, the rent for the moderate-income unit must be 30 percent below the market rate for the locality, and the applicant must provide the local government with evidence to establish that the units meet those requirements.
9. Prohibits fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers, from being imposed on a housing development’s affordable units or bonus units.
10. Defines “total units” or “total dwelling units” as the calculation of the number of units that:
    1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus; and
    2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
11. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low-, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. States that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

EXISTING LAW:

1. Requires cities and counties to grant a density bonus, based on a specified formula, when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:
2. Ten percent of the total units of a housing development for low-income households;
3. Five percent of the total units of a housing development for very low-income households;
4. A senior citizen housing development or mobile home park;
5. Ten percent of the units in a common interest development (CID) for moderate-income households;
6. Ten percent of the total units for transitional foster youth, disabled veterans, or homeless persons; and
7. Twenty percent of the total units for lower income students in a student housing development, as specified.
8. Provides that, upon the developer’s request, the local government may not require parking standards greater than the following (the developer may, however, request additional parking incentives or concessions):
9. Zero to one bedrooms: one onsite parking space;
10. Two to three bedrooms: two onsite parking spaces; and
11. Four or more bedrooms: two and one-half parking spaces.
12. Provides that if a rental development is 100 percent affordable to lower income families then, upon the request of a developer, a city, county, or city and county, the following parking ratios will apply for the development:
    1. If the development is located within one-half mile of a “major transit stop” and there is unobstructed access to the major transit stop from the development, the ratio must not exceed 0.5 spaces per unit.
    2. If the development is a for-rent housing development for individuals who are 62 years of age or older, the ratio must not exceed 0.5 spaces per unit.
    3. If the development is a special needs housing development, the ratio must not exceed 0.3 spaces per unit.
13. Requires applicants to receive the following number of incentives or concessions:
14. One incentive or concession for projects that include at least 10 percent of the total units for lower income households, at least 5 percent for very low income households, or at least 10 percent for moderate income persons and families in a common interest development.
15. Two incentives or concessions for projects that include at least 20 percent of the total units for lower income households, at least 10 percent for very low income households, or at least 20 percent for moderate income persons and families in common interest developments.
16. Three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low income households, or at least 30 percent for moderate income persons and famlies in common interst developments.
17. Permits an applicant to submit to a local government a proposal for the specific incentives or concessions that the applicant requests, as specified, and allows the applicant to request a meeting with the local government.
18. Defines “concession or incentive” as:
19. A reduction in site development standards or a modification of zoning code requirements or architectural design requirements that exceed the minimum building standards including, but not limited to, a reduction in setback and square footage requirements and in the ratio of vehicular parking spaces that would otherwise be required that results in identifiable and actual cost reductions, to provide for affordable housing costs;
20. Approval of mixed-use zoning in conjunction with the housing project, as specified; and
21. Other regulatory incentives or concessions proposed by the developer or the local government that results in identifiable and actual cost reductions to provide for affordable housing.

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s statement: According to the author, “The State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”

Density bonus law: Density bonus law was originally enacted in 1979, to help address a shortage of affordable housing. Over 40 years later, the state faces the same if not worse affordable housing challenges. Density bonus is a tool to encourage the production of affordable housing by market rate developers, although it is used by developers building 100 percent affordable developments as well. In return for including affordable units in a development, developers are given an increase in density over a city’s zoned density, concessions and incentives, and reductions in parking. The increase in density and concessions and incentives are intended to financially support the inclusion of the affordable units.

All local governments are required to adopt an ordinance that provides concessions and incentives to developers that seek a density bonus on top of the zoned density in exchange for including extremely low-, very low-, low-, and moderate-income housing. Failure to adopt an ordinance does not relieve a local government from complying with state density bonus law. Local governments must grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:

• Ten percent of the total units for lower income households;
• Five percent of the total units of a housing for very low income households;
• A senior citizen housing development or mobilehome park;
• Ten percent of the units in a common interest development for moderate income households;
• Ten percent of the total units of a housing development for transitional foster youth, disabled veterans, or homeless persons; or
• Twenty percent of the total units for lower income students in a student housing development, as specified.

One-hundred percent affordable developments can receive an enhanced density bonus of up to 80 percent anywhere in the state or unlimited density near transit. Otherwise, the maximum amount of density a development can receive is 35 percent in exchanged for including either 11 percent very low-income units or 20 percent low-income units. Developers are not required to take the density bonus but can access the concession and incentives and parking reductions provided that they include the required amount of affordable housing.

Statewide housing needs: According to the California Housing Partnership Corporation, the state currently has an estimated 1.3 million-unit shortfall of rental units affordable to very low- and extremely low-income households. Four out of five extremely low-income households pay over half of their income in rent, as do nearly half of very low-income households. In October 2019, the California Housing Partnership Corporation published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50 percent AMI can afford modest rents in only one county in California; households earning 60 percent AMI could afford modest rents in 11 counties; 80 percent AMI could afford modest rents in 29 counties; and households earning 100 percent AMI (e.g., at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions. In addition, census data reveals that only about 10 percent the state’s workforce makes between 80 and 120 percent of AMI. In many parts of the state, teachers, licensed vocational nurses, and paralegals, for example, earn less than 80 percent AMI. This is particularly true in high cost and coastal areas of the state.

Lack of multi-family zoned sites: According the UC Berkeley Terner Center, one of the major barriers to housing production is the lack of sites zoned for multi-family housing. In two-thirds of jurisdictions, multifamily housing is allowed on less than 25 percent of land. The Legislature has taken steps over the last three years to increase the supply of sites zoned for multi-family. Local governments will be required to zone for significantly more housing in the next planning cycle. Local governments have up to three years to zone for more multi-family sites after they adopted their housing element which in most cases will not be approved until next year. Because multi-family sites are scarce, it is important that the Legislature be deliberate in prioritizing those sites for dense, affordable housing for lower income households.

Moderate-income housing and density bonus: State density bonus law allows a developer to receive a density bonus for moderate-income for-sale housing, but not for moderate-income rental units. Developers can receive a density bonus if they offer 10 percent of the units in a common interest development for-sale to moderate-income owners. This bill would make a developer eligible for a 35 percent density bonus for restricting 20 percent of the units in a development to moderate-income rental units. The rents for the units would be required to be 30 percent below AMI. Existing law offers a 35 percent density bonus to developers who restrict 11 percent of the units in a development to very low income or 20 percent of the units in the development to lower income. The committee may wish to consider if offering a density bonus for moderate-income rental units that is equal to the density bonus offered for lower income unit would undermine the creation of lower income units through density bonus.

Concessions and incentives: In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Under existing law, a developer can receive up to three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low-income households, or at least 30 percent for persons and families of moderate income in a common interest development. This bill would allow a developer to request one incentive or concession for including 20 percent of the total units for moderate-income rentals, two concession for including 30 percent of the units for moderate-income rentals and three concessions for including 40 percent of units for moderate income rentals.

Fees on density bonus units: This bill would prohibit affordable housing fees on density bonus units (inclusionary, in lieu and public benefit fees), but a local government could continue to charge impact fees on housing developments that are used to pay for the infrastructure associated with the development as well as perceived impacts that result from more housing units. Some jurisdictions impose inclusionary housing requirements that can be fulfilled by either providing housing onsite or by paying an in lieu fee that funds affordable housing in the community. A handful of jurisdictions charge affordable housing fees on the “bonus units” or the additional market rate units that result from a density bonus.

Government Code Section 65917 already states that “it is the intent of the Legislature that the density bonus or other incentives offered by the city, county, or city and county pursuant to this chapter shall contribute significantly to the economic feasibility of lower income housing in proposed housing developments. In the absence of an agreement by a developer in accordance with Section 65915, a locality shall not offer a density bonus or any other incentive that would undermine the intent of this chapter.”

The Attorney General was recently asked if a city or county can impose a “public benefit fee” on a density bonus unit that it does not charge on other housing. In a published opinion, the Attorney General determined that such fees were invalid (to read the opinion in full, go to https://oag.ca.gov/system/files/opinions/pdfs/17-602_0.pdf). In the opinion, after citing Government Code Section 65917, it went on to state:

“The type of ordinance at issue here—one that imposes a fee only on additional units allowed as a density bonus—contradicts the Density Bonus Law. Rather than encourage construction of affordable housing, such a fee taxes developers for utilizing density bonuses. Thus the local law disincentivizes what the state law means to incentivize. Therefore, we conclude that an ordinance imposing a fee only on units created through a density bonus under section 65915 is invalid.”

Courts have reached similar conclusions where a local law or practice has diminished the benefits of the Density Bonus Law. For instance, a county required a certain amount of affordable housing in new developments, but did not count those units in calculating a density bonus under section 65915. The court found the county ordinance invalid as conflicting with the Density Bonus Law. “To the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by section 65915, the ordinance is void.” Likewise, a court rejected a city’s growth-control ordinance that expressly excluded low-income and senior housing built with a density bonus from the enumerated exemptions to the city’s established growth limit. The court held that the city’s ordinance was invalid because it conflicted with the Density Bonus Law by discouraging developers from proposing housing that would otherwise qualify for bonuses.

In sum, an ordinance conditioning the grant of a bonus under the state Density Bonus Law upon payment of a public benefit fee imposed only on the density bonus units is inimical to the Density Bonus Law itself and, therefore, invalid.”

Although the Attorney General’s opinion centered on fees charge solely to density bonus units, the case law and statute supports the conclusion that affordable housing fees on density bonus units undermine the purpose of density bonus policy, which is to support the inclusion of affordable housing.

Latinos Unidos Del Valle De Napa Y Solano v. County of Napa: In 2013, the First District Court of Appeal heard a suit brought by low-income farmworkers in Napa County (Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013)). The suit attacked the validity of the housing element, the County’s density bonus ordinance and the discrimination against affordable housing and minorities allegedly caused by the County’s zoning laws. The Court of Appeal reversed in part the trial court judgment and held that the county's density bonus ordinance unlawfully conflicts with the state Density Bonus Law.

