The Planning and Zoning Law requires the legislative body of each county and city to adopt a comprehensive, long-term general plan for the physical development of the county or city that includes, among other specified mandatory elements, a housing element. That law, for the 4th and subsequent revisions of the housing element, requires the Department of Housing and Community Development to determine the existing and projected need for housing for each region. That law further requires the appropriate council of governments, or, for cities and counties without a council of governments, the department, to adopt a final regional housing plan that allocates a share of the regional housing need to each city, county, or city and county in accordance with certain requirements.

This bill would establish a pilot program for the Counties of Orange and San Diego, and the cities therein. The bill would authorize a city or county within the pilot program, by agreement, to transfer all or a portion of its allocation of regional housing need to another city or county within the pilot program. The bill would allow the transferring city or county to pay the transferee city or county an amount determined by that agreement, as well as a surcharge to offset the impacts and associated costs of the additional housing on the transferee city. The bill would also require the transferring city or county and the transferee city or county to report to the council of governments and the department specified information about the transfer, as provided.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Orange and San Diego.

Date of Hearing: April 10, 2024

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Christopher M. Ward, Chair

ABPCA Bill Id:AB 2361 (

Author:Davies) – As Introduced Ver:February 12, 2024

SUBJECT: Planning and zoning: regional housing needs: exchange of allocation: Counties of Orange and San Diego

SUMMARY: Allows a city or county in the counties of Orange and San Diego to transfer all or a portion of its regional housing needs allocation (RHNA) to another city or county in the counties of Orange and San Diego. Specifically, this bill:

1. Allows, notwithstanding any other law, a city or county to transfer all or a portion of its RHNA to a transferee city or county, by agreement.
2. Allows a transferring city or county to pay a transferee city or county an amount determined under the agreement, and allows the payment of a surcharge to offset the impacts and associated costs of the additional housing on the transferee city.
3. Requires, upon an agreement to transfer all or a portion of the RHNA under this bill, the transferring and transferee localities to report to the appropriate council of governments (COG), or, for localities without a COG, the Department of Housing and Community Development, as to the number of housing units transferred, any amount paid by the transferring locality, and any other terms of the agreement.
4. Requires the transferring and transferee locality to include the information in 3) in the Annual Progress Report (APR), as specified.
5. Defines “transferee city or county” to mean a city or county that accepts a transfer of all or a portion of the RHNA from a transferring city or county under this bill.
6. Defines “transferring city or county” to mean a city or county that transfers all or a portion of its RHNA to a transferee city or county under this bill.

EXISTING LAW:

1. Provides that each community’s fair share of housing be determined through the RHNA process. Sets out the allocation process as follows: (a) the Department of Finance and HCD develop regional housing needs estimates; (b) COGs allocate housing within each region based on these determinations, and where a COG does not exist, HCD conducts the allocations; and (c) cities and counties incorporate these allocations into their housing elements. (Government Code (GC) Section 65584 and 65584.01)
2. Requires the RHNA plan to further all of the following objectives:
   1. Increasing the housing supply and mix of housing types, tenure, and affordability in all cities and counties within the regional in an equitable manner, which must result in each jurisdiction receiving an allocation of units for low- and very low-income households;
   2. Promoting infill development, socioeconomic equity, protection of environmental and agricultural resources, encouragement of efficient development patterns, and achievement of regional climate change reduction targets;
   3. Promoting an improved intraregional relationship between jobs and housing, including an improved balance between the number of low-wage jobs and the number of housing units affordable to low-wage workers in each jurisdiction;
   4. Allocating a lower proportion of housing need to an income category when a jurisdiction already has a disproportionately high share of households in that income category; and
   5. Affirmatively furthering fair housing. (GC 65584(d))
3. Allows at least two or more cities and a county or counties to form a subregional entity for the purpose of allocation of the subregion’s existing and projected need for housing among its members. Requires the COG to determine the share of RHNA assigned to each delegate subregion, and requires each subregion to fully allocate its share of the RHNA to local governments within its subregion. (GC 65584.03)
4. Requires, during the COG allocation process, each COG and subregion to distribute a draft allocation of the RHNA that includes the allocation methodology to each local government or subregion as well as HCD. Within 45 days following receipt of the draft allocation, a local government, subregion, or HCD may file an appeal to the COG or subregion for a revision of the share of RHNA proposed to be allocated to one or more local governments. No later than 45 days after a public hearing on the appeals, the COG or subregion must make a final determination on the merits of each appeal and issue a proposed final allocation plan. (GC 65584.04 and 65584.05)
5. Permits, during the period between adoption of a final RHNA and the due date of the housing element update, a COG, subregion, or HCD to reduce the share of regional housing needs of a county if all of the following conditions are met:
   1. One or more cities within the county agree to increase its share or their shares in an amount equivalent to the reduction;
   2. The transfer of shares must occur only between a county and cities within that county;
   3. The county’s share of low-income and very low-income housing must be reduced only in proportion to the amount by which the county’s share of moderate- and above moderate-income housing is reduced; and
   4. The entity that assigned the county’s share must approve the proposed reduction if 5)a)-c) above are satisfied, and the county and cities proposing the transfer must submit an analysis of the factors and circumstances, with supporting data, justifying the revision to the COG, subregion, or HCD. (GC 65584.07)
6. Requires each jurisdiction to prepare and adopt a general plan, including a housing element, to guide the future growth of a community. The housing element must identify and analyze existing and projected housing needs, including the jurisdiction’s share of the RHNA; identify adequate sites with appropriate zoning to meet the housing needs of all income segments of the community; and demonstrate local efforts to remove governmental and nongovernmental constraints that hinder the jurisdiction from meeting its share of the regional housing need, among other requirements. (GC 65583)
7. Requires each jurisdiction to submit an APR to its legislative body, HCD, and the Office of Planning and Research (OPR) by April 1 of each year that includes specified information, including progress in meeting its share of RHNA, a list of sites rezoned to accommodate the RHNA allocation for each income level that could not be accommodated on sites identified in the housing element’s sites inventory, and the number of net new units of housing that have been issued a completed entitlement, building permit, or certificate of occupancy and the income category that each unit satisfied. (GC 65400)

