Assembly Standing Committee on Housing and Community Development

Well, good morning. On this Wednesday, I want to welcome you to the Assembly Housing and Community Development Committee's second informational hearing for 2024. I know that we are here to really talk about a high level issue, but really one that I think is level setting for what we have to do to address our housing and ultimately our homelessness crisis. And that's the cost of development.

We have a lot of overview that we're going to hear first from a little bit more of a statewide perspective on sort of the kind of a snapshot in time on where we are on some of our development challenges.

And then we're going to hear from two great pro housing cities to talk about some of their local initiatives and how that is actually helping to turn some of the trends around in the form of new housing starts, ultimately hoping to affect some of the pricing that we're seeing out there and getting pricing under control.

And then we're going to close today with a case study on a model project that I think is going to blow your minds on some of the efforts that we're seeing right in my home community of San Diego and their ability to use a YIGBY model. We passed that last year in SB 4. Yes, in God's backyard, to allow faith based institutions buy right development for affordable housing opportunities. And I think you'll be very impressed with what they're trying to do.

And we have some lessons to learn from all of these speakers here today about how to guide our policy and our fiscal conversations this year as we have those headwinds to face. We know we have some challenges with a functional housing market, and a lot of that is driven, ultimately, the pricing of which is driven by our lack of supply. So how do we get California communities to be able to do more in the space of housing? That is the central question of this hearing.

I want to welcome some of my colleagues as well that are here and joining us. And, of course, would invite any other Members of the Committee or really anybody that wants to attend to come down to room 126 to participate in this morning's hearing. I didn't know if my Committee Members had any opening comments that they would like to share. Mr. Grayson, Ms. Reyes, thank you for being here as well.

Thank you, Mr. Chair. I really look forward to the speakers today. I think gathering the information as we look at the policy we'll be introducing and voting on is extremely important. And I appreciate all that you're doing to put us on the right track. Thank you.

Thank you, Ms. Reyes. Mr. Grayson.

Thank you, Mr. Chair, and exciting to be on the Housing Committee and to be able to participate in something that I'm very, very passionate about. And I said this a time or two before, but one of the greatest concerns that I'm facing as an individual, as someone in California, is the fact that one day my concern is that I may have to get on an airplane to go visit my grandchildren because my children can't afford to live where I raise them.

So looking for solutions, not just for my family, but for all California families so that we can stay together if we so choose.

100%. Well, welcome to the committee. Our newest member, our 9th member. Thank you to Speaker Reyes for expanding the scope of this committee. And I think, again, you hit the nail on the head.

We don't have enough homes. We don't have enough affordable homes, and homes cost too much. So let's find out why that is. I'd like to invite our first speaker from the Turner Center for Housing Innovation is David Garcia. We want to welcome you up to the presentation table.

And when you're ready, take the time that you need to give us your presentation.

Absolutely. Thank you. Okay, so good morning, Chair, Members of the Committee. Thank you very much for having me today and for having this important conversation. So real quick. My name is David Garcia.

I'm the policy director at the Turner Center for Housing Innovation at UC Berkeley. If you're not familiar with the center, we are a research and policy organization at the University focused on really all manners of housing, from land use and zoning reform to homelessness to the intersection of climate and housing.

But today I've been asked to join you this morning to talk about some specific items so you can go to the next slide. So I'm going to start by quickly going over the State of California's housing market, the challenges we are facing in meeting our local and statewide housing goals.

And then I'm going to spend a bit of time going through a new resource we've recently put out around how developers actually make development decisions, what goes into the cost of new development, and how do they ensure that they can actually build the housing that we need in California. And then we'll spend a bit of time on how local and state policymakers can actually help make these new homes. Pencil out better.

What are the policy levers we can pull to actually get homes to make financial sense and to get more housing built overall. If you go to the next slide. So I'm going to start here with this chart. And long story short, but California is kind of going in the wrong direction in terms of getting new homes built. So the chart you see in front of you here is historic data on. On permits for new homes. And this goes all the way back to 1980.

I know the font's a little small, but you can see that in the 80's if we were to take this chart and go back to the 60's and 70's you would see that the State of California routinely built upwards of 200,000 new homes per year, sometimes as many as 300,000 new homes. And this was all done with much smaller population and a much smaller economy.

And so you fast forward to today, and you can see in the far end of that chart that we are building just a fraction of the homes that we used to build. Most recently, we've seen in 2021 and 2022, the state was building just under 120,000 new homes per year. And this is a problem because the State Department of Housing and Community Development says that we need to be building about 180,000 units per year in order to keep up with demand.

And then we're actually going in the wrong direction. Last year, in 2023, we actually saw permits decline down to 111,000 per year. This is not just a function of the market at large if you compare our production to some of our peer states. So, for example, the State of Florida has built, in 2023 193,000 units. The State of Texas doubled the amount of homes that California built more than 220,000 units were built there in 2023.

And so if you can go to the next slide, it actually looks even worse when you look at this from a per capita perspective. So, per 100,000 residents over the last couple of years, California ranks 39th out of 50 states in terms of our production per capita. And so, really, we are seeing California fall further behind when it comes to building the number of homes needed to alleviate our shortage of new homes. You can go to the next. And so why is this a problem?

Simply put, we can't ensure that everyone in California has an affordable home unless we are building enough homes to meet demand. And there has been a lot of great academic work in the last few years that indicates that the way to moderate rents and stem displacement pressures is to build new housing at all ends of the spectrum. So this includes marker rate housing, traditional deed restricted affordable housing, and really anything that falls along between those things.

And so we have examples, not just from other cities across the globe, but also from cities here in the United States and in California, that when new supply is commensurate with demand, we actually see a moderating effect on prices and we see less impact on displacement. This is because new housing is able to basically soak up the demand that would otherwise flow to existing homes. This is not unlike how other markets work. For example, a market for cars.

We all remember in the early days of the pandemic there were manufacturing shortages for new cars, and as a result, the price of used cars skyrocketed, pricing out a lot of individuals and families who needed to purchase cars to continue working. So the housing market functions fairly similarly.

When we can ensure that we are building enough homes, we know that we can moderate prices and keep people in their homes and provide more housing options for everyone. Again, we have a lot of examples of this working.

In fact, here in the City of Sacramento, there was recently an op-ed in the San Francisco Chronicle detailing how efforts to increase supply in Sacramento have led to steady or even declining rents in this city. So bottom line is, adding new homes is important for keeping prices affordable and for even maybe lowering prices overall across different markets.

Next slide, please. And so part of the challenge with building new homes in California today is that it's really expensive to build those homes.

The chart you see here is a comparison between case study projects that we put together in 2019 to 2023. And as you can see across the board, hard costs. So costs for labor and materials have increased over time, as well as soft costs. So things like insurance, the cost of financing, interest rates, the costs that we need to pay for architects and engineers, all of that has gone up to the point where most new projects are sitting on the drawing board and not getting built today.

And so that's what I'm going to talk a little bit about more now, is how these dynamics actually play out in real life, and how does policy impact those dynamics? So if you can go to the next slide, please.

So we've come out with a new resource recently at the Turner Center we call the Making It Pencil series, that really unpacks the steps that developers take to finance and build new homes and to understand how policy choices and market conditions really matter when we're talking about getting new homes built.

So we did this work by creating a series of case study pro formas across markets throughout California to show policymakers, stakeholders, and really, anyone engaged in housing conversations. How do projects work?

When we say these projects don't pencil, what does that actually mean? So I'm going to spend some time walking through that resource now. So next slide, please. So through this work, we have a couple of key questions that we want to answer. So the first is when we talk about housing being expensive to build, what does that actually mean? So what do those construction costs actually comprise?