In 2010, Napa County adopted an ordinance implementing state Density Bonus Law, which required local governments to grant a density bonus and certain incentives and concessions when a developer agrees to include a certain percentage of affordable units. At the same time, Napa also adopted an inclusionary housing ordinance that required up to 20 percent of new dwelling units in a residential development project to be made available at prices affordable to moderate-income households. However, the inclusionary ordinance stated that affordable units that qualify a project for a density bonus must be provided in addition to the affordable units required by the inclusionary ordinance. So, for example, if a developer includes 10 percent low-income units to qualify for a density bonus (as required by state law), this would not count towards the percentage of affordable units required by the inclusionary ordinance. The court, looking at previous case law and legislative history, agreed with plaintiffs that Napa County's density bonus ordinance was invalid in that it would require a developer to go above and beyond state law requirements to obtain a density bonus. The court noted that "[a] handful of local jurisdictions have argued since 1979 that the density bonus law does not apply until inclusionary requirements have been met. The vast majority of cities, counties and experts take the opposite view, as do I." The county's ordinance, which failed to credit affordable units satisfying the county's inclusionary requirement toward satisfying the density bonus requirements, failed to comply with state law.

Density bonus law prohibits a city from requiring a developer to include more affordable units in a development than is required by statute in return for the increase in density. The intent of the law is to provide a strong enough incentive in the form of a density bonus and incentives and concessions to encourage developers to use the law and build the affordable units. Most jurisdictions take density bonus law into account in their planning ordinances including their inclusionary ordinance, if they have one. The majority of cities interpreted the law prior to the Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013) to require them to count the affordable housing units required under an inclusionary ordinance toward satisfying density bonus requirements.

This bill defines the “total units” in a density bonus project, to exclude the density bonus units and include any units that result from an inclusionary housing ordinance.

Arguments in support: Supporters argue that density bonus is underutilized in many parts of the state because the percentage of low- and very low-income units required to receive the density bonus and concessions and incentives is not feasible in light of the cost of construction.

Arguments in opposition: According to opponents, this bill allows developers to choose to include moderate-income rental units rather than units affordable to low- and very low-income households. Even in the limited number of places in California where rents are unaffordable to moderate-income households, the unmet needs of very low-income households are far greater. Density bonuses remain one of the primary ways—and in many cities the only way—in which jurisdictions can ensure that private developers are creating housing that serves the needs of all income levels.

Committee Amendments: The following amendments address concerns raised in the analysis.

1. To prevent this bill from undermining the use of density bonus to produce very low- and low-income housing units:
2. Delete the expansion of moderate-income housing to rental housing in addition to for-sale moderate income housing.
3. Conform the changes to the moderate-income housing density bonus formula to conform to AB 2345.
4. Delete the changes to the density bonus formula for very-low income housing.
5. To expand the types of for-sale housing units that can benefit from the density bonus beyond common interest developments, delete “common interest development” limitation to expand the types of for-sale units.
6. To incentivize moderate-income for sale units offer additional reductions in parking allow moderate-income housing developments within in one-half mile of that include 40 percent moderate income for sale to receive a parking reduction of 0.5 parking spaces per bedroom.

Related legislation:

AB 2345 (Gonzalez) would amend density bonus law to create additional incentives to build very low and lower income housing. This bill is pending hearing in Senate Housing Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

All Home
Associated Builders and Contractors Northern California Chapter
Bay Area Council
Bay Area Housing Action Coalition

Bridge Housing Corporation
California Apartment Association

California Association of Realtors
California Building Industry Association

California Chamber of Commerce
California Community Builders
California YIMBY
Central City Association
Chan Zuckerberg Initiative

Council of Infill Builders
Facebook
Habitat for Humanity California
Los Angeles Business Council
San Francisco Bay Area Planning and Urban Research Association (SPUR)
San Francisco Foundation
Schneider Electric
Silicon Valley At Home (SV@HOME)
Silicon Valley Community Foundation
Terner Center for Housing Innovation At the University of California, Berkeley

The Two Hundred
TMG Partners

Up for Growth

Valley Industry and Commerce Association

Support if Amended

American Planning Association, California Chapter

City of Morgan Hill

Opposition

A Better Way Forward to House California

City of Redondo Beach

City of San Dimas
City of Thousand Oaks
City of Torrance
Communities United CD7
Comstock Hills Homeowners Association

Disability Rights California
Franklin Corridor Coalition

Friends of Sunset Park

Grayburn Avenue Block Club

Livable California

Noe Neighborhood Council

San Francisco Board of Supervisors
Shadow Hills Property Owners Association
Sustainable TamAlmonte
Western Quadrant of North Leimert Park

Oppose Unless Amended

AIDS Healthcare Foundation
Alliance of Californians for Community Empowerment
Asian Pacific Environmental Network
Bend the Arc: Jewish Action
Berkeley Tenants Union
Build Affordable Faster CA
California Renters' Caucus
California Rural Legal Assistance Foundation
Clergy and Laity United for Economic Justice
Council of Community Housing Organizations
Duboce Triangle Neighborhood Association
Empowering Pacific Islander Communities - EPIC
Faith in The Valley
Ground Game LA
Housing Equality & Advocacy Resource Team - HEART
Housing Now! CA
LA Forward
Long Beach Residents Empowered
Manufactured Housing Action
National Association of Social Workers, California Chapter
One Redwood City
Orange County Communities Organized for Responsible Development
Pacifica Housing 4 All
People Organized for Westside Renewal
Pico California
TODCO
Western Center on Law & Poverty

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

Date of Hearing: July 29, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

SBPCA Bill Id:SB 1085

Author:(Skinner) – As Amended Ver:June 18, 2020

SENATE VOTE: 31-1

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

SUMMARY: Makes various changes to density bonus law, including providing additional benefits to housing developments that include moderate-income rental housing units. Specifically, this bill:

1. Requires a planning agency to report in the housing element annual report the number of units for lower income students that were included in a student housing development for which a developer received a density bonus.
2. Makes a student housing development containing at least 20 percent of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Provides that a development containing 20 percent moderate-income rental units must receive the following:
4. A 35-percent density bonus; and
5. For projects located within one-half mile from a major transit stop, a local government cannot impose a parking ratio inclusive of handicapped and guest parking that exceeds 0.5 spaces per bedroom.
6. Provides that the inclusion of the specified percentage of moderate-income rental units entitles a developer to the specified amounts of concessions and incentives, as follows:
   1. One incentive or concession for projects that include at least 20 percent of the total rental units for moderate-income households.
   2. Two concessions or incentives for projects that include at least 30 percent of the total rental units for moderate-income households.
   3. Three concessions or incentives for projects that include at least 40 percent of the total rental units for moderate-income households.
7. Increases the amount of density bonus for a development that restricts 11 percent of the total units at very-low income from 35 percent to 40 percent.
8. Provides that in order for a development with moderate-income rental units to be eligible for the benefits in (4) above, the rent for the moderate-income unit must be 30 percent below the market rate for the locality, and the applicant must provide the local government with evidence to establish that the units meet those requirements.
9. Prohibits fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers, from being imposed on a housing development’s affordable units or bonus units.
10. Defines “total units” or “total dwelling units” as the calculation of the number of units that:
    1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus; and
    2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
11. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low-, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. States that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

EXISTING LAW:

1. Requires cities and counties to grant a density bonus, based on a specified formula, when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:
2. Ten percent of the total units of a housing development for low-income households;
3. Five percent of the total units of a housing development for very low-income households;
4. A senior citizen housing development or mobile home park;
5. Ten percent of the units in a common interest development (CID) for moderate-income households;
6. Ten percent of the total units for transitional foster youth, disabled veterans, or homeless persons; and
7. Twenty percent of the total units for lower income students in a student housing development, as specified.
8. Provides that, upon the developer’s request, the local government may not require parking standards greater than the following (the developer may, however, request additional parking incentives or concessions):
9. Zero to one bedrooms: one onsite parking space;
10. Two to three bedrooms: two onsite parking spaces; and
11. Four or more bedrooms: two and one-half parking spaces.
12. Provides that if a rental development is 100 percent affordable to lower income families then, upon the request of a developer, a city, county, or city and county, the following parking ratios will apply for the development:
    1. If the development is located within one-half mile of a “major transit stop” and there is unobstructed access to the major transit stop from the development, the ratio must not exceed 0.5 spaces per unit.
    2. If the development is a for-rent housing development for individuals who are 62 years of age or older, the ratio must not exceed 0.5 spaces per unit.
    3. If the development is a special needs housing development, the ratio must not exceed 0.3 spaces per unit.
13. Requires applicants to receive the following number of incentives or concessions:
14. One incentive or concession for projects that include at least 10 percent of the total units for lower income households, at least 5 percent for very low income households, or at least 10 percent for moderate income persons and families in a common interest development.
15. Two incentives or concessions for projects that include at least 20 percent of the total units for lower income households, at least 10 percent for very low income households, or at least 20 percent for moderate income persons and families in common interest developments.
16. Three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low income households, or at least 30 percent for moderate income persons and famlies in common interst developments.
17. Permits an applicant to submit to a local government a proposal for the specific incentives or concessions that the applicant requests, as specified, and allows the applicant to request a meeting with the local government.
18. Defines “concession or incentive” as:
19. A reduction in site development standards or a modification of zoning code requirements or architectural design requirements that exceed the minimum building standards including, but not limited to, a reduction in setback and square footage requirements and in the ratio of vehicular parking spaces that would otherwise be required that results in identifiable and actual cost reductions, to provide for affordable housing costs;
20. Approval of mixed-use zoning in conjunction with the housing project, as specified; and
21. Other regulatory incentives or concessions proposed by the developer or the local government that results in identifiable and actual cost reductions to provide for affordable housing.

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s statement: According to the author, “The State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”

Density bonus law: Density bonus law was originally enacted in 1979, to help address a shortage of affordable housing. Over 40 years later, the state faces the same if not worse affordable housing challenges. Density bonus is a tool to encourage the production of affordable housing by market rate developers, although it is used by developers building 100 percent affordable developments as well. In return for including affordable units in a development, developers are given an increase in density over a city’s zoned density, concessions and incentives, and reductions in parking. The increase in density and concessions and incentives are intended to financially support the inclusion of the affordable units.

All local governments are required to adopt an ordinance that provides concessions and incentives to developers that seek a density bonus on top of the zoned density in exchange for including extremely low-, very low-, low-, and moderate-income housing. Failure to adopt an ordinance does not relieve a local government from complying with state density bonus law. Local governments must grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:

• Ten percent of the total units for lower income households;
• Five percent of the total units of a housing for very low income households;
• A senior citizen housing development or mobilehome park;
• Ten percent of the units in a common interest development for moderate income households;
• Ten percent of the total units of a housing development for transitional foster youth, disabled veterans, or homeless persons; or
• Twenty percent of the total units for lower income students in a student housing development, as specified.