FISCAL EFFECT: None.

COMMENTS:

Author’s Statement: According to the author, “California is at a cross-roads when it comes to our affordable housing crisis. Our state should be pioneering new solutions to address the lack of housing available to our residents. One way to do this is allow our cities the flexibility to work with other localities around them when it comes to our Regional Housing Needs Assessment (RHNA) numbers. AB 2361 is a common-sense measure to allow the counties of Orange and San Diego the opportunity to engage in a pilot program to allow cities to exchange RHNA numbers to see if they can then fulfil their housing quotas. The status quo isn’t working and this measure represents a chance to change direction and try something new.”

California’s Housing Crisis: California is in the midst of a severe housing crisis. Over two-thirds of low-income renters are paying more than 30% of their income toward housing, a “rent burden” that means they have to sacrifice other essentials such as food, transportation, and health care.^[1] In 2023, over 181,000 Californians experienced homelessness on a given night, with a sharp increase in the number of people who became homeless for the first time.^[2] The crisis is driven in large part by the lack of affordable rental housing for lower income people. According to the California Housing Partnership’s (CHP) Housing Need Dashboard, in the current market, nearly 2 million extremely low-income and very low-income renter households are competing for roughly 687,000 available and affordable rental units in the state. Over three-quarters of the state’s extremely low-income households and over half of the state’s very low-income households are severely rent burdened, paying more than 50% of their income toward rent each month. CHP estimates that the state needs an additional 1.3 million housing units affordable to very low-income Californians to eliminate the shortfall.^[3] By contrast, production in the past decade has been under 100,000 housing units per year – including less than 10,000 units of affordable housing per year.^[4]

Adoption and Implementation of Housing Elements: One important tool in addressing the state’s housing crisis is to ensure that all of the state’s 539 cities and counties appropriately plan for new housing. Such planning is required through the housing element of each community’s General Plan, which outlines a long-term plan for meeting the community’s existing and projected housing needs. Cities and counties are required to update their housing elements every eight years in most of the high population parts of the state, and five years in areas with smaller populations. Localities must adopt a legally valid housing element by their statutory deadline for adoption. Failure to do so can result in certain escalating penalties, including exposure to the “builder’s remedy” as well as public or private lawsuits, financial penalties, potential loss of permitting authority, or even court receivership. Localities that do not adopt a compliant housing element within 120 days from their statutory deadline also must complete any rezones within one year of their deadline, rather than the three years afforded to on-time adopters.

Among other things, the housing element must demonstrate how the community plans to accommodate its share of RHNA, which is a figure determined by HCD through a demographic analysis of housing needs and population projections. It is critical that local jurisdictions adopt legally compliant housing elements on time in order to meet statewide housing goals and create the environment for the successful construction of desperately needed housing at all income levels. Unless communities plan for production and preservation of affordable housing, new housing will be slow or extremely difficult to build. Adequate zoning, removal of regulatory barriers, protection of existing stock and targeting of resources are essential to obtaining a sufficient permanent supply of housing affordable to all economic segments of the community. Although not requiring the community to develop the housing, housing element law requires the community to plan for housing. Recognizing that local governments may lack adequate resources to house all those in need, the law nevertheless mandates that the community do all that it can and not engage in exclusionary zoning practices.