We also want to understand a bit more about where does project funding come from and what does that funding cost. And then lastly, again, we want to talk a little bit about how policy can impact some of this math to get projects to work better. Next slide, please. So I'm going to walk you through one of our case studies pretty quickly. And so we are affectionately referring to this case study as Turner Terrace.

And there are a couple of things you need to know about our case study pro forma. So this is a market rate building that is a rental, and it's located in East Bay. It's about 120 units. We have a couple of design assumptions, including one to one parking. So every unit has one parking space. We've assumed a little bit of retail on the ground floor.

And then most importantly, this is something called a five over one construction, which basically means that this is a concrete first floor with wood frame construction over that floor. And so a lot of the mid rise buildings you see built today are of this construction type.

And it's important to note that if we were talking about high rise, the numbers would be a lot more expensive. We were talking about townhomes or single family homes. They would be less expensive because the construction type is less intensive.

So please keep that in mind. Also, this is a rental project, and so if you're talking about homeownership, it would also be a bit more expensive as well because of design criteria, but also construction defect insurance premiums. So if you can go to the next slide, please.

For our case study, we've also come up with some assumptions on the development side itself. So we've assumed at a baseline that our project was able to leverage an existing infill exemption or streamlining at the local level.

And so there's no environmental review required. We've assumed there's no existing structure on site, there is no demolition required and there's no environmental remediation. So there's no leaky underground storage tank or anything like that that needs to be remediated.

We've also assumed a set amount of fees, about $40,000 in residential impact fees per unit, which may be more or less depending on the actual jurisdiction you're in. We've also assumed that there's no affordability or inclusionary requirement as well.

And as we know, many of our communities do have these requirements. But for the sake of this exercise, we've assumed that it doesn't exist for our project. Next slide. So with the design and the site designed, we can start to unpack what it actually costs to build our project. So we've assumed about an $8 million price tag for the land itself, which includes our due diligence costs, things like testing the soil and closing costs. Next slide.

The bulk of the project is going to be made up of hard costs. And so this is everything that goes into the physical construction of this project, from the labor to the materials, as well as contingencies as required by our lending partners. Next slide. And at the top, making about 25% of our project, are soft costs.

So this is everything that basically goes onto paper for building this project. So this pays for architects, engineers, insurance costs, things like that. Next slide. So now that we know how much it costs to build Turner Terrace, we want to understand what it takes to actually finance this project. And so developers, by and large, don't use their own money when they are building multifamily residential.

They get financing from two sources. They get it from a bank in the form of a loan, so their debt, and they also get what the bank will not cover, they get from a private investor or an equity partner.

And so each of these partners has a specific return requirement to account for the risk and the costs associated with building new housing. So we're going to talk a little bit about what that comprises as well. So the first thing we're going to talk about is our bank loan. Much like buying a home, the bank is not going to give us all of the money we need to make that purchase. Building multifamily residential is the same.

And in this market, we have determined that the bank will cover about 55% of the costs that we need to build this project. So that's term referred to as a loan-to-cost. And so this is actually pretty low. Before the pandemic, that loan to cost was about 65%. And before that, we've been told that loan to costs could go as high as 75%. And as a developer, I want to have more debt because that is essentially cheaper form of financing.

But because of the high cost and high risk associated with building today in our market, the bank is only going to give us about 55%, next slide. So the balance of that cost has to come from somewhere. And so it generally comes from a private investor. And so I want to unpack what that actually means, because we hear this a lot and we should talk a little bit about who these actors are.

So when we talk about private investors, these are essentially organizations that can invest in what we call a global pool of capital. That basically means that they don't have to invest in residential real estate. They can invest in commercial real estate, they could invest in agriculture, they can invest in clean energy. Basically anything that would provide them a risk adjusted return. And so a couple of these organizations are listed here.

So, for example, there are private equity companies who I think are traditionally who we think of as investors in residential real estate. There are also groups like pension funds, groups like CalPERS and Calstrs who invest in real estate, as well as a high return option to round out their overall portfolios for their members.

There are also insurance groups who use their balance sheet to invest in residential real estate. But long story short, all of these entities, again, don't have to invest in residential real estate.

And as a result, developers are under a lot of pressure to demonstrate that they can provide returns that justify their investment into their projects. Next slide, please. And so how do we actually get an investor? Well, we need to demonstrate that the project is profitable relative to the risk and time involved.

And so there are many ways to measure return, but for the sake of simplicity, we're going to use something called a return on cost, which is basically just the money that Turner Terrace, our project, will make after expenses. And comparing that to what kind of return I will get for just buying an existing building. And that's known as capitalization rates.

And so, long story short, if I'm going to go through the time and expense as a developer of building a new project, I need to see that there is a relative incentive to do that relative to me just buying a building and making profit that way. Next slide. And so, basically, we need to see that there is a return that is a little bit more than cap rates in order to justify moving forward with a project. Next slide, please.

And so we know that in the East Bay, where our case study project is located, cap rates are about 5% for class A multifamily residential. And so our project needs to get closer to that green line you can see there on the right to demonstrate that it is actually worth the time and the effort to build this project.

This spread used to be less when we did this work back in 2019, about a 0.5% difference between return on cost and cap rate was enough to get investors on board. Today, it's closer to 1% bare minimum, which changes a little bit depending on your market. Next slide, please.

But based on the cost to build Turner Terrace and the amount of revenue we think we can bring in through rents, the return on cost is actually not even equal to cap rates and actually underwater, which means we are nowhere close to seeing feasibility for this project. Next slide. And so that just shows you it won't get built.

And so if the cost to build Turner Terrace are so high, one way to think about getting a higher return might be to raise more revenue in the form of rents. So we tried to test what different rent levels would look like, what they would do to our return metrics. And so we started with looking at the low end.

So if we were to hold rent steady, that would be affordable to, let's say, 80% of area median income, what would that do to our return on cost? And you can see here that it actually brings down our return on cost pretty significantly to about 2.86%, which brings us even further away from feasibility.

And so on the next slide, you can see the actual revenue that we projected using for this project, which is about $3,500 a month for a one bedroom, which is very expensive.

But even at that rate, even with a market study that shows that there's a demand at this price, we can't make this work because the costs are just too high. So what is the tipping point? Where can we actually get this project to pencil out? So that takes us all the way to the next slide where we modeled. What if it was $4,000 a month for a one bedroom? Sure, that would work. The problem is there is no demand at this high end of the market.

And so we have no market study to show our equity investor or our bank. And so there's no way we could actually get this project built because no one's going to rent at that high price. And so if we can't simply raise revenues by raising rents, what are we left to do as policymakers in terms of trying to get more homes built? Well, ideally, we can bring down the cost.

The cost to build new housing is really the key factor here in getting the market to work better and to actually produce the homes that we need. So if you can go to the next slide, we modeled a few of these options and what that would do to our project feasibility. So right now, you see the baseline here at 4.78% return. If we were to, say, reduce impact fees, if you recall, I started with $40,000 per unit.

If we were to kind of arbitrarily bring that down to $10,000 per unit, what would that do? If you can go to the next slide, that increases our return a bit, but that by itself does not get us to feasibility. If we were to, let's say, reduce parking, parking costs anywhere from $40 to $60,000 per stall. So if we were to bring our one to one parking ratio down to say 2.5 to one, what would that do to our project?

If you can go to the next slide, you can see that that gets us a little bit closer. But what if we were to increase density? So we also modeled a 25% increase in the number of units we were able to have on our side. If you can go to the next slide, you can see that gets us even closer. But we're still not quite at that 6% mark to make this project work out.