One-hundred percent affordable developments can receive an enhanced density bonus of up to 80 percent anywhere in the state or unlimited density near transit. Otherwise, the maximum amount of density a development can receive is 35 percent in exchanged for including either 11 percent very low-income units or 20 percent low-income units. Developers are not required to take the density bonus but can access the concession and incentives and parking reductions provided that they include the required amount of affordable housing.

Statewide housing needs: According to the California Housing Partnership Corporation, the state currently has an estimated 1.3 million-unit shortfall of rental units affordable to very low- and extremely low-income households. Four out of five extremely low-income households pay over half of their income in rent, as do nearly half of very low-income households. In October 2019, the California Housing Partnership Corporation published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50 percent AMI can afford modest rents in only one county in California; households earning 60 percent AMI could afford modest rents in 11 counties; 80 percent AMI could afford modest rents in 29 counties; and households earning 100 percent AMI (e.g., at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions. In addition, census data reveals that only about 10 percent the state’s workforce makes between 80 and 120 percent of AMI. In many parts of the state, teachers, licensed vocational nurses, and paralegals, for example, earn less than 80 percent AMI. This is particularly true in high cost and coastal areas of the state.

Lack of multi-family zoned sites: According the UC Berkeley Terner Center, one of the major barriers to housing production is the lack of sites zoned for multi-family housing. In two-thirds of jurisdictions, multifamily housing is allowed on less than 25 percent of land. The Legislature has taken steps over the last three years to increase the supply of sites zoned for multi-family. Local governments will be required to zone for significantly more housing in the next planning cycle. Local governments have up to three years to zone for more multi-family sites after they adopted their housing element which in most cases will not be approved until next year. Because multi-family sites are scarce, it is important that the Legislature be deliberate in prioritizing those sites for dense, affordable housing for lower income households.

Moderate-income housing and density bonus: State density bonus law allows a developer to receive a density bonus for moderate-income for-sale housing, but not for moderate-income rental units. Developers can receive a density bonus if they offer 10 percent of the units in a common interest development for-sale to moderate-income owners. This bill would make a developer eligible for a 35 percent density bonus for restricting 20 percent of the units in a development to moderate-income rental units. The rents for the units would be required to be 30 percent below AMI. Existing law offers a 35 percent density bonus to developers who restrict 11 percent of the units in a development to very low income or 20 percent of the units in the development to lower income. The committee may wish to consider if offering a density bonus for moderate-income rental units that is equal to the density bonus offered for lower income unit would undermine the creation of lower income units through density bonus.

Concessions and incentives: In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Under existing law, a developer can receive up to three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low-income households, or at least 30 percent for persons and families of moderate income in a common interest development. This bill would allow a developer to request one incentive or concession for including 20 percent of the total units for moderate-income rentals, two concession for including 30 percent of the units for moderate-income rentals and three concessions for including 40 percent of units for moderate income rentals.

Moderate-income housing and density bonus: State density bonus law allows a developer to receive a density bonus for moderate-income for-sale housing, but not for moderate-income rental units. Developers can receive a density bonus if they offer 10 percent of the units in a common interest development for-sale to moderate-income owners. This bill would make a developer eligible for a 35 percent density bonus for restricting 20 percent of the units in a development to moderate-income rental units. The rents for the units would be required to be 30 percent below AMI. Existing law offers a 35 percent density bonus to developers who restrict 11 percent of the units in a development to very low income or 20 percent of the units in the development to lower income. The committee may wish to consider if offering a density bonus for moderate-income rental units that is equal to the density bonus offered for lower income unit would undermine the creation of lower income units through density bonus.

Concessions and incentives: In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Under existing law, a developer can receive up to three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low-income households, or at least 30 percent for persons and families of moderate income in a common interest development. This bill would allow a developer to request one incentive or concession for including 20 percent of the total units for moderate-income rentals, two concession for including 30 percent of the units for moderate-income rentals and three concessions for including 40 percent of units for moderate income rentals.

Fees on density bonus units: This bill would prohibit affordable housing fees on density bonus units (inclusionary, in lieu and public benefit fees), but a local government could continue to charge impact fees on housing developments that are used to pay for the infrastructure associated with the development as well as perceived impacts that result from more housing units. Some jurisdictions impose inclusionary housing requirements that can be fulfilled by either providing housing onsite or by paying an in lieu fee that funds affordable housing in the community. A handful of jurisdictions charge affordable housing fees on the “bonus units” or the additional market rate units that result from a density bonus.

Government Code Section 65917 already states that “it is the intent of the Legislature that the density bonus or other incentives offered by the city, county, or city and county pursuant to this chapter shall contribute significantly to the economic feasibility of lower income housing in proposed housing developments. In the absence of an agreement by a developer in accordance with Section 65915, a locality shall not offer a density bonus or any other incentive that would undermine the intent of this chapter.”

The Attorney General was recently asked if a city or county can impose a “public benefit fee” on a density bonus unit that it does not charge on other housing. In a published opinion, the Attorney General determined that such fees were invalid (to read the opinion in full, go to https://oag.ca.gov/system/files/opinions/pdfs/17-602_0.pdf). In the opinion, after citing Government Code Section 65917, it went on to state:

“The type of ordinance at issue here—one that imposes a fee only on additional units allowed as a density bonus—contradicts the Density Bonus Law. Rather than encourage construction of affordable housing, such a fee taxes developers for utilizing density bonuses. Thus the local law disincentivizes what the state law means to incentivize. Therefore, we conclude that an ordinance imposing a fee only on units created through a density bonus under section 65915 is invalid.”

Courts have reached similar conclusions where a local law or practice has diminished the benefits of the Density Bonus Law. For instance, a county required a certain amount of affordable housing in new developments, but did not count those units in calculating a density bonus under section 65915. The court found the county ordinance invalid as conflicting with the Density Bonus Law. “To the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by section 65915, the ordinance is void.” Likewise, a court rejected a city’s growth-control ordinance that expressly excluded low-income and senior housing built with a density bonus from the enumerated exemptions to the city’s established growth limit. The court held that the city’s ordinance was invalid because it conflicted with the Density Bonus Law by discouraging developers from proposing housing that would otherwise qualify for bonuses.

In sum, an ordinance conditioning the grant of a bonus under the state Density Bonus Law upon payment of a public benefit fee imposed only on the density bonus units is inimical to the Density Bonus Law itself and, therefore, invalid.”

Although the Attorney General’s opinion centered on fees charge solely to density bonus units, the case law and statute supports the conclusion that affordable housing fees on density bonus units undermine the purpose of density bonus policy, which is to support the inclusion of affordable housing.

Latinos Unidos Del Valle De Napa Y Solano v. County of Napa: In 2013, the First District Court of Appeal heard a suit brought by low-income farmworkers in Napa County (Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013)). The suit attacked the validity of the housing element, the County’s density bonus ordinance and the discrimination against affordable housing and minorities allegedly caused by the County’s zoning laws. The Court of Appeal reversed in part the trial court judgment and held that the county's density bonus ordinance unlawfully conflicts with the state Density Bonus Law.

In 2010, Napa County adopted an ordinance implementing state Density Bonus Law, which required local governments to grant a density bonus and certain incentives and concessions when a developer agrees to include a certain percentage of affordable units. At the same time, Napa also adopted an inclusionary housing ordinance that required up to 20 percent of new dwelling units in a residential development project to be made available at prices affordable to moderate-income households. However, the inclusionary ordinance stated that affordable units that qualify a project for a density bonus must be provided in addition to the affordable units required by the inclusionary ordinance. So, for example, if a developer includes 10 percent low-income units to qualify for a density bonus (as required by state law), this would not count towards the percentage of affordable units required by the inclusionary ordinance. The court, looking at previous case law and legislative history, agreed with plaintiffs that Napa County's density bonus ordinance was invalid in that it would require a developer to go above and beyond state law requirements to obtain a density bonus. The court noted that "[a] handful of local jurisdictions have argued since 1979 that the density bonus law does not apply until inclusionary requirements have been met. The vast majority of cities, counties and experts take the opposite view, as do I." The county's ordinance, which failed to credit affordable units satisfying the county's inclusionary requirement toward satisfying the density bonus requirements, failed to comply with state law.

Density bonus law prohibits a city from requiring a developer to include more affordable units in a development than is required by statute in return for the increase in density. The intent of the law is to provide a strong enough incentive in the form of a density bonus and incentives and concessions to encourage developers to use the law and build the affordable units. Most jurisdictions take density bonus law into account in their planning ordinances including their inclusionary ordinance, if they have one. The majority of cities interpreted the law prior to the Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013) to require them to count the affordable housing units required under an inclusionary ordinance toward satisfying density bonus requirements.

This bill defines the “total units” in a density bonus project, to exclude the density bonus units and include any units that result from an inclusionary housing ordinance.

Arguments in support: Supporters argue that density bonus is underutilized in many parts of the state because the percentage of low- and very low-income units required to receive the density bonus and concessions and incentives is not feasible in light of the cost of construction.

Arguments in opposition: According to opponents, this bill allows developers to choose to include moderate-income rental units rather than units affordable to low- and very low-income households. Even in the limited number of places in California where rents are unaffordable to moderate-income households, the unmet needs of very low-income households are far greater. Density bonuses remain one of the primary ways—and in many cities the only way—in which jurisdictions can ensure that private developers are creating housing that serves the needs of all income levels.

Committee Amendments: The following amendments address concerns raised in the analysis.

1. To prevent this bill from undermining the use of density bonus to produce very low- and low-income housing units:
2. Delete the expansion of moderate-income housing to rental housing in addition to for-sale moderate income housing.
3. Conform the changes to the moderate-income housing density bonus formula to conform to AB 2345.
4. Delete the changes to the density bonus formula for very-low income housing.
5. To expand the types of for-sale housing units that can benefit from the density bonus beyond common interest developments, delete “common interest development” limitation to expand the types of for-sale units.
6. To incentivize moderate-income for sale units offer additional reductions in parking allow moderate-income housing developments within in one-half mile of that include 40 percent moderate income for sale to receive a parking reduction of 0.5 parking spaces per bedroom.