RHNA Methodology: The RHNA process is used to determine how many new homes, and the affordability level of those homes, each local government must plan for in its housing element to cover the duration of the next eight-year planning cycle. RHNA is assigned via four income categories: very low-income (0-50% of AMI), low-income (50-80% of AMI), moderate income (80-120% of AMI), and above moderate income (120% or more of AMI).

The cycle begins with HCD and the Department of Finance projecting new RHNA numbers every eight years, followed by a COG or subregion developing a methodology for distributing the RHNA to jurisdictions within its region, and ultimately each jurisdiction identifying sites, completing rezoning, and removing development barriers to accommodate that RHNA. Orange County operates as a subregion already – OCCOG – within the Southern California Association of Governments (SCAG), meaning the county and its cities independently and collaboratively manage their own RHNA suballocation as assigned by SCAG.^[5] San Diego County is a self-contained county COG, known as the San Diego Association of Governments or SANDAG, and thus also has management responsibility for its own RHNA allocations to member cities.^[6]

The RHNA is statutorily obligated to further all of the following objectives:

1. Increasing the housing supply and mix of housing types, tenure, and affordability in all cities and counties within the regional in an equitable manner, which must result in each jurisdiction receiving an allocation of units for low- and very low-income households;
2. Promoting infill development, socioeconomic equity, the protection of environmental and agricultural resources, and achievement of regional climate change reduction targets;
3. Promoting an improved intraregional relationship between jobs and housing, including an improved balance between the number of low-wage jobs and the number of housing units affordable to low-wage workers in each jurisdiction;
4. Allocating a lower proportion of housing need to an income category when a jurisdiction already has a disproportionately high share of households in that income category; and
5. Affirmatively furthering fair housing.

In past housing element cycles, RHNA had been criticized as being a political rather than a methodologically sound, data-driven process. In the past, jurisdictions with a higher share of wealthier, whiter residents were more likely to have received lower allocations of moderate and lower income housing, while more diverse cities sometimes received higher allocations of those categories. The Legislature made a number of changes to the RHNA and housing element process over the past several years to strengthen the law and restrict the ability of jurisdictions to evade their housing obligations.

“RHNA Swapping”: During the 5^th Cycle housing element, existing law permitted two or more local governments to agree to an alternative distribution of appealed housing allocations between the affected local governments. The authority to conduct these transfers was removed from the RHNA process with the passage of AB 1771 (Bloom, Chapter 989, Statutes of 2018). These types of swaps raise a variety of concerns regarding the ability of jurisdictions to undercut the goals of the housing element process.

If the OCCOG subregion sought to request changes to the RHNA allocations it received from SCAG, there is an existing process by which they could make that request and appeal. The cities themselves could also appeal their subregional allocation to OCCOG. SANDAG also manages its own regional allocation and the same appeal avenues were available to its cities. Given these front-end authorities and appeal avenues, it makes little sense why transferability is needed on the back-end after the RHNA is distributed and jurisdictions have already had to have housing elements approved by HCD and where the state, COG, and subregional entity have all decided they should accommodate the specific number of units allocated.

This bill proposes to reauthorize RHNA swapping in a much broader manner than before. Whereas existing law prior to 2018 only permitted local governments to agree to an alternate distribution of a portion of housing allocations after they had been appealed to – and presumably rejected by – the COG or subregion, this bill does not require any appeal to be filed during the RHNA planning process. Instead, this bill contemplates a process whereby local governments in Orange and San Diego counties, at any time during the entire duration of the eight-year planning cycle, could choose to execute a transfer agreement outside of the scrutiny and oversight of the COG, and with no requirement to base the transfer agreement on any data or planning methodologies, as is the current requirement for appeals of RHNA allocations. This bill also permits all of the RHNA for a city – not just a portion – to be transferred to another city or cities. The COG or subregion takes into account a long list of considerations and analyses to determine the appropriate number of housing units across each income category that will support future population growth, increase housing opportunities, promote smart growth, and reduce overcrowding in each jurisdiction, which RHNA swapping would undermine.