And so the last thing we modeled was reducing hard costs by 10%. This can be achieved through efficiencies in time and construction methods. And so if we go to the next slide, you can see there at that point, we are finally at the bare minimum kind of threshold to make this project work. Again, there's a lot of policies, policy levers that we can pull. We by no means have tested every single one of them.

But it's important to know that as you change policies and we calibrate them to work better with the market, we do get projects to work better. There are other things that make a difference, too. For example, once interest rates start coming down or general costs start coming down, you may see some of these projects start to work a little bit better as well.

But I think it's important as policymakers to know that we have a role to play as well and that we can help bend the cost curve. There are obviously things that we don't have control over, for example, the price of lumber. But by implementing some of these different policies, like we will hear later from the other panelists, we can get projects closer to feasibility, to take advantage of falling interest rates or better market conditions once those tides turn.

So it's important to remember that we have the ability to try and do some of this. And I know the legislature has been actively thinking about ways that we can bend the cost curve to get more projects to work across the state. So I'm going to stop there. I know I just went through a lot here. I'm happy to take any questions and just want to say thank you again for having this hearing and for having me be the first speaker.

Well, thank you, Mr. Garcia. A lot of ground covered, and I'm sure it's going to generate a lot of questions. We'll begin with Mr. Grayson.

Thank you, Mr. Chair. And thank you to Turner Center to your presentation. I have incredible regard and respect for the Turner Center. Thank you for this model that you provided for us. Very gracious in some areas as far as expenditures and in construction, development time in many cases, can actually have much greater value than money itself.

So one of my questions, what was the timeline for permitting before actually starting development on this model? Did you take that into consideration?

Yeah. So that's an excellent point, assemblymember. And it's a tricky thing to model because like you said, it's time, not necessarily money, but we can assume that if it takes, let's say, two to three years to get entitled, that the costs are probably going to increase during that time.

We would have the absolute greatest celebration all throughout California if all it took was two to three years to get permits. We're actually looking at, as you well know in your studies, we're looking at anywhere between seven to 10 years minimum to be able to pull permits for a project as simple as this. The other thing that was interesting was that this is market rate.

So for market rate, what affects the timeline as well is that we have done an incredible amount of policy for affordable housing streamlining to get it through the process. But for market rate, it's still left at the original, where you have to go through the whole process without any kind of streamlining.

And do you see that being problematic in the sense that if we're trying to build at all levels, maybe we're going to overload in one area of housing and not stay caught up on other areas because of that difference between market rate and affordable.

Yeah. So I don't necessarily see it as an overloading, necessarily, because I think a lot of the reforms made to facilitate faster development on the affordable side are important. I do think we oftentimes lose sight of the need to really streamline housing across the spectrum of all housing types. So, including market rate.

And so when we think about providing streamlining incentives for those projects, a lot of developers that we've spoken to really don't use them that often because they come with extra cost requirements that actually end up being more expensive than they would otherwise have been.

And so the challenge is how do we create more certainty around the development process without increasing the cost of the development itself? Otherwise, we will be passing policy that is not going to actually alleviate that problem.

So I'm guessing, not guessing, but by providing streamlining, it then kicks in what we would call prevailing wage in many cases as far as building. And that's the hard cost that we're talking about.

That's one of them. Yeah. And so my understanding is in some markets, that may be okay because the existing range may be close to prevailing as it is, but it also might limit the number of contractors who will bid on that project. And so you may lose out on some price savings there.

Right. And so the other part of the hard cost, and my last question. Thank you, Mr. Chair, for your patience, my colleagues. Dealing with the hard cost, I think it's prudent to point out that we can't affect. When it comes to a developer, building has very little say on what that cost. He or she is going to pay for lumber or for concrete. Really, the hard cost that they have any say so over would be labor.

And so it'd be interesting to find out what the impact of labor is in different regions, because as you just pointed out, in some regions, the wage that's being paid is already at that level of prevailing wage. And the reason why I bring this up is because are there some tools that we can put in place as a legislature or locals that can put in place to help mitigate the cost of having to go prevailing wage?

In many cases, that's what people used or municipalities used redevelopment for. They could use redevelopment to subsidize something else for the developer so that the developer could incorporate prevailing wage into the job, which I think is very important.

Yeah. And I think that's important to bring up, as there's a lot of nuance here. It's not zero sum. And so to the extent that we can incorporate kind of complementary policy goals, for example, having prevailing wages or having affordability requirements, it's not necessarily a bad thing.

But I also think we need to understand how those requirements interact with how developers make decisions and how the market reacts to that and where we can try and balance some of those cost increases. We should figure what those are and kind of figure out what the trade offs are and make those decisions.

Yeah. Thank you.

Thank you very much.

Thank you, Mr. Grayson, Mr. Lee.

Thank you so much, Mr. Garcia. And the two reports actually are very helpful. I wanted to drill down on some of the specifics you talked about today. So obviously, we are per capita, 39th out of 50 in housing production.

But I wanted to ask, too, is how do we compare when it comes to hard costs of other states? So obviously, Florida, North Carolina, or South Dakota, we still exist in the same materials markets. So what does it look like, say, versus Florida? How are hard costs comparatively?

So I don't have the exact numbers. It wouldn't be able to tell you. X percent higher or lower. But through conversations with folks who work across markets, it's very clear that the costs are lower in most other states. And a lot of that is not necessarily because of a bad thing. Right.

We have specific seismic requirements in California. We have energy requirements in California that do not exist in other states. So again, that speaks to our kind of state policy or goals to create climate resiliency. So not necessarily a bad thing, but it does increase the cost per se.

So I would actually like to see more research done here, because it's never any one thing that makes housing more expensive than another type of housing.

It's usually a spectrum of small increases, whether that's related to the building code or the energy code or other requirements that, when put together, cumulatively create more expensive housing. I will also say it's a lot faster to build homes. There's a lot more certainty in the development process in some of these other states. And so while the hard costs may not be as high, there is a lot less risk.

And so they may be able to access equity financing at a lower rate because they know that that project is going to get built in a reasonable amount of time. So, again, it's not always just what are the specific requirements that are driving the cost. It's also what are the development conditions themselves in the place that they're trying to build.

Yeah, that makes sense. I mean, I think this is a topic for our committee, perhaps to investigate more about what is our comparisons with other states, too, and we should work more with our other state partners to see what differences is. But I am also interested in also the regional variations, too. In your report, you talked even from the production standpoint, from the East Bay and the South Bay. So we represent the Bay Area.

Just there is that difference as cost difference and per unit between the East Bay, which is more expensive in the South Bay, it's $50,000 per unit more expensive in the East Bay. So what accounts for that? Just very small geographic difference, too.

A lot of that has to do with the labor market itself. So labor may be more expensive one or two counties over. The workforce doesn't have to maybe travel as far if they're building in the Central Valley versus if they're having to commute all the way in to the Bay Area. A lot of times the development we see in the Bay Area or more urban areas is infill focused. And so the cost to build that type of housing has a premium associated with it as well.

So again, there's not maybe just one thing it's several factors that can make the cost higher, too. Also, land prices are generally more, they're higher in places like the Bay Area compared to some of the other markets.

I appreciate that. And I do appreciate, again, the simulation, too, of the Turner towers or Turner Terrace as well, because it's a good illustration that obviously there's no one single thing we can go for, and it's a plethora of different things. So I thank you and thank the Chair.

Thank you, Mr. Lee. Ms Reyes.

The comparisons we're using here have to do with the rental units, right?

That's correct.

As opposed to homeownership. So the issue is not the same when we're talking about homeownership because whatever increased cost, they pass it on to the buyer.

I think that's true to a degree, because at some point those costs can't be absorbed by the buyer. And so to the extent we have maybe a high end of the market where maybe luxury housing, there's a finite number of people who can actually afford that. And so at some point the builders stop building because that market has been saturated.