Related legislation:

AB 2345 (Gonzalez) would amend density bonus law to create additional incentives to build very low and lower income housing. This bill is pending hearing in Senate Housing Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

All Home
Associated Builders and Contractors Northern California Chapter
Bay Area Council
Bay Area Housing Action Coalition

Bridge Housing Corporation
California Apartment Association

California Association of Realtors
California Building Industry Association

California Chamber of Commerce
California Community Builders
California YIMBY
Central City Association
Chan Zuckerberg Initiative

Council of Infill Builders
Facebook
Habitat for Humanity California
Los Angeles Business Council
San Francisco Bay Area Planning and Urban Research Association (SPUR)
San Francisco Foundation
Schneider Electric
Silicon Valley At Home (SV@HOME)
Silicon Valley Community Foundation
Terner Center for Housing Innovation At the University of California, Berkeley

The Two Hundred
TMG Partners

Up for Growth

Valley Industry and Commerce Association

Support if Amended

American Planning Association, California Chapter

City of Morgan Hill

Opposition

A Better Way Forward to House California

City of Redondo Beach

City of San Dimas
City of Thousand Oaks
City of Torrance
Communities United CD7
Comstock Hills Homeowners Association

Disability Rights California
Franklin Corridor Coalition

Friends of Sunset Park

Grayburn Avenue Block Club

Livable California

Noe Neighborhood Council

San Francisco Board of Supervisors
Shadow Hills Property Owners Association
Sustainable TamAlmonte
Western Quadrant of North Leimert Park

Oppose Unless Amended

AIDS Healthcare Foundation
Alliance of Californians for Community Empowerment
Asian Pacific Environmental Network
Bend the Arc: Jewish Action
Berkeley Tenants Union
Build Affordable Faster CA
California Renters' Caucus
California Rural Legal Assistance Foundation
Clergy and Laity United for Economic Justice
Council of Community Housing Organizations
Duboce Triangle Neighborhood Association
Empowering Pacific Islander Communities - EPIC
Faith in The Valley
Ground Game LA
Housing Equality & Advocacy Resource Team - HEART
Housing Now! CA
LA Forward
Long Beach Residents Empowered
Manufactured Housing Action
National Association of Social Workers, California Chapter
One Redwood City
Orange County Communities Organized for Responsible Development
Pacifica Housing 4 All
People Organized for Westside Renewal
Pico California
TODCO
Western Center on Law & Poverty

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

Date of Hearing: July 28, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

SBPCA Bill Id:SB 1085

Author:(Skinner) – As Amended Ver:June 18, 2020

SENATE VOTE: 31-1

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

SUMMARY: Makes various changes to density bonus law, including providing additional benefits to housing developments that include moderate-income rental housing units. Specifically, this bill:

1. Requires a planning agency to report in the housing element annual report the number of units for lower income students that were included in a student housing development for which a developer received a density bonus.
2. Makes a student housing development containing at least 20 percent of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Provides that a development containing 20 percent moderate-income rental units must receive the following:
4. A 35-percent density bonus; and
5. For projects located within one-half mile from a major transit stop, a local government cannot impose a parking ratio inclusive of handicapped and guest parking that exceeds 0.5 spaces per bedroom.
6. Provides that the inclusion of the specified percentage of moderate-income rental units entitles a developer to the specified amounts of concessions and incentives, as follows:
   1. One incentive or concession for projects that include at least 20 percent of the total rental units for moderate-income households.
   2. Two concessions or incentives for projects that include at least 30 percent of the total rental units for moderate-income households.
   3. Three concessions or incentives for projects that include at least 40 percent of the total rental units for moderate-income households.
7. Increases the amount of density bonus for a development that restricts 11 percent of the total units at very-low income from 35 percent to 40 percent.
8. Provides that in order for a development with moderate-income rental units to be eligible for the benefits in (4) above, the rent for the moderate-income unit must be 30 percent below the market rate for the locality, and the applicant must provide the local government with evidence to establish that the units meet those requirements.
9. Prohibits fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers, from being imposed on a housing development’s affordable units or bonus units.
10. Defines “total units” or “total dwelling units” as the calculation of the number of units that:
    1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus; and
    2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
11. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low-, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. States that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

EXISTING LAW:

1. Requires cities and counties to grant a density bonus, based on a specified formula, when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:
2. Ten percent of the total units of a housing development for low-income households;
3. Five percent of the total units of a housing development for very low-income households;
4. A senior citizen housing development or mobile home park;
5. Ten percent of the units in a common interest development (CID) for moderate-income households;
6. Ten percent of the total units for transitional foster youth, disabled veterans, or homeless persons; and
7. Twenty percent of the total units for lower income students in a student housing development, as specified.
8. Provides that, upon the developer’s request, the local government may not require parking standards greater than the following (the developer may, however, request additional parking incentives or concessions):
9. Zero to one bedrooms: one onsite parking space;
10. Two to three bedrooms: two onsite parking spaces; and
11. Four or more bedrooms: two and one-half parking spaces.
12. Provides that if a rental development is 100 percent affordable to lower income families then, upon the request of a developer, a city, county, or city and county, the following parking ratios will apply for the development:
    1. If the development is located within one-half mile of a “major transit stop” and there is unobstructed access to the major transit stop from the development, the ratio must not exceed 0.5 spaces per unit.
    2. If the development is a for-rent housing development for individuals who are 62 years of age or older, the ratio must not exceed 0.5 spaces per unit.
    3. If the development is a special needs housing development, the ratio must not exceed 0.3 spaces per unit.
13. Requires applicants to receive the following number of incentives or concessions:
14. One incentive or concession for projects that include at least 10 percent of the total units for lower income households, at least 5 percent for very low income households, or at least 10 percent for moderate income persons and families in a common interest development.
15. Two incentives or concessions for projects that include at least 20 percent of the total units for lower income households, at least 10 percent for very low income households, or at least 20 percent for moderate income persons and families in common interest developments.
16. Three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low income households, or at least 30 percent for moderate income persons and famlies in common interst developments.
17. Permits an applicant to submit to a local government a proposal for the specific incentives or concessions that the applicant requests, as specified, and allows the applicant to request a meeting with the local government.
18. Defines “concession or incentive” as:
19. A reduction in site development standards or a modification of zoning code requirements or architectural design requirements that exceed the minimum building standards including, but not limited to, a reduction in setback and square footage requirements and in the ratio of vehicular parking spaces that would otherwise be required that results in identifiable and actual cost reductions, to provide for affordable housing costs;
20. Approval of mixed-use zoning in conjunction with the housing project, as specified; and
21. Other regulatory incentives or concessions proposed by the developer or the local government that results in identifiable and actual cost reductions to provide for affordable housing.

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s statement: According to the author, “The State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”

Density bonus law: Density bonus law was originally enacted in 1979, to help address a shortage of affordable housing. Over 40 years later, the state faces the same if not worse affordable housing challenges. Density bonus is a tool to encourage the production of affordable housing by market rate developers, although it is used by developers building 100 percent affordable developments as well. In return for including affordable units in a development, developers are given an increase in density over a city’s zoned density, concessions and incentives, and reductions in parking. The increase in density and concessions and incentives are intended to financially support the inclusion of the affordable units.

All local governments are required to adopt an ordinance that provides concessions and incentives to developers that seek a density bonus on top of the zoned density in exchange for including extremely low-, very low-, low-, and moderate-income housing. Failure to adopt an ordinance does not relieve a local government from complying with state density bonus law. Local governments must grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least any one of the following:

• Ten percent of the total units for lower income households;
• Five percent of the total units of a housing for very low income households;
• A senior citizen housing development or mobilehome park;
• Ten percent of the units in a common interest development for moderate income households;
• Ten percent of the total units of a housing development for transitional foster youth, disabled veterans, or homeless persons; or
• Twenty percent of the total units for lower income students in a student housing development, as specified.

One-hundred percent affordable developments can receive an enhanced density bonus of up to 80 percent anywhere in the state or unlimited density near transit. Otherwise, the maximum amount of density a development can receive is 35 percent in exchanged for including either 11 percent very low-income units or 20 percent low-income units. Developers are not required to take the density bonus but can access the concession and incentives and parking reductions provided that they include the required amount of affordable housing.

Statewide housing needs: According to the California Housing Partnership Corporation, the state currently has an estimated 1.3 million-unit shortfall of rental units affordable to very low- and extremely low-income households. Four out of five extremely low-income households pay over half of their income in rent, as do nearly half of very low-income households. In October 2019, the California Housing Partnership Corporation published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50 percent AMI can afford modest rents in only one county in California; households earning 60 percent AMI could afford modest rents in 11 counties; 80 percent AMI could afford modest rents in 29 counties; and households earning 100 percent AMI (e.g., at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions. In addition, census data reveals that only about 10 percent the state’s workforce makes between 80 and 120 percent of AMI. In many parts of the state, teachers, licensed vocational nurses, and paralegals, for example, earn less than 80 percent AMI. This is particularly true in high cost and coastal areas of the state.

Lack of multi-family zoned sites: According the UC Berkeley Terner Center, one of the major barriers to housing production is the lack of sites zoned for multi-family housing. In two-thirds of jurisdictions, multifamily housing is allowed on less than 25 percent of land. The Legislature has taken steps over the last three years to increase the supply of sites zoned for multi-family. Local governments will be required to zone for significantly more housing in the next planning cycle. Local governments have up to three years to zone for more multi-family sites after they adopted their housing element which in most cases will not be approved until next year. Because multi-family sites are scarce, it is important that the Legislature be deliberate in prioritizing those sites for dense, affordable housing for lower income households.

Moderate-income housing and density bonus: State density bonus law allows a developer to receive a density bonus for moderate-income for-sale housing, but not for moderate-income rental units. Developers can receive a density bonus if they offer 10 percent of the units in a common interest development for-sale to moderate-income owners. This bill would make a developer eligible for a 35 percent density bonus for restricting 20 percent of the units in a development to moderate-income rental units. The rents for the units would be required to be 30 percent below AMI. Existing law offers a 35 percent density bonus to developers who restrict 11 percent of the units in a development to very low income or 20 percent of the units in the development to lower income. The committee may wish to consider if offering a density bonus for moderate-income rental units that is equal to the density bonus offered for lower income unit would undermine the creation of lower income units through density bonus.