Furthermore, this bill would permit a transferring city to offer financial incentives to transferee cities, seemingly as a way to offset the impacts and associated costs of the additional housing. There are no restrictions or rules regarding how much money a transferring city could offer in order to “offload” its undesired housing obligations. As previously mentioned, in prior RHNA cycles wealthier and whiter jurisdictions have often maneuvered very small allocations of lower and moderate income housing, but recent changes to the RHNA process have made it so these jurisdictions now see a RHNA allocation more commensurate with their actual housing need. There is a high likelihood some of these jurisdictions would seek to use the process in this bill to offer financial incentives to other jurisdictions to avoid the responsibility of having to accommodate the full scope of their RHNA – including lower-income housing – within their city. This would jeopardize the statutory goals of the RHNA process outlined in the prior section to ensure that lower-income housing is built in every city in the state, to reduce concentrations of deep poverty in cities that are disproportionately poor, diversify concentrations of high-income housing in affluent communities, and to affirmatively further fair housing.

In addition, this bill would undermine the intent of SB 35 (Wiener, Chapter 366, Statutes of 2017). SB 35 requires cities and counties to streamline housing developments that include specified percentages of affordable housing, if a jurisdiction has not met a portion of its RHNA requirements at certain intervals. This new requirement has given additional weight to the RHNA process because the trigger for whether or not a jurisdiction must streamline is based on whether or not they have met their RHNA numbers for above moderate income or lower-income permitting. Many jurisdictions have not met their lower-income RHNA, meaning they must streamline affordable housing projects that set aside at least 50% of units for low-income households. This bill would create a pathway for a transferring city to evade SB 35 streamlining requirements by offloading its unmet RHNA to another city.

This bill also has no restrictions on the geographic distance between a transferee and a transferring city within the counties of Orange and San Diego, raising the possibility that a transferring city could find a partner transferee far outside of its neighboring jurisdictions, or coastal communities could seek to transfer their RHNA to cities far inland. This increases the likelihood that such a transfer could undermine efforts to address jobs-housing imbalances and reduction of greenhouse gas emissions. None of these considerations have to be examined or weighed against the transfer agreement before it could be executed under these provisions.

The committee may wish to consider whether it is sound policy to reinstate a much broader, unchecked authorization for local governments in Orange and San Diego counties to RHNA swap than the version it previously removed from statute in 2018.

Arguments in Support: According to the Association of California Cities – Orange County, “This bill would establish a pilot program for the Counties of Orange and San Diego, including the cities within those counties, that allows local jurisdictions to transfer all or a portion of its allocation of the regional housing need as part of the Regional Housing Needs Assessment/Housing Element process to another local jurisdiction in the pilot program area. As we work towards closing the gap in available housing in California, it is essential to provide resources, tools, and flexibility for local agencies working to meet the need. This flexibility will help expedite the building of housing for Californians and facilitate meeting regional housing goals. For this reason, we support AB 2361.”

Arguments in Opposition: A coalition of opponents, including SPUR, YIMBY Action, Circulate San Diego, and MidPen Housing, write, “California continues to be millions of units short and hundreds of thousands annually now and going into the future. The state should not consider giving any city relief in its Housing Element obligations because future generations in every income category deserve an opportunity to live in every community throughout the state. This proposal will only incentivize and embrace exclusive community behavior. We rely on these methodologies to enforce housing production on the cities. California must build millions of homes to address its housing shortage. It is unreasonable and inequitable to consider any efforts to increase housing supply in one city and allow for another to remain deficient in certain categories of new housing construction. This shortage in various income categories is a large contributor to an array of social and economic challenges, including homelessness, displacement, and affordability struggles for residents.”

Related Legislation:

AB 617 (Davies) of 2021 was substantially similar to this bill but did not include the pilot limitation to the counties of Orange and San Diego. This bill died pending a hearing in this committee.

AB 1771 (Bloom), Chapter 989, Statutes of 2018: Among other changes, deleted the ability of two or more local governments to agree to an alternate distribution of appealed RHNA.

SB 35 (Wiener), Chapter 366, Statutes of 2017: Requires cities and counties to streamline housing developments that include specified percentages of affordable housing, if a jurisdiction has not met a portion of its RHNA requirements at certain intervals.

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

REGISTERED SUPPORT / OPPOSITION:

Support

Association of California Cities - Orange County

Livable California

Opposition

Abundant Housing LA

California Community Builders

Circulate San Diego

MidPen Housing

SPUR

YIMBY Action

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

1. https://chpc.net/housingneeds/ ↑

2. https://www.huduser.gov/portal/datasets/ahar/2023-ahar-part-1-pit-estimates-of-homelessness-in-the-us.html ↑

3. https://chpc.net/housingneeds/ ↑

4. https://www.hcd.ca.gov/policy-research/housing-challenges.shtml ↑

5. https://www.occog.com/housing ↑

6. https://www.sandag.org/projects-and-programs/regional-initiatives/housing-and-land-use/regional-housing-needs-assessment ↑