The homeownership side, I think, deals with a lot of the same challenges with increased costs and uncertainty that make it just generally more expensive.

And to the extent that developers can actually reach markets that are not quite as high end, there's actually a lot more demand there. And a lot of financial partners would prefer to see developers building to that side because there's a lot less risk.

And so to the extent we can help bring down those costs, you might see developers actually naturally reaching further down, not to affordability levels that we're accustomed to when we talk about loan comp housing tax credits, but just more attainable housing because there is just such an unmet demand at that level of the market.

Are we talking about subsidizing them? Is that the only way we're going to be able to afford this affordable housing that we're talking about here? Because you gave us an example on the rents being so high that no one's going to rent at that level. So are we talking about subsidizing so that we can incentivize developers to then build affordable housing?

So I think at the lowest ends of the income spectrum, there's always going to be a need for some level of subsidy because those projects have never really penciled out.

And there's always going to be the requirement for low income housing tax credits, local affordable housing dollars, affordable housing dollars coming through the state for that end. What I would prefer not to see happen is for those subsidies to have to creep up the income spectrum so that we're having to directly subsidize housing that if the market was working correctly, should be supplied by the market naturally.

So by looking at things like right sizing or our zoning, cutting costs through regulatory reform, ideally the market would be able to respond and create housing that is more attainable than the housing that is generally penciling out today.

To go back to your specific question, I don't think we should be using scarce resources to subsidize housing that in a well functioning market, the private developers should be providing that already.

So in the example that you've given, what can policymakers do? You're talking about doing all four of these. One by itself is not going to allow it to pencil out. It's an interesting phrase. I learned that a few years back to pencil out.

Through doing this work, I think it's become clear there's no single answer to making a project pencil, and it all is really dependent on the market itself. So it's really a combination of things that cities and policymakers should be considering to cumulatively make the projects pencil out better.

We do a lot of this work not just on a case by case basis, but across cities. So we have a housing supply simulator that we've built for the City of Los Angeles and are building for other cities.

And the takeaway we've learned there is you can't just pull one lever and expect all of this housing to be unlocked. You really need to tinker with it, see which levers will actually get you closest there. And also think about what are the other complementary policy goals that you want to achieve as well.

So it's not just like taking away all the regulation, it's really balancing it all so that the market can work the way that it's supposed to and we can start building more homes like we used to 40 years ago.

And something that you mentioned earlier, we talked about the cost of labor. We certainly don't want to affect that because we want good union jobs. We talk about environmental impact studies and how those also increase the cost. We don't want to reduce those either.

These are protections that California needs. The seismic retrofits and the regulations regarding we live in an earthquake country; we have to be sure that everybody is safe.

So without changing the policy regarding those things, and I know it'll be for another conversation, but that's what I'm looking at. What is it specifically we can do that is going to bring it down to the local level so that they can then streamline as we've talked about, but then they also want their fees because that's part of their budget. All right.

Yeah. So there's a lot to figure out here because it's not as easy as here's a checklist of things, take them off and then the projects will work. I think there's a question of how do we want to approach this from a way that will not create unsafe or unstable housing, that will not create housing that is actually kind of not a net benefit. And the way we do that, I think, is with comprehensive planning processes at the front end of a planning cycle.

So that in a lot of cities are doing this right now with their housing element and their regional housing needs assessment goals. They're doing this really, or they will be doing shortly this really great planning work to identify where we want housing, the kind of housing, how it'll help them reach their RHNA goals. And so to the extent that we're doing all that work up front, we're going to be reaching out to community members without any specific changes.

A developer can come in after all that work has been done and still be challenged under environmental law. They can still face years of delay and uncertainty. And so what I would love to see is all of this great work that's happening at the local level, some way to codify that in the planning process so that we did all this work for the housing element, we did all the rezoning.

Do we then have to go back through the environmental review process if we already did that for a community wide plan? So it's not necessarily stripping away those processes to create protections. It's really making them more efficient and effective at the front end so that a developer can come in with certainty, build to the standard that the city says that they want to see and not have to kind of run into delays, even though they've already went through that planning process.

When we're talking about environmental reports that have already been done, we know that oftentimes our local jurisdictions also override environmental impact reports because they'll say that the economic gain is greater than whatever health hazard is being created.

That would be a concern for me. But I understand what you're saying. If it's already been done, why do it again? But if it's been done and you override it just because of the economic gain, that's not a good reason.

Sure. And I don't want to imply that we wouldn't want to incentivize poor planning at the front end. And I think anything that has to do with health and safety, we have seen in a lot of the housing legislation passed recently that there are exceptions to that.

So you can't build housing that's going to be unsafe to the residents that will live there or residents in the surrounding areas. I think that's very important. So again, it's really balancing the need for the creation of that housing with the desire and the necessity to make sure that housing is not a net harm to the existing community.

My final question, Mr. Chair, you've worked with many communities throughout California. Can you name a few of the cities that you feel are doing it right? Some of the cities that we need to look at, because if we're looking at what they have done locally and how we can then implement that statewide, which are some of those cities?

Yeah. And thankfully, we're going to hear from a few of them later in the hearing where the City of San Diego, I consider to be one of the models for cities that create kind of, they're proactive in their creation of policy to help facilitate growth there.

And many times the policies we've seen enacted in San Diego have been models for legislation that has been passed here in Sacramento. The City of Sacramento has done some great work as well.

And I think if you look at the state's Prohousing Designation Program, you can see a lot of cities are really trying to work proactively to implement some of policies that we know will move the needle on housing supply. And so there's probably more cities than I can remember that are, I think, actively trying to do more to get to meet their housing goals.

Wonderful. Thank you. Thank you, Mr. Chair.

Thank you, Ms. Reyes. And don't be shy with questions. We have probably the biggest issue facing Californians and our constituents in front of us. So I appreciate the depth that we're going into. Ms. Quirk-Silva.

Thank you. Good morning. And I really appreciate this presentation. Very well done. And also the questions from my colleagues, some of them were the very same ones that I had. If we were to go through the very last page of your presentation on what can policymakers do when you're talking about reducing fees, which types of fees are you talking about specifically?

It could be any fees. So that was just kind of an arbitrary number that we picked for the sake of the exercise. But if we were thinking about different fees, it could be any of the different types of fees that cities regularly charge, all of that with the recognition that a lot of cities rely on these fees to pay for critical infrastructure upgrades.

And so a lot of this comes down to whether or not cities want to reduce those fees themselves and if they come up with a way to backfill those fees or defer what those fees would pay for. And so we didn't have any specific fees in mind when we kind of picked that number.

I believe Assemblymember Tim Grayson, didn't you work on some impact fees through legislation already with the help of turners? Right. And has that made a difference at think, I guess what I'm trying to ask is the little slivers that we've done, which we can very clearly see we have not done enough. Have you started to see that work?

Yeah. And I think we're going to hear from the City of Sacramento later that has done a lot of work on impact fees and trying to figure out what is the right balance for paying for critical services, but also not stymieing new development.

There has been movement to try and move fees from like, a per unit basis to more of a square footage basis. Which I think makes a lot of sense because on a per unit basis, you're really penalizing or adding more cost to projects that may have more units but just smaller in size versus large luxury units that only have to pay a fraction of the overall fees simply because the number of units is different.

So I do think we are seeing cities move in that direction, and there are other things around fees that cities can do. Rather than just weaving them outright, they can allow fees to be paid at certificate of occupancy, not when the project is coming in for approval. There are other ways to right size the fee imposition and calculation that a lot of cities are thinking about now.