Concessions and incentives: In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Under existing law, a developer can receive up to three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low-income households, or at least 30 percent for persons and families of moderate income in a common interest development. This bill would allow a developer to request one incentive or concession for including 20 percent of the total units for moderate-income rentals, two concession for including 30 percent of the units for moderate-income rentals and three concessions for including 40 percent of units for moderate income rentals.

Moderate-income housing and density bonus: State density bonus law allows a developer to receive a density bonus for moderate-income for-sale housing, but not for moderate-income rental units. Developers can receive a density bonus if they offer 10 percent of the units in a common interest development for-sale to moderate-income owners. This bill would make a developer eligible for a 35 percent density bonus for restricting 20 percent of the units in a development to moderate-income rental units. The rents for the units would be required to be 30 percent below AMI. Existing law offers a 35 percent density bonus to developers who restrict 11 percent of the units in a development to very low income or 20 percent of the units in the development to lower income. The committee may wish to consider if offering a density bonus for moderate-income rental units that is equal to the density bonus offered for lower income unit would undermine the creation of lower income units through density bonus.

Concessions and incentives: In addition to an increase in density, a developer can request concessions and incentives under density bonus law to reduce the cost of the development and support the inclusion of the affordable housing units. Under existing law, a developer can receive up to three incentives or concessions for projects that include at least 30 percent of the total units for lower income households, at least 15 percent for very low-income households, or at least 30 percent for persons and families of moderate income in a common interest development. This bill would allow a developer to request one incentive or concession for including 20 percent of the total units for moderate-income rentals, two concession for including 30 percent of the units for moderate-income rentals and three concessions for including 40 percent of units for moderate income rentals.

Fees on density bonus units: This bill would prohibit affordable housing fees on density bonus units (inclusionary, in lieu and public benefit fees), but a local government could continue to charge impact fees on housing developments that are used to pay for the infrastructure associated with the development as well as perceived impacts that result from more housing units. Some jurisdictions impose inclusionary housing requirements that can be fulfilled by either providing housing onsite or by paying an in lieu fee that funds affordable housing in the community. A handful of jurisdictions charge affordable housing fees on the “bonus units” or the additional market rate units that result from a density bonus.

Government Code Section 65917 already states that “it is the intent of the Legislature that the density bonus or other incentives offered by the city, county, or city and county pursuant to this chapter shall contribute significantly to the economic feasibility of lower income housing in proposed housing developments. In the absence of an agreement by a developer in accordance with Section 65915, a locality shall not offer a density bonus or any other incentive that would undermine the intent of this chapter.”

The Attorney General was recently asked if a city or county can impose a “public benefit fee” on a density bonus unit that it does not charge on other housing. In a published opinion, the Attorney General determined that such fees were invalid (to read the opinion in full, go to https://oag.ca.gov/system/files/opinions/pdfs/17-602_0.pdf). In the opinion, after citing Government Code Section 65917, it went on to state:

“The type of ordinance at issue here—one that imposes a fee only on additional units allowed as a density bonus—contradicts the Density Bonus Law. Rather than encourage construction of affordable housing, such a fee taxes developers for utilizing density bonuses. Thus the local law disincentivizes what the state law means to incentivize. Therefore, we conclude that an ordinance imposing a fee only on units created through a density bonus under section 65915 is invalid.”

Courts have reached similar conclusions where a local law or practice has diminished the benefits of the Density Bonus Law. For instance, a county required a certain amount of affordable housing in new developments, but did not count those units in calculating a density bonus under section 65915. The court found the county ordinance invalid as conflicting with the Density Bonus Law. “To the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by section 65915, the ordinance is void.” Likewise, a court rejected a city’s growth-control ordinance that expressly excluded low-income and senior housing built with a density bonus from the enumerated exemptions to the city’s established growth limit. The court held that the city’s ordinance was invalid because it conflicted with the Density Bonus Law by discouraging developers from proposing housing that would otherwise qualify for bonuses.

In sum, an ordinance conditioning the grant of a bonus under the state Density Bonus Law upon payment of a public benefit fee imposed only on the density bonus units is inimical to the Density Bonus Law itself and, therefore, invalid.”

Although the Attorney General’s opinion centered on fees charge solely to density bonus units, the case law and statute supports the conclusion that affordable housing fees on density bonus units undermine the purpose of density bonus policy, which is to support the inclusion of affordable housing.

Latinos Unidos Del Valle De Napa Y Solano v. County of Napa: In 2013, the First District Court of Appeal heard a suit brought by low-income farmworkers in Napa County (Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013)). The suit attacked the validity of the housing element, the County’s density bonus ordinance and the discrimination against affordable housing and minorities allegedly caused by the County’s zoning laws. The Court of Appeal reversed in part the trial court judgment and held that the county's density bonus ordinance unlawfully conflicts with the state Density Bonus Law.

In 2010, Napa County adopted an ordinance implementing state Density Bonus Law, which required local governments to grant a density bonus and certain incentives and concessions when a developer agrees to include a certain percentage of affordable units. At the same time, Napa also adopted an inclusionary housing ordinance that required up to 20 percent of new dwelling units in a residential development project to be made available at prices affordable to moderate-income households. However, the inclusionary ordinance stated that affordable units that qualify a project for a density bonus must be provided in addition to the affordable units required by the inclusionary ordinance. So, for example, if a developer includes 10 percent low-income units to qualify for a density bonus (as required by state law), this would not count towards the percentage of affordable units required by the inclusionary ordinance. The court, looking at previous case law and legislative history, agreed with plaintiffs that Napa County's density bonus ordinance was invalid in that it would require a developer to go above and beyond state law requirements to obtain a density bonus. The court noted that "[a] handful of local jurisdictions have argued since 1979 that the density bonus law does not apply until inclusionary requirements have been met. The vast majority of cities, counties and experts take the opposite view, as do I." The county's ordinance, which failed to credit affordable units satisfying the county's inclusionary requirement toward satisfying the density bonus requirements, failed to comply with state law.

Density bonus law prohibits a city from requiring a developer to include more affordable units in a development than is required by statute in return for the increase in density. The intent of the law is to provide a strong enough incentive in the form of a density bonus and incentives and concessions to encourage developers to use the law and build the affordable units. Most jurisdictions take density bonus law into account in their planning ordinances including their inclusionary ordinance, if they have one. The majority of cities interpreted the law prior to the Latinos Unidos Del Valle De Napa Y Solano v. County of Napa, 217 Cal. App. 4th 1160 (2013) to require them to count the affordable housing units required under an inclusionary ordinance toward satisfying density bonus requirements.

This bill defines the “total units” in a density bonus project, to exclude the density bonus units and include any units that result from an inclusionary housing ordinance.

Arguments in support: Supporters argue that density bonus is underutilized in many parts of the state because the percentage of low- and very low-income units required to receive the density bonus and concessions and incentives is not feasible in light of the cost of construction.

Arguments in opposition: According to opponents, this bill allows developers to choose to include moderate-income rental units rather than units affordable to low- and very low-income households. Even in the limited number of places in California where rents are unaffordable to moderate-income households, the unmet needs of very low-income households are far greater. Density bonuses remain one of the primary ways—and in many cities the only way—in which jurisdictions can ensure that private developers are creating housing that serves the needs of all income levels.

Committee Amendments: The following amendments address concerns raised in the analysis.

1. To prevent this bill from undermining the use of density bonus to produce very low- and low-income housing units:
2. Delete the expansion of moderate-income housing to rental housing in addition to for-sale moderate income housing.
3. Conform the changes to the moderate-income housing density bonus formula to conform to AB 2345.
4. Delete the changes to the density bonus formula for very-low income housing.
5. To expand the types of for-sale housing units that can benefit from the density bonus beyond common interest developments, delete “common interest development” limitation to expand the types of for-sale units.
6. To incentivize moderate-income for sale units offer additional reductions in parking allow moderate-income housing developments within in one-half mile of that include 40 percent moderate income for sale to receive a parking reduction of 0.5 parking spaces per bedroom.

Related legislation:

AB 2345 (Gonzalez) would amend density bonus law to create additional incentives to build very low and lower income housing. This bill is pending hearing in Senate Housing Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

All Home
Associated Builders and Contractors Northern California Chapter
Bay Area Council
Bay Area Housing Action Coalition

Bridge Housing Corporation
California Apartment Association

California Association of Realtors
California Building Industry Association

California Chamber of Commerce
California Community Builders
California YIMBY
Central City Association
Chan Zuckerberg Initiative

Council of Infill Builders
Facebook
Habitat for Humanity California
Los Angeles Business Council
San Francisco Bay Area Planning and Urban Research Association (SPUR)
San Francisco Foundation
Schneider Electric
Silicon Valley At Home (SV@HOME)
Silicon Valley Community Foundation
Terner Center for Housing Innovation At the University of California, Berkeley

The Two Hundred
TMG Partners

Up for Growth

Valley Industry and Commerce Association

Support if Amended

American Planning Association, California Chapter

City of Morgan Hill

Opposition

A Better Way Forward to House California

City of Redondo Beach

City of San Dimas
City of Thousand Oaks
City of Torrance
Communities United CD7
Comstock Hills Homeowners Association

Disability Rights California
Franklin Corridor Coalition

Friends of Sunset Park

Grayburn Avenue Block Club

Livable California

Noe Neighborhood Council

San Francisco Board of Supervisors
Shadow Hills Property Owners Association
Sustainable TamAlmonte
Western Quadrant of North Leimert Park

Oppose Unless Amended

AIDS Healthcare Foundation
Alliance of Californians for Community Empowerment
Asian Pacific Environmental Network
Bend the Arc: Jewish Action
Berkeley Tenants Union
Build Affordable Faster CA
California Renters' Caucus
California Rural Legal Assistance Foundation
Clergy and Laity United for Economic Justice
Council of Community Housing Organizations
Duboce Triangle Neighborhood Association
Empowering Pacific Islander Communities - EPIC
Faith in The Valley
Ground Game LA
Housing Equality & Advocacy Resource Team - HEART
Housing Now! CA
LA Forward
Long Beach Residents Empowered
Manufactured Housing Action
National Association of Social Workers, California Chapter
One Redwood City
Orange County Communities Organized for Responsible Development
Pacifica Housing 4 All
People Organized for Westside Renewal
Pico California
TODCO
Western Center on Law & Poverty

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

 THIRD READING  

Bill No: SB 1085

Author: Skinner (D) and Caballero (D), et al.