So then going to the reduced parking again, I believe we had at least one bill last year by Assemblymember Laura Friedman that probably hasn't been instituted yet. But is that something that you're hopeful that could start to address this parking, or do we have quite a ways to go? Because that might have been, and I can't remember, but it might have been referring to affordable housing.

Yeah, I believe someone could be wrong, but I believe AB 2097 refers to all forms of housing. And so in theory, a developer now can, and I believe it's specific to areas that have access to transit, can reduce the amount of parking that they would provide on site, typically.

And so a lot of cities have proactively tried to recalibrate their parking requirements, particularly in areas where there's access to transit so that developers don't have to overbuild their parking. At the same time, not every city has gone through that exercise. It's not as simple as saying, all right, we're just getting rid of our parking requirements.

And so I do think 2097 will be the impetus that some cities need to really rethink how their parking requirements are currently structured and to try and create a policy that is more reflective of what the market wants to see in parking.

All right, so without finishing the last two on this list, we talked about rentals and what type of housing related to market rate? I'm looking at Assemblymember Tim Grayson here because we did do a housing tour a few years back where we kind of visited throughout the state.

And one of the things that came out for me through that visit was that we need to be invested in building all types of housing from market rate to affordable because we have so many renters stuck in apartments. I shouldn't say stuck, I should say living in apartments and aren't able then to move out into that single family home, which is why we have those very high rents. With that, and I know that Assemblymember Reyes just kind of asked, like, who's doing a good job?

And we will hear next from the two individuals. But is there a whole nother type of housing per unit? I guess that we aren't even addressing that we can build fast and get on. Because yesterday we just had a homeless, which is the other part of this, a homeless discussion.

And your first slides really, of course, are startling, which they're not a surprise to any of us that have worked in here, but just about us not getting permits and building. So is there any other way to build that is not even part of what you've addressed here because these are traditional types of buildings.

Yeah, that's a really good question and one that we've been doing some thinking on. And I actually think there are some new models of development that are very different than what I have described here that have the potential to provide more affordable housing without leveraging existing subsidies.

So, for example, there are private developers who are working with housing authorities to leverage housing choice vouchers to provide housing that is affordable to under 80% AMI. So traditional affordable housing that way without using loancom housing tax credits.

And so there's a lot of this work happening in the City of Los Angeles. There are some developers in the Bay Area who are trying to kind of create a new form of math to build more middle income housing, at least without requiring subsidies.

And I think a lot of potential there because as I mentioned earlier, there is a huge unmet demand for housing across the income spectrum, but particularly in the middle income sphere, where we are, I don't think, ever going to allocate subsidy dollars, but the market should be working better to be providing housing to those households as well.

So they're again looking at partnering with public housing authorities, looking at leveraging property tax exemptions that have traditionally only been available to loancome housing tax credit projects.

So all of these are kind of recalibrating the math to try and get more projects to work. And because they are private market projects, there's potential there to really scale that up and see a new form of affordable housing built alongside our traditional affordable housing mechanisms.

Thank you.

Thank you. Ms. Quirk-Silva. I wanted to welcome into the hearing room. I have an understanding that we have a number of students here from St. Stephen's School in San Francisco want to welcome you to the Capitol.

I imagine you're here to see how the legislature works, and today we're discussing the affordability of housing and the cost of development and trying to make sure that we're affecting better policies to be able to support our future generations. So welcome to the California State Assembly. Well, thank you members, for your questions.

Deeply informative. And I have a couple that certainly were addressed, I think, by other members as well. And I do want to get to our next sections that will talk both about some prohousing cities that are doing work, that are showing results to sort of unlock some of the challenges and the headwinds that we're faced with, and as well, a case study on a sample project that's showing remarkable results at reducing costs.

But on a very high level, Mr. Turner, or excuse me, Mr. Garcia, back kind of to your first slide and dovetailing on Mr. Lee's question. You know, when we're looking at some of these other states that I wonder if we are kind of benchmarking ourselves against other states with very different landscapes. Right.

Are they producing a lot more housing units? Yes. But are they doing so in a way that's inducing sprawl, that has a lot more greenfield opportunity, a lot more flat land of availability?

And we've got a context here in California that has some geographic constraints that we do. But also when we think about the development pattern that we have endured or experienced over the last couple of decades for workers in Los Angeles, you can only go so far into the Inland Empire right before it becomes not a reasonable place to purchase because you're more than 2 hours away from where you work.

And so we are really at potentially, would you agree, a point where we have to think about infill and we have to think about how to work on existing landscape in a way that's going to produce hopefully the same level of housing production. And in that vein, what are some other areas and possibly getting outside of the United States that you might look to, to be able to learn lessons from in a very similar land use context?

Yeah, that's an excellent point Chair, and I definitely don't want to conflate the growth in other states that have less, let's say, restrictive land use policies to what California should be doing because of the geographic constraints you mentioned, but also the development pattern itself.

I will say it is not just some of those peer states I mentioned. There are other states that face similar geographic challenges that are building housing at a faster clip than California.

So you didn't see the whole chart, but above, California was also the State of Oregon, the State of Washington, and these are states that have very similar housing dynamics and geographic challenges that we have. So it's not just like a Florida, Texas thing.

And so I agree with you that simply building out is not the solution. I think we should consider reasonable growth on the outer parts of cities, but also the highest demand is, generally speaking, in the cores of our urban areas.

And to the extent that we can facilitate infill growth in these places, that's going to provide better outcomes from a climate perspective, better outcomes from a socioeconomic perspective, because workers can be closer to their place of employment and we can make use of existing infrastructure in better ways.

And so part of that is not just making the market work better, but also exploring what the availability of land is in these places. And that's part of what I think cities are doing right now through their housing element process, but also examining are there existing land owned by government entities that can be leveraged for affordable housing that are in infill locations?

Are there different models that we can look at to leverage some of that land in better ways? And so there are some models that are emerging that are infill focused that are not traditional kind of development models.

So, for example, the Bay Area Housing Finance Agency is looking at preserving and creating new forms of affordable housing throughout the Bay Area. I know Assemblymember Lee has a bill on social housing, and I think there's a lot of exciting things happening across the country on housing authorities exploring, leveraging their assets and their expertise to build housing on their sites as well. So I do think there's a lot of different ways we could be approaching this.

So, not solely like a market dynamic, but there's a lot of creativity that is taking place not just in other places, but even here in California that we should be looking at more holistically.

Yeah, and I agree as well. And I think that given one of those realities, and we talked earlier about environmental concerns, labor concerns, local government concerns that are out there, and we always are reconciling, I think, a lot of those important perspectives and consequences that we need to think about to have.

As you said, these co equal goals that we're trying to meet as a state, but given one reality that we just have and also I think one that is climate focused, trying to invoke policies that are going to support that infill development and really help to improve, I think, the existing fabric of what we have to work with and everything is the emphasis that we want to go, but not the totality of where we go with housing policy.

I agree with you on the fact that we got to get to a saturation point of more production that leads to more openings, more vacancies, helping to produce stable market rents.

And I'm wondering given kind of where things have gotten, I would say out of control in the pricing or the availability of know, have we gotten to a point that we're seeing this in Sacramento, maybe the early signs of it. Some parts of San Diego, I know Oakland, we've seen reduced rents over the last year.

But when you do that from a financing perspective, are you reducing also the residual value of potential new opportunity sites because you're not able to make as much, you sort of hit the saturation. The market is showing that you're only able to get so much income. And if you do that, it does reduce land value. But then is that going to invoke maybe reluctance for new sites to open up because they don't want to sell?

Those are great points and kind of you're underscoring the fact that there's a lot of nuance in the market here. And I think what I walked through earlier was really a project at the high end of the market. And as I described, there's only so much demand there. So to the extent that we can create opportunities to produce housing that is not quite so expensive, there's a huge demand for that.

And so rather than think about okay, if we create enough housing at the top end, the spigot is going to turn off or we're just not going to see more homes built. I actually think if we are able to provide housing that is generally attainable to the 80% to 120% AMI crowd, there are a lot of folks who would love to build that product. But because the costs are so high, they just can't reach that there.

And I've spoken to a number of folks who tell us that their equity partners would actually take a slightly lower return if they were able to produce housing at that more middle income tier because the vacancies are so low there and they can guarantee that they are going to get those units filled quickly.

I think there's a wide range of units that could be produced by creating the right policy conditions that would continue to facilitate housing construction even if we kind of saturate that top end of the market.

Okay. On the funding, I share your concern, too, about the need to rely more and more on private equity and the cost that that goes into kind of absorbed by the ultimate development and those that rent from that development. What are some things that we can do, I guess, to make the environment more friendly for banks to consider upping the ratio in California from going to 55 back to a 75% loan to value?

That's a great question. So I think a lot of what financing partners want to see is a lot more certainty in the development process. So to the extent that we can ensure that as a developer of my bank, my equity partner, that I can get permits in less than a year or I can get shovels in the ground in 18 months, they are more likely to say that's not as risky a project. And so I'm willing to lend you more on that side.

So, yeah, to the extent we can create a lot more certainty and less risk around the development process itself, lenders are probably going to respond by providing a little bit more debt than currently they are willing to provide.

And one area of certainty, and certainly time it takes to develop right, is the potential for lawsuit using environmental review or other laws as well, to be able to stop development from happening. You had said earlier in response to one of the questions that there was some on environmental review and the ability to sue. My understanding is that we've done a lot of streamlining.

I know that we've passed a lot of legislation to, in a very targeted way, be able to support the reduced environmental review under certain conditions.

I agree with you, though, that generally where we've already evaluated for given community or city, the environmental impacts, and so long as you're doing work that is assumed within that, that you've essentially done that environmental review How are you viewing possibly the gap, I guess, in the legislature's authorization for project based developments that are still subject to environmental review that we need to take a second look at? That maybe already are captured by programmatic review.

Yeah, I think unless the city is proactive in creating a discretionary review process around any planning that they've already done, a project is going to have to go through that typical entitlement process, which opens them up to potential litigation.

I think to the extent that we can maybe leverage existing exemptions and have them apply to a lot of that upfront planning work now that will go a long ways towards creating more certainty in the development process. So I think of this in terms of Specific Plans.

So a lot of cities have undertaken some really great planning work around Specific Planning. So taking an area of their city, going through a Specific Planning process to say what can be built there and then providing an exemption as a result of that specific plan. We have a lot of examples of cities doing this work and then seeing a huge uptick in development in those areas because they're able to provide that certainty.

One of those examples I'd like to point to is the Broadway Valdez area in Oakland that underwent a years long Specific Plan process that took a lot of time. It wasn't inexpensive, but once the specific plan was implemented, development took hold relatively quickly there to the point where today you see that the neighborhood is completely filled with new homes.

And so you can see in that example that the ability to provide that upfront guarantee that as long as you adhere to our development standards that we pass in the plan, you get to move forward relatively quickly in the process actually does result in new homes being built.

So to the extent we can think about doing something similar to a lot of the planning work that's going to take place through the housing element and the rezonings, I think that could be a significant step forward.

Fantastic. One thing I wanted to look a little bit deeper into as well, and I will do so this year in that area, in addition to other ideas that we're working on for bills. And then finally, you had mentioned some of the sort of things that we could do vis-à-vis, the model Turner housing project, you know, on parking reductions. Ms. Quirk-Silva had noted that as well.

It's something we've addressed in part or as much as we've done to date on density bonus, increasing the capacity. That's something else that we've been very favorable with and have passed legislation. But working on fees, working on hard costs, the solutions get harder and harder to address.

Right. What's your counterbalance? If we want to just have a sort of dictated 10% cap or $10,000 cap on certain city fees? Well, what's the compromise? Right. I understand, coming from local government what they use that for, and we need more support for community development or for infrastructure. Right.

And I know the origins of why cities do what they do, and that's something we can take a look at as well. But I just understand the tension points there. And on hard costs, it always seems to come down to labor conversations, and we want to dumb down the wages, which runs afoul of a lot of our values.

But I think one thing even more Californians would share is that it's very difficult to make a family's budget work out. And so why would you make it more and more harder and harder by depressing a lot of those wages when they're just trying to make ends meet and be able to enjoy a space in the California landscape as well themselves? And I understand that that feeds into the total development cost as well.

And these are all things that we sort of work on together, especially as we're finding new allowances to reduce costs. Can we make sure that workers are supported? And you've been at the table as well, working with us on a lot of that math.

Are there other areas, though, that maybe we're not exploring? My last question is anything outside the box that we haven't thought about? A lot of these ideas, they marginally make a difference, important, especially if they are additive. Right.

But reducing the cost of a new home by 10% is only going to affect so many Californians. How do we really get back into middle income affordability. Right on. Materials.

We say there's nothing that we can do, but could California potentially bank lumber and get more into the space of procuring materials and trying to help stabilize the supply? Are there outside of the box ideas that we're not thinking about?

Yeah. Yes, there are, and I will try and go through some of them succinctly. But I know a lot of my colleagues at Turner Center, specifically our Turner labs side, are thinking about how we can kind of disrupt the way we build new homes, from the way we finance it to the way we build it. And a couple of the things that come directly to mind are thinking about incentivizing more innovative ways that we build.

So, for example, using cross laminated timber or mass timber products to increase the time to build or increase the speed of building and lowering the cost overall. Thinking about ways to support the really nascent industrialized construction industry.

Where we have hopes that building off site can actually lead to significant reduction in overall costs and an increase in the speed of building could be another way that we can get at that really sticky, hard cost question.

And so really being open to ways that the state and policymakers can support that, but also at the local level, understanding what it would mean to really incentivize, to facilitate more cost effective forms of building are going to be important as well.

Great. Thank you. We'll be doing again, I think all of the above approach, but I really appreciate all your time, and thank you again for your tenure at the Turner Center, because you've informed a lot of the work that we do here at the legislature, and I wish you well on your next step. So thank you, Mr. Garcia.

Thank you, Chair, and I appreciate all the times I've been able to be here. So thank you so much.

Great. Well, we are going to transition to our next panel, really, I think, leaning on some of the observations and takeaways from this presentation to talk about just in context, two of our cities, our larger cities here in the State of California, which are helping to have local programs resulting in reduced delays and streamlining housing development and have, I think, been in our first round of state pro housing designations as well.

So we're going to welcome Greg Sandlund from the planning director from the City of Sacramento, and Heidi Vonblum, the planning director for my home city of the City of San Diego. We'll begin with Mr. Sandlund.

All right. Good morning, Chair Ward, Members of the Committee. Greg Sandlin, Planning Director with the City of Sacramento I started with the city as a junior planner in 2005, and much of my career has been devoted to streamlining infill housing development and looking at these marginal improvements on a just daily, annual basis. And we continue to do so.

And so I was asked to highlight three things that the committee was curious about, our missing middle housing approach, our affordable housing fee reduction program, impact fees, and then also just kind of the key programs, aspects in our pro housing designation that have made the most difference.

And I'll be calling out more of things that the state has not really pivoted towards and more unique to our jurisdiction and hopefully can influence some good state policy.

So when I started in 2005, we had outdated General Plan zoning code, suburban growth model. And so we've updated our General Plan now in 2009 2015 and now next Tuesday, we hope to approve our 2040 General Plan update, which we've been working on for the past five years. A key aspect of our new General Plan is that we will no longer have maximum density in the General Plan. It'll just be floor area ratio.