Amended: 6/18/20

Vote: 21

SENATE HOUSING COMMITTEE: 9-0, 5/26/20

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

NO VOTE RECORDED: Morrell, Bates

SENATE APPROPRIATIONS COMMITTEE: 5-1, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Jones

NO VOTE RECORDED: Bates

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

SOURCE: Author

DIGEST:

This bill makes several changes to density bonus law (DBL) and provides additional benefits to housing development projects that include moderate-income rental housing units, as specified.

ANALYSIS:

Existing law:

1. Requires a local planning agency, annually by April 1, to submit a report to the legislative body, the Office of Planning and Research, and the Department of Housing and Community development that includes data points and updates on housing plans and approvals.
2. Requires all cities and counties to adopt an ordinance that specifies how they will implement state DBL. Requires cities and counties to grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least one of the following:
   1. 10% of the total units of a housing development for lower income households;
   2. 5% of the total units of a housing development for very low-income households;
   3. A senior citizen housing development or mobile home park;
   4. 10% of the units in a common interest development for moderate-income households;
   5. 10% of the total units for transitional foster youth, disabled veterans, or homeless persons;
   6. 20% of the total units for lower-income students in a student housing development.
3. Requires the city or county to allow an increase in density on a sliding scale from 20% to 35%, depending on the percentage of units affordable to low- and very low-income households, over the otherwise maximum allowable residential density under the applicable zoning ordinance and land use element of the general plan. Requires the increase in density on a sliding scale for moderate-income for-sale developments from 5% to 35% over the otherwise allowable residential density.
4. Provides that upon the request of a developer, a city, county, or city and county shall not require a vehicular parking ratio, inclusive of disabled and guest parking, that meets the following ratios:
   1. Zero to one bedroom — one onsite parking space.
   2. Two to three bedrooms — two onsite parking spaces.
   3. Four and more bedrooms — two and one-half parking spaces.
5. Provides that if a project contains 100% affordable units and is within ½ mile of a major transit stop, the local government shall not impose a parking ratio higher than 0.5 spaces per unit. Provides that if a project contains 100% affordable units and houses persons with special needs or persons who are 62 years or older, the ratio shall not exceed 0.3 spaces or .5 spaces per unit, respectively. The development shall have either paratransit service or unobstructed access, within one-half mile, to fixed bus route service that operates at least eight times per day.
6. Provides that the applicant shall receive the following number of incentives or concessions:
   1. One incentive or concession for projects that include at least 10% of the total units for moderate-income households, 10% of the total units for lower-income households, or at least 5% for very low-income households.
   2. Two incentives or concessions for projects that include at least 20% of the total units for moderate-income households, 20% of the total units for lower income households, or least 10% for very low income households.
   3. Three incentives or concessions for projects that include at least 30% of the total units for moderate-income households 30% of the total units for lower-income households, or at least 15% for very low-income households.
7. Limits the applicability of density bonus law for moderate-income developments to for-sale units in a common interest development.
8. Defines “housing development” as development project for five or more residential units.

This bill:

1. Adds to the annual report a requirement for the local agency to include the number of units in a student housing development for lower-income students for which the developer was granted a density bonus.
2. Makes a student housing development containing at least 20% of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Provides that a development containing 20% moderate-income rental units to receive the following:
   1. 35% density bonus.
   2. For projects located ½ mile from a transit stop, a local government shall not impose a parking ratio inclusive of handicapped and guest parking that exceeds .5 spaces per bedroom.
4. Provides that the inclusion of the specified percentage of moderate income rental units shall entitle a developer to the following amounts of concessions and incentives:
   1. One incentive or concession for projects that include at least 20% of the total rental units for moderate-income households.
   2. Two concessions or incentives for projects that include at least 30% of the total rental units for moderate-income households.
   3. Three concessions or incentives for projects that include at least 40% of the total rental units for moderate-income households.
5. Provides that in order for a development with moderate-income rental units to be eligible for the benefits in (4) above, the rent for the moderate-income unit must be 30% below the market rate for the locality and the applicant must provide the locality with evidence to establish that the units meet those requirements.
6. Prohibits fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers from being imposed on a housing developments affordable units or bonus units.
7. Defines “total units” or “total dwelling units” as the calculation of the number of units that:
   1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus.
   2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
8. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. State that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

Comments

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

Under existing law, if a developer proposes to construct a housing development with a specified percentage of affordable units, the city or county must provide all of the following benefits: a density bonus; incentives or concessions (hereafter referred to as incentives); waiver of any development standards that prevent the developer from utilizing the density bonus or incentives; and reduced parking standards.

To qualify for benefits under DBL, a proposed housing development must contain a minimum percentage of affordable housing. If one of these five options is met, a developer is entitled to a base increase in density for the project as a whole (referred to as a density bonus) and one regulatory incentive. Under DBL, a market rate developer gets density increases on a sliding scale based on the percentage of affordable housing included in the project. At the low end, a developer receives 20% additional density for 5% very low-income units and 20% density for 10% low-income units. The maximum additional density permitted is 35% (in exchange for 11% very low-income units and 20% low-income units). The developer also negotiates additional incentives and concessions, reduced parking, and design standard waivers with the local government. This helps developers reduce costs while enabling a local government to determine what changes make the most sense for that site and community.

1. Need for Moderate Income Housing. In October 2019, the California Housing Partnership Corporation (CHPC) published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50% AMI can afford modest rents in only one county in California; households earning 60% AMI could afford modest rents in 11 counties; 80% AMI could afford modest rents in 29 counties; and households earning 100% AMI (e.g. at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions. Generally, when low-income households experience severe cost burden and spend most of their income on housing, families have to cut back on essentials such as food, healthcare, childcare, and transportation. These families are often those that are closest to becoming homeless. While CHPC recommends prioritizing assistance to households with the lowest income, they note that there are moderate income households in specific neighborhoods and counties that need help. CHPC recommends assistance for households earning more than 80% AMI to generally be limited to areas of the State where median income households cannot afford modest rents, particularly in the six higher cost coastal counties. This bill seeks to incentivize the development of more moderate-income households, without any additional public funding.

NOTE: To see a chart demonstrating how this bill changes density bonus law, please see the policy committee analysis.

1. Unintended Consequences. While the author’s intent is to incentivize the construction of more developments containing moderate-income units, this bill may have the unintended consequence of discouraging the development low-income developments. This is due to the fact that it would enable certain developments with 20% low income units to receive the same benefits (density and possible reduced parking) as certain developments with 20% moderate-income units. Given the choice, a developer will likely choose to develop the moderate-income units because those developments will yield more returns for the developer (i.e., the developer receives more in rent from a moderate-income household than from a low-income household). The author has addressed some of these concerns by providing fewer concessions and incentives to moderate-income rental developments than developments containing the same percentage of low-income units as well as requiring the rent for the moderate-income units to be 30% below the market rate for the locality. According to supporters of the bill, under current law, in many parts of the state, the benefits provided in density bonus law are not financially attractive enough for developers to use the law to create low-income or moderate-income housing units; they are, however, utilized to create very low-income units. This bill would make changes to density bonus law so that the benefits to develop moderate income units would be financially attractive and therefore utilized by developers. The benefits to low-income developments, however would be left untouched, thus failing to meet the demand for housing at that income level. The author has agreed to work moving forward to ensure all income levels are attractive to developers, including low-income units.
2. Additional changes to DBL. In addition to the changes for projects with moderate income units, this bill makes several changes to DBL:
3. Prohibits local governments from imposing housing fees for affordable housing upon low- and moderate-income units or any bonus units in a density bonus housing development.
4. States that the total units shall be designated to satisfy an inclusionary zoning requirement. In other words, any affordable units constructed to receive a density bonus shall count towards a local government’s inclusionary ordinance, rather than be additive to the inclusionary ordinance requirement.
5. Authorizes low-income student housing projects to receive an incentive or concession.
6. Increases the density for a development that contains 11% VLI units to receive a 40% density bonus, instead of a 35% density bonus. This increase is to ensure that the creation of very low-income developments is more attractive to a developer than a development containing moderate-income units.
7. Senate’s 2020 Housing Production Package. This bill has been included in the Senate’s 2020 Housing Production Package.
8. Double-referral. This bill was also referred to the Senate Governance and Finance Committee and this analysis includes information from the committee.
9. Appropriations Amendments. This bill was amended to make clarifying changes.

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

According to the Senate Appropriations Committee:

• The Department of Housing and Community Development (HCD) estimates it would incur costs of $101,000 in 2020-21 and $95,000 in 2021-22 for 0.5 PY of staff time to update guidance documents for the Density Bonus Law, and to provide technical assistance and outreach education to local agencies and affordable housing developers. (General Fund)
  
• Unknown local costs to provide for the additional incentives when applying a density bonus, as specified. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates. (local funds).

SUPPORT: (Verified 6/18/20)

All Home
Bay Area Council
Bridge Housing Corporation
California Association of Realtors
California Building Industry Association
California Community Builders
California YIMBY
Central City Association
Chan Zuckerberg Initiative
Facebook, INC.
Habitat for Humanity California
Los Angeles Business Council
San Francisco Bay Area Planning and Urban Research Association
San Francisco Foundation
San Francisco Housing Action Coalition
Schneider Electric
Silicon Valley At Home
Silicon Valley Community Foundation
Terner Center for Housing Innovation At the University of California, Berkeley
TMG Partners

1 Individual

OPPOSITION: (Verified 6/18/20)

A Better Way Forward to House California
California Rural Legal Assistance Foundation
New Livable California Dba Livable California
Sustainable Tamalmonte
Western Center on Law and Poverty

11 Individuals

ARGUMENTS IN SUPPORT: According to the author, “[t]he State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”

ARGUMENTS IN OPPOSITION: The California Rural Legal Assistance Foundation (CRLAF) and Western Center on Law and Poverty (WCLP) are opposed to this bill because it would incentivize the construction of moderate-income units at the expense of low- and very low-income households. This will further exacerbate the affordability crisis for lower-income households even further. CRLAF and WCLP are also opposed to increasing benefits to student housing developments without adding any increased affordability. These projects were not given access to the law’s other benefits given that rents are typically charged on a per bed basis rather than per unit and therefore lead to higher rental income. They are concerned that not enough time has passed to determine that these student housing projects need access to additional benefits to be viable.