And one of our key strategies that we introduced to council from the outset is to allow a greater variety of housing types in our traditional single family zones. Talking about duplexes, triplexes, fourplexes, bungalow courts. That was right around with COVID was coming in, and it created a lot of controversy with our neighborhoods.

There was a lot of save Sacramento lawn signs out, and my staff and I were out having these forums, as they would call them, with the neighborhood association.

But in the end, council did go ahead and adopt the resolution with that key strategy. We got a REAP Grant to develop our missing middle housing standards. The study here from the state through SACOG. And that really helped to advance a lot of community engagement, proactive outreach to folks, because I think what I've observed is most folks are not terribly concerned with density, but more of the form, the scale, the size of development in their community.

And so when they hear missing middle housing, they assume a vertical three story apartment right next to them, 5ft off the property line. And so a lot of our engagement and outreach in the past couple of years have been really showing what it looks like more of the scale that we have on this slide here. Two, two and a half stories and the like with a dormer, but a little bit more flexibility with how we treat setbacks.

The building envelope, which we do have, that controls kind of the size and scale. And really you can see these homes 5 minutes away in East Sacramento or Curtis Park if you want to drive around, you see these fourplexes and bungalow, of course, that were built 100 years ago before single family zoning really kicked in. So in October of last year, we took forward this map here on the left that you see in the blue and the yellow are kind of our single family zones.

It's for much of the city is our single family zones. And we had a kind of a scaled approach, basically based off of the urban fabric, accessibility to transit. We limited the amount of units in those areas we felt was appropriate. I think from like six units in the blue to eight in the yellow was the maximum number of units per lot. But we got a lot of feedback at commission and then at council.

And council chambers were full of people advocating to not have any density limits in these traditional single family zones. Council got caught up in it and said, yeah, be bold. We came back a month later just to confirm that's what we heard we're going to do. Yep, go ahead.

And so in our General Plan, we have that direction. We're working on our zoning code standards right now to permit this, but also in our General Plan, you'll see this row of little houses here.

This is something we've learned from our consultants based in Portland. The work they've been doing up there is a sliding scale far so where we incentivize more units per lot to get that attainability and have the maximum square footage for a single family home to be 2000 sqft. So if you add another unit, you get more floor to area ratio, you get more buildable square footage.

So each time you add a unit that grows, and they found in Portland that there are more missing middle housing products going in because it incentivizes that density, because you get more buildable square footage. Also, what we heard in our October discussion with council was the desire to have no minimum parking requirements.

We were going to explore that, but council just firmly said, get rid of your minimum parking requirements. So we're doing that. That'll be in our General Plan on Tuesday.

And so I guess just in summary, the tone of the conversation really shifted from a lot of community concern, neighborhood concern over the next 34 years to very little. We have save Sacramento on our housing policy working group on a quarterly basis to discuss all sorts of housing policy matters, along with developers, housing advocates, and I think people just understand what we're trying to do, and that helped to build trust for the policy.

And on Tuesday, hopefully we have clear direction to go ahead and create a new opportunity for more attainable housing in underutilized land in our city.

And also when we're coming back with that report, our attorneys were concerned about a court decision, Walker versus City of San Clemente, that basically said that rule that the city had to give back their impact fees to developers for not utilizing them appropriately, apparently not spending the money on infrastructure and the like.

And so they found that if we come back with these five year reports on these impact fees showing that we've essentially waived these fees for affordable housing and we haven't backfilled that, we could be in a lot of legal jeopardy.

And so while we were planning to backfill those fees through looking at different approaches, grants and the like, other funding resources, it came to light. We had to do this really quickly.

And so about $12 million found to backfill this program, and then another 3 million were allocated. And so now we city, starting last July in the new fiscal year, allocates $3 million per year to fund the program. And so if we run out of that money, we stop providing fee waivers and we have run out of that money already.

We're looking at a pro housing pilot program, $1.5 million that we're going to be applying for from the state to help with this, to allow other projects go ahead towards the end of the, to the end of the fiscal year. Because what we've learned is that while this money saves affordable housing developers on costs, it's also used as a local match to leverage other financing.

Normally, the city has $3-4 million a year in discretionary money to do gap financing, help out some select few projects. There's winners and losers. There's a long list of affordable projects that want our local money for gap financing. But everybody can look at this. As long as it's deed restricted for a minimum of 30 years, certain incomes, you can qualify for these $0 rates. But they make this assumption in their financing pretty early on.

And so if they don't get the fee waiver, then they're pretty stuck. And so we're looking for ways to pay for it. But really, the good news is it's helping to leverage a lot more money than before, where we had $3-4 million to leverage financing with. But the issue is that we're running out of money because our impact fees in certain areas are going up through indexing and whatnot.

So what we're looking to do is instead to have a maximum amount of fee reduction per unit just to make the program more financially stable, but still apply that benefit broadly to the affordable housing development community. So that's something we're working on, but that's some lessons learned.

I think it's one of our most important programs to incentivize affordable housing in our city, but it definitely comes with significant costs, and we're in a tough budget environment like you all the city.

And so a $3 million allocation a year is not a given. Let's just say, yeah, that's that program. And then last slide are some of the impactful pro housing policies I've been thinking about. State has largely done this now, housing permitted by right and commercial zones. We've done that since 2013.

One thing I hear is kind of unique about our city is if your development project is consistent with all our standards and our design guidelines, our General Plan, we can approve you at staff level, at any size. Your site plan and design review, no hearing. It's still discretionary. There's still CQA, but that's it.

Once we sign off on that, since it meets all our standards and guidelines, we have a reconsideration period that people can let us know, point out information that we didn't see, perhaps in our staff level review, but we're not compelled to revisit the project.

We just say, okay, thank you, appreciate the information, but we move on with the approval. If you need any deviations, we use deviations, not variances, in our city since 2013, deviations from development standards.

We will hear those deviations at director level, as well as any tentative map of any size at director level. Your appeals, though, if someone wants to appeal the director decision, that will go to planning commission, and that's it. That's the end of the appeal process. You cannot continue to appeal the project to council. We find that has added a lot of predictability for developers and less risk, generally.

Candidly, I think some of our council members, elected officials, are happy not to handle land use issues at council level. It gets very political. So I think that has been very helpful as well. We talked about with Mr. Garcia EIRs with specific plans that help streamline CQA.

We started doing this in 2018 after our central city Specific Plan, and we have used this statutory exemption, public resources code 21155.4 I believe for 4600 units.

And there has not been a successful lawsuit challenging this exemption to date. I will talk about this project in relation to that that I have on the screen here as a kind of a case study. With all the streamlining, I do want to emphasize we have online portal where people can sign up, indicate an area where they want to hear about projects.

And as soon as the project comes in, they get the plans, they can review the plans, they get the planner's direct contact information. We want to get public input early in the process. That's when developers, staff, things are less big, things are more flexible, and we do incorporate public comment through that way. We also have basically a real estate size sign on the property for people to see with a planner's contact name and info. Just acknowledging.

And I think it helped with council going ahead with these streamlining mechanisms to have some good early outreach to the community so they can weigh in and point out issues for us. I'll just note just this project here. It's up in North Sacramento near the Royal Oaks light rail station.

128 affordable units, very unpopular with the neighborhood nearby, but nonetheless, it was approved at staff level in six months using the statutory exemption, using an older EIR from the Swanson station Specific Plan.

And there was no hearing, no appeal, just reconsideration. The neighborhood association did challenge it, but then they dropped it in court. So I think just an example of a good project that I think most folks would like to see. Affordable housing infill development next to a light rail station. It's consistent with city policies, standards, guidelines, and we wanted to create this predictable process. Other thoughts? I did hear about impact fees.

Mr. Garcia mentioned that. We do have our fee deferral program to final inspection because some units don't always use, that's the last kind of approval, so to speak. Certificate of occupancy is for commercial units. So that's a very popular program. I think it does help save money in that developers don't have to put up that upfront cost early on. They can build more units, larger batches, so to speak, keep the trades on site. And so it's been helpful as well.

And of course, our impact fees are largely at a per square foot basis. And we have a master ordinance that basically for impact fees that help make the process more predictable, how it's assessed, what are the type of fee credits you get and the like that we did in 2017. So those are some of the things that come to mind, but happy to answer any questions you may have.

Thank you. Mr. Sandlund. We're going to go to Ms. Vonblum for your presentation, and then we'll cover questions for both presenters. Thank you.

Good morning. Thank you for having me here. My name is Heidi Vonblum. I'm the planning director with the City of San Diego. I do want to just provide a little bit of context for San Diego. We serve 1.4 million people, and we are a large jurisdiction geographically.

We are also diverse geographically as well as demographically diverse as well. We have over 50 different community planning areas within our jurisdiction, and that is a lot of responsibility in terms of planning the right way.

So to frame some of the highlights that I would like to share with the committee today on things that San Diego has done that we've seen some success in, as well as where we want to see ourselves going in the near future. I do want to frame that discussion around to some of the points that the committee has raised, is that when we talk about our pro housing policies, this is in the context of pros housing policies that also meet our climate and equity goals and also result in thriving communities.

The purpose of all of the work that we do to provide new home opportunities is to enhance the lives of people that live in the existing communities, as well as the people that we'd be moving into the new housing. And so to that end, that requires parks and public spaces, infrastructure. It also requires that we're planning intentionally to ensure that our city municipal services can serve the new development.

So that looks at efficiencies with respect to municipal operations such as solid waste collection, police and fire services as well. So with that in mind, all of our policies are primarily targeted at areas that are conveniently located to transit. They provide safe and convenient walking, biking and rolling opportunities.

These areas ideally are also served by amenities such as parks, good schools, and then also while we are planning for new housing, we are also planning for good jobs in the process.

That also looks like good jobs in the context of construction, as well as the end user workers that hopefully will be able to find a house to afford to live in in our city. I don't think that I need to rehash that it is not affordable to live anywhere in the State of California, and that is something that is uniquely true in San Diego as well.

Also, before I get to highlighting some of our recent initiatives, I do also want to point out that while we have had a lot of success in the rental market space as well as certain product types, we are lacking in a diverse supply of housing opportunities, a lack of home ownership opportunities, which we can talk about a little bit more. We are hamstrung by a lot of requirements at the state level.

To be able to provide those homeownership opportunities are really critical right now as we are taking the opportunity to plan for new homes to meet the needs of everybody that lives in our city. We want to make sure that what this ultimately looks like is actually fulfilling and meeting the needs of the people that live in our city.

Yes, of course there's a place for rental housing, but to not be providing new homeownership opportunities for people to build equity, especially in black and brown communities where they've been historically redlined and excluded from that opportunity, is really of critical importance, as we do that today. Secondly, as we are looking at this, we want to make sure that we are thinking about not just housing unit production, but number of people housed.

And that's really, really important to me and something that we have provided comments to HCD on through the RHNA reform process as well. The RHNA allocation primarily looks at housing units. A unit could be 500 square foot.

It could house one individual, or a unit could be 1200 square foot, conveniently and well designed, 1200 square feet bedroom, two bath. That could house a family with multiple children, as well as the needs of intergenerational families living within our jurisdiction as well.

We've seen a lot of incentives from the state that do incentivize smaller units, which I think is a detriment to focusing on number of people housed. And I do hope to see action on that from the state to be able to change that conversation into looking at how we can house people rather than produce simply housing units.

So I will finally now get to highlighting some of the actions that the City of San Diego has taken that we've seen some preliminary successes on, but also want to remind everybody that housing capacity is not the same as housing production.

The City of San Diego, in the last 10 years, we have updated a number of our community plans. We have increased housing capacity by 106,000 new units. Housing capacity, though, does not equal housing production.

And so a lot of the work that we do in our department is focused on implementation and looking at ways to incentivize and ensure that our market can actually deliver the new homes that we have planned for. So with that in mind, I don't want to underscore the importance of updating the community plans. As my colleague here had mentioned, it's very important to be able to have those plans in place so that standards are identified.

Communities understand the types of land uses that are expected to occur within those areas. But a plan doesn't make anything happen. We need to have additional action to ensure that we actually get the production from the capacity. So a lot of the efforts that we have done have been focused on that. We do regularly update our zoning code, known as our land development code, every year.

We take input from industry stakeholders as well as members of the public, as well as expertise within our own department to be able to take away barriers and enhance the streamlining of development projects through the process. Our goal generally in the City of San Diego is to remove the discretionary process where it is not enhancing a project. A lot of projects can go through the process and they're kind of going through the motions, right?

Standard terms and conditions get applied to a conditional use permit or other kind of site development permit, but nothing really special comes out of that process. Really what that process can do is provide uncertainty to a developer or applicant and really hinders our ability to be able to see that housing production occur.

By removing a discretionary process and identifying regulations in place that provide certainty both to members of the public as well as to the developer, we are able to see the streamlined permitting and delivery of the new home development. This is really important because it reduces delays, especially with respect to administrative appeals.

We also similarly do have higher process levels where staff can make a decision, and that also similarly to Sacramento, results in an appeal to the Planning Commission.

However, under state law and the Public Resources Code, there is a state law requirement that anybody can appeal any project, even at the staff level, to the elected decision maker under CQA. And that puts a lot of projects into an endless cycle loop of dual appeals, both to our Planning Commission as well as our City Council. We approve most of our projects by right ministerially and by right ministerially doesn't mean that everybody gets a free pass.

It means that we have worked with the community and industry upfront to identify clear and certain regulations so that when an applicant comes in to our development services department for their permit, they know upfront what they are expected and required to do in terms of delivering that. That reduces our processing timeline and hopefully is resulting in reduced costs to the pro forma that David earlier had identified for the housing costs.

So that's one area that is really important to us as we make sure that there aren't little things within our land development code that are not creating unnecessary regulatory uncertainty in that process. Other things that we have done is we have a variety of incentive programs that go above and beyond state law.

Certain examples we have a complete communities housing solutions program that allows essentially for unlimited density up to certain floor area ratios in areas located near transit. This program was adopted in 2020.

We actually have seen very significant success through that program. It has been something that has been very attractive to the development community and we continue to see that occurring in the future. Our city also adopted an ADU home density bonus program, which has been very popular from an ADU model. I will note from the state perspective that the state limits the city's ability to charge development impact fees on ADU homes.

Less than 750 square feet. The challenge that I see with that is that every single ADU application we receive is less than 750. While it does provide a type of housing product for a segment of our population, it really is missing an opportunity to provide new homes for families with children and larger families. In that realm, we have a variety of density bonus programs to incentivize certain things. We have childcare density bonus incentives.

We have density bonus incentives for student housing, housing for all abilities I should have mentioned earlier when I had said that all of our housing policies are aimed at ensuring that we are meeting our climate and equity goals as well as our infrastructure needs as well.

We are also acutely focused on affirmatively furthering for housing and making sure that we are providing affordable home opportunities in all of our city's communities. As part of kind of going above and beyond that level, we are largely built out jurisdiction

80% of our land is single family zoned presently, and so that provides us with a very unique challenge as well as opportunity to really think creatively about how we build up and in to meet the needs of our communities.

Things that we have looked at is phasing out