A Better Way Forward to House California is opposed to imposing additional density, which they view as mandating a one-size-fits-all solution that ignores the complexity and work involved in nexus studies and other undertakings to determine the impacts of a project. They are also opposed to eliminating needed local fees that pay for critical infrastructure. They note that current density bonus law is sufficient to retain local oversight over developments projects while spurring needed production.

Prepared by: Alison Hughes / HOUSING / (916) 651-4124

6/23/20 17:13:48

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SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 1085 (Skinner) - Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

Bill Summary:

SB 1085 would make several changes to the Density Bonus Law and grant additional benefits to housing development projects with a specified percentage of units designated for low and moderate income households, if the rent charged for those units is 30% below the market rate for the jurisdiction in which the development is proposed.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on June 18, 2020

Fiscal Impact:

• The Department of Housing and Community Development (HCD) estimates it would incur costs of $101,000 in 2020-21 and $95,000 in 2021-22 for 0.5 PY of staff time to update guidance documents for the Density Bonus Law, and to provide technical assistance and outreach education to local agencies and affordable housing developers. (General Fund)
  
• Unknown local costs to provide for the additional incentives when applying a density bonus, as specified. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates. (local funds).

Author Amendments:

The author’s amendments would do the following:

• Delete the authority for developers to determine whether incentives or concessions result in identifiable and actual cost reductions to provide for affordable housing costs, as specified.
• Revise specified language related to affordable housing fees. Specifically, change a reference from “fees related to affordable housing” to “affordable housing impact fees” with respect to certain fees that shall not be imposed on a development’s affordable units or bonus units.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 1085 (Skinner) - Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

Bill Summary:

SB 1085 would make several changes to the Density Bonus Law and grant additional benefits to housing development projects with a specified percentage of units designated for low and moderate income households, if the rent charged for those units is 30% below the market rate for the jurisdiction in which the development is proposed.

Fiscal Impact:

• The Department of Housing and Community Development (HCD) estimates it would incur costs of $101,000 in 2020-21 and $95,000 in 2021-22 for 0.5 PY of staff time to update guidance documents for the Density Bonus Law, and to provide technical assistance and outreach education to local agencies and affordable housing developers. (General Fund)
  
• Unknown local costs to provide for the additional incentives when applying a density bonus, as specified. These costs are not state-reimbursable because local agencies have general authority to charge and adjust planning and permitting fees to cover their administrative expenses associated with new planning mandates. (local funds).

Background:

Existing law requires a city or county to adopt an ordinance that specifies how it will implement state Density Bonus Law, which requires the granting of a specified density bonus when an applicant for a housing development of 5 or more units agrees to construct a project with at least any of the following:

1. 10% of housing units dedicated for lower income households;
2. 5% of units for very low-income households;
3. A senior citizen development or mobilehome park;
4. 10% of units in a common interest development for moderate income households;
5. 10% of the total units for transitional foster youth, disabled veterans, or homeless persons; or
6. 20% of the total units for lower-income students in a student housing development.

Existing law requires a city or county to allow an increase in density of 20% - 35% on a sliding scale, depending on the percentage of units affordable to very low- and low-income households, over the otherwise maximum allowable residential density under the applicable zoning ordinance and land use element of the general plan. For #4 above, however, the increase in density is limited to 5%. Allowing more total units in a project allows a developer to spread the subsidized cost of affordable units more broadly over the market-rate units, making affordable housing more financially feasible.

In addition to the density bonus, existing law provides a sliding scale of incentives or concessions as follows:

• One incentive or concession for projects that include at least 10% of the total units for moderate-income households, 10% of the total units for lower-income households, or at least 5% for very low-income households.
• Two incentives or concessions for projects that include at least 20% of the total units for moderate-income households, 20% of the total units for lower income households, or least 10% for very low income households.
• Three incentives or concessions for projects that include at least 30% of the total units for moderate-income households 30% of the total units for lower-income households, or at least 15% for very low-income households.

Existing housing element law requires every city and county must submit a report to HCD and the Governor’s Office of Planning and Research annually on its implementation and progress towards meeting its share of the regional housing needs assessment amount and removing governmental obstacles to housing development.

Proposed Law:

SB 1085 would make changes to the Density Bonus Law and incentivize the construction of housing developments that will contain a specified percentage of units for low and moderate income households and for which the rent is 30% below market rate. Specifically, this bill would:

• Require a city or county to include data on the number of units in a student housing development for lower-income students for which a developer was granted a density bonus in the annual housing progress report it files with HCD.
• Make a student housing development eligible for one incentive or concession if at least 20% of the units are for lower-income students, as defined.
• Grant a 35% density bonus for a development with 20% of the units for low or moderate income households and the rent is 30% below the market rate for the jurisdiction in which the development is located. A local government may not impose a parking ratio that exceeds 0.5 spaces per bedroom if a project meeting these criteria is located within ½ mile of a transit stop, as specified.
• Provide for the following sliding scale of concessions and incentives for a development with a specified percentage of the units reserved for low or moderate income households and rent that is 30% below the jurisdiction’s market rate, as specified:
  • One incentive or concession for a project that includes at least 20% of the units for low or moderate income households.
  • Two incentives or concessions for a project that includes at least 30% of the units for low or moderate income households.
  • Three incentives or concessions for a project that includes at least 40% of the units for low or moderate income households.
• Prohibit fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers from being imposed on the affordable units or bonus units of a housing development.
• Define “total units” or “total dwelling units” as a calculation of the number of units that excludes a unit added by a specified density bonus and includes a unit designated to satisfy a local agency’s inclusionary zoning requirement.

Related Legislation:

AB 2345 (Gonzalez), which is currently pending on the Assembly Floor, would revise Density Bonus Law to increase the maximum allowable density bonus and the number of concessions and incentives a developer can seek, as specified.

Staff notes that this bill is part of the Senate’s 2020 Housing Production Package, which also includes the following measures:

• SB 902 (Wiener), which is currently pending in this Committee, would allow a local government to adopt an ordinance to allow up to 10 units per parcel, notwithstanding local voter initiatives, in infill, transit-rich, or high opportunity areas. SB 902 also provides that this zoning is not considered a project under the California Environmental Quality Act.
• SB 995 (Atkins), which is currently pending in this Committee, would expand the streamlined judicial review provisions of the Jobs and Economic Improvement Through Environmental Leadership Act of 2011 (AB 900) to a project with at least 15% of its units affordable to lower income households and a minimum investment of $15 million, and extend AB 900 provisions until 2025.
• SB 1120 (Atkins), which is currently pending in this Committee, would require ministerial approval of either or both of the following, as specified: a housing development of up to two units (duplexes); and the subdivision of a parcel into two equal parts (urban lot split). The bill would also extend the life of subdivision maps by one year, up to a total of four years, as specified.
• SB 1385 (Caballero), which is currently pending in this Committee, would enact the “Neighborhood Homes Act,” which establishes a housing development project as an authorized use on a parcel currently zoned for office or retail commercial use, as specified in a local agency’s zoning code or general plan.

Staff Comments:

The bill’s mandated local costs would not be subject to state reimbursement because local agencies have the authority to charge and adjust planning and permitting fees as necessary to cover administrative costs. Existing law authorizes planning and zoning fees to “include the costs reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and determinations.” Case law and previous decisions by the Commission on State Mandates support the position that local governments’ planning costs are not reimbursable when the state imposes new planning mandates.

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SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2019 - 2020 Regular

Bill No: SB 1085 Hearing Date: 5/26/2020

SUBJECT: Density Bonus Law: qualifications for incentives or concessions: student housing for lower income students: moderate-income persons and families: local government constraints

DIGEST: This bill makes several changes to density bonus law (DBL) and provides additional benefits to housing development projects that include moderate-income rental housing units, as specified.

ANALYSIS:

Existing law:

1. Requires a local planning agency, annually by April 1, to submit a report to the legislative body, the Office of Planning and Research, and the Department of Housing and Community development that includes data points and updates on housing plans and approvals.
2. Requires all cities and counties to adopt an ordinance that specifies how they will implement state DBL. Requires cities and counties to grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least one of the following:
   1. 10% of the total units of a housing development for lower income households;
   2. 5% of the total units of a housing development for very low-income households;
   3. A senior citizen housing development or mobile home park;
   4. 10% of the units in a common interest development (CID) for moderate-income households;
   5. 10% of the total units for transitional foster youth, disabled veterans, or homeless persons;
   6. 20% of the total units for lower-income students in a student housing development.
3. Requires the city or county to allow an increase in density on a sliding scale from 20% to 35%, depending on the percentage of units affordable to low- and very low-income households, over the otherwise maximum allowable residential density under the applicable zoning ordinance and land use element of the general plan. Requires the increase in density on a sliding scale for moderate-income for-sale developments from 5% to 35% over the otherwise allowable residential density.
4. Provides that upon the request of a developer, a city, county, or city and county shall not require a vehicular parking ratio, inclusive of disabled and guest parking, that meets the following ratios:
   1. Zero to one bedroom — one onsite parking space.
   2. Two to three bedrooms — two onsite parking spaces.
   3. Four and more bedrooms — two and one-half parking spaces.
5. Provides that if a project contains 100% affordable units and is within ½ mile of a major transit stop, the local government shall not impose a parking ratio higher than 0.5 spaces per unit. Provides that if a project contains 100% affordable units and houses persons with special needs or persons who are 62 years or older, the ratio shall not exceed 0.3 spaces or .5 spaces per unit, respectively. The development shall have either paratransit service or unobstructed access, within one-half mile, to fixed bus route service that operates at least eight times per day.
6. The applicant shall receive the following number of incentives or concessions:
   1. One incentive or concession for projects that include at least 10% of the total units for moderate-income households, 10% of the total units for lower-income households, or at least 5% for very low-income households.
   2. Two incentives or concessions for projects that include at least 20% of the total units for moderate-income households, 20% of the total units for lower income households, or least 10% for very low income households.
   3. Three incentives or concessions for projects that include at least 30% of the total units for moderate-income households 30% of the total units for lower-income households, or at least 15% for very low-income households.
7. Limits the applicability of density bonus law for moderate-income developments to for-sale units in a common interest development.
8. Defines “housing development” as development project for five or more residential units.

This bill, as proposed to be amended:

1. Adds to the annual report a requirement for the local agency to include the number of units in a student housing development for lower-income students for which the developer was granted a density bonus.
2. Makes a student housing development containing at least 20% of the units for lower-income students, as defined, eligible for one incentive or concession.
3. Provides that a development containing 20% moderate-income rental units to shall receive the following:
   1. 35% density bonus.
   2. For projects located ½ mile from a transit stop, a local government shall not impose a parking ratio inclusive of handicapped and guest parking that exceeds .5 spaces per bedroom.
4. Provides that the inclusion of the specified percentage of moderate income rental units shall entitle a developer to the following amounts of concessions and incentives:
   1. One incentive or concession for projects that include at least 20% of the total rental units for moderate-income households.
   2. Two concessions or incentives for projects that include at least 30% of the total rental units for moderate-income households.
   3. Three concessions or incentives for projects that include at least 40% of the total rental units for moderate-income households.
5. Provides that in order for a development with moderate-income rental units to be eligible for the benefits in (4) above, the rent for the moderate-income unit must be 30% below the market rate for the locality and the applicant must provide the locality with evidence to establish that the units meet those requirements.
6. Prohibits fees relating to affordable housing, including inclusionary zoning fees, in lieu fees, and public benefit fees established under a local agency’s police powers from being imposed on a housing developments affordable units or bonus units.
7. Defines “total units” or “total dwelling units” as the calculation of the number of units that:
   1. Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus.
   2. Includes a unit designated to satisfy an inclusionary zoning requirement of a local agency.
8. Makes findings and declarations that it is intent of the Legislature to make modifications to the Density Bonus Law to further incentivize the construction of very low, low-, and moderate-income housing units. States that it is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. State that the Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

COMMENTS

1. Author’s Statement. According to the author, “[t]he State Density Bonus Law is a unique tool that incentivizes developers to build more affordable housing in California. However, flaws in the program result in many cities underutilizing the density bonus tool or not using it at all. SB 1085 improves and clarifies the density bonus statute to expand its use in California to increase affordable housing production.”
2. DBL. Given California’s high land and construction costs for housing, it is extremely difficult for the private market to provide housing units that are affordable to low- and even moderate-income households. Public subsidy is often required to fill the financial gap on affordable units. DBL allows public entities to reduce or even eliminate subsidies for a particular project by allowing a developer to include more total units in a project than would otherwise be allowed by the local zoning ordinance in exchange for affordable units. Allowing more total units permits the developer to spread the cost of the affordable units more broadly over the market-rate units. The idea of DBL is to cover at least some of the financing gap of affordable housing with regulatory incentives, rather than additional subsidy.

Under existing law, if a developer proposes to construct a housing development with a specified percentage of affordable units, the city or county must provide all of the following benefits: a density bonus; incentives or concessions (hereafter referred to as incentives); waiver of any development standards that prevent the developer from utilizing the density bonus or incentives; and reduced parking standards.

To qualify for benefits under DBL, a proposed housing development must contain a minimum percentage of affordable housing. If one of these five options is met, a developer is entitled to a base increase in density for the project as a whole (referred to as a density bonus) and one regulatory incentive. Under DBL, a market rate developer gets density increases on a sliding scale based on the percentage of affordable housing included in the project. At the low end, a developer receives 20% additional density for 5% very low-income units and 20% density for 10% low-income units. The maximum additional density permitted is 35% (in exchange for 11% very low-income units and 20% low-income units). The developer also negotiates additional incentives and concessions, reduced parking, and design standard waivers with the local government. This helps developers reduce costs while enabling a local government to determine what changes make the most sense for that site and community.

1. Need for Moderate Income Housing. California is in the midst of a serious housing crisis, largely due to a shortage of housing stock, primarily for lower-income households. As more and more families feel the financial burden of monthly housing costs, and scarce resources at the state level, there has been a focus on easing the burden for moderate-income households. In October 2019, the California Housing Partnership Corporation (CHPC) published a report that compared the median asking rent data on Craigslist for two-bedroom apartments with regionally adjusted 2019 area median incomes. The report found that very low-income households earning 50% AMI can afford modest rents in only one county in California; households earning 60% AMI could afford modest rents in 11 counties; 80% AMI could afford modest rents in 29 counties; and households earning 100% AMI (e.g. at median income level) could afford modest rents in all but 6 counties, primarily in the State’s high-cost coastal regions.

Generally, when low-income households experience severe cost burden and spend most of their income on housing, families have to cut back on essentials such as food, healthcare, childcare, and transportation. These families are often those that are closest to becoming homeless. While CHPC recommends prioritizing assistance to households with the lowest income, they note that there are moderate income households in specific neighborhoods and counties that need help. CHPC recommends assistance for households earning more than 80% AMI to generally be limited to areas of the State where median income households cannot afford modest rents and where government intervention is most needed, particularly in the six higher cost coastal counties.

This bill seeks to incentivize the development of more moderate-income households, without any additional public funding. The chart below demonstrates the additional benefits (density, incentives and concessions, and reduced parking) afforded specific developments that contain specific percentages of moderate-income units.

1. Unintended Consequences. While the author’s intent is to incentivize the construction of more developments containing moderate-income units, this bill may have the unintended consequence of discouraging the development low-income developments. This is due to the fact that it would enable certain developments with 20% low income units to receive the same benefits (density and possible reduced parking) as certain developments with 20% moderate-income units. Given the choice, a developer will likely choose to develop the moderate-income units because those developments will yield more returns for the developer (i.e., the developer receives more in rent from a moderate-income household than from a low-income household). The author has addressed some of the committees concerns by providing fewer concessions and incentives to moderate-income rental developments than developments containing the same percentage of low-income units as well as requiring the rent for the moderate-income units to be 30% below the market rate for the locality.

According to supporters of the bill, under current law, in many parts of the state, the benefits provided in density bonus law are not financially attractive enough for developers to use the law to create low-income or moderate-income housing units; they are, however, utilized to create very low-income units. This bill would make changes to density bonus law so that the benefits to develop moderate income units would be financially attractive and therefore utilized by developers. The benefits to low-income developments, however would be left untouched, thus failing to meet the demand for housing at that income level.

Another density bonus bill, AB 2345 (L. Gonzalez) seeks to make all three income levels (very low-, low-, and moderate-income) more attractive to developers. The author has agreed to work with the Committee moving forward to align both this bill and AB 2345 to ensure all income levels are attractive to developers, including low-income units.

1. Additional changes to DBL. In addition to the changes for projects with moderate income units, this bill makes several changes to DBL:
2. Prohibits local governments from imposing housing fees for affordable housing upon low- and moderate-income units or any bonus units in a density bonus housing development.
3. States that the total units shall be designated to satisfy an inclusionary zoning requirement. In other words, any affordable units constructed to receive a density bonus shall count towards a local government’s inclusionary ordinance, rather than be additive to the inclusionary ordinance requirement.
4. Authorizes low-income student housing projects to receive an incentive or concession.
5. Increases the density for a development that contains 11% VLI units to receive a 40% density bonus, instead of a 35% density bonus. This increase is to ensure that the creation of very low-income developments is more attractive to a developer than a development containing moderate-income units.
6. Senate’s 2020 Housing Production Package. This bill has been included in the Senate’s 2020 Housing Production Package. As such, the bill will be amended to include the following amendments, as well as the addition of co-authors:

Add to page 28, beginning with line 30:

(s) (1) The Legislature finds and declares that the intent behind the Density Bonus Law is to allow public entities to reduce or even eliminate subsidies for a particular project by allowing a developer to include more total units in a project than would otherwise be allowed by the local zoning ordinance in exchange for affordable units. It further reaffirms that the intent is to cover at least some of the financing gap of affordable housing with regulatory incentives, rather than additional public subsidy.

(2) It is therefore the intent of the Legislature to make modifications to the Density Bonus Law by the act adding this subdivision to further incentivize the construction of very low, low-, and moderate-income housing units. It is further the intent of the Legislature in making these modifications to the Density Bonus Law to ensure that any additional benefits conferred upon a developer are balanced with the receipt of a public benefit in the form of adequate levels of affordable housing. The Legislature further intends that these modifications will ensure that the Density Bonus Law creates incentives for the construction of more housing across all areas of the state.

1. Opposition. The California Rural Legal Assistance Foundation (CRLAF) and Western Center on Law and Poverty (WCLP) are opposed to this bill because it would incentivize the construction of moderate-income units at the expense of low- and very low-income households. This will further exacerbate the affordability crisis for lower-income households even further. CRLAF and WCLP are also opposed to increasing benefits to student housing developments without adding any increased affordability. These projects were not given access to the law’s other benefits given that rents are typically charged on a per bed basis rather than per unit and therefore lead to higher rental income. They are concerned that not enough time has passed to determine that these student housing projects need access to additional benefits to be viable. A Better Way California is opposed to imposing additional density, which they view as mandating a one-size-fits-all solution that ignores the complexity and work involved in nexus studies and other undertakings to determine the impacts of a project. They are also opposed to eliminating needed local fees that pay for critical infrastructure. They note that current density bonus law is sufficient to retain local oversight over developments projects while spurring needed production.

8) Double-referral. Due to the COVID-19 Pandemic and the unprecedented nature of the 2020 Legislative Session, all Senate Policy Committees are working under a compressed timeline. This timeline does not allow this bill to be referred and heard by more than one committee as a typical timeline would allow. In order to fully vet the contents of this measure for the benefit of Senators and the public, this analysis includes information from the Governance and Finance Committee.

Related Legislation:

AB 2345 (L. Gonzalez, 2020) — amends density bonus law to increase base density for housing developments that provide specified percentages of very low-, low-, and moderate-income housing units. This bill is currently in the Assembly Housing and Community Development Committee.

SB 1227 (Skinner, Chapter 937, Statutes of 2018) — required cities and counties to grant a density bonus when an applicant for a housing development of five or more units seeks and agrees to construct a project that will contain at least 20% of the total units for lower-income students in a student housing development, as specified.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

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

May 20, 2020.)

SUPPORT:

All Home

Bay Area Council

Bridge Housing Corporation

California Association of Realtors

California Building Industry Association

California Community Builders

California YIMBY

Chan Zuckerberg Initiative

Facebook, Inc.

Los Angeles Business Council

San Francisco Bay Area Planning and Urban Research Association

San Francisco Foundation

San Francisco Housing Action Coalition

Silicon Valley At Home

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

TMG Partners

1 Individual

OPPOSITION

A Better Way Forward to House California

California Rural Legal Assistance Foundation

Western Center on Law and Poverty

3 Individuals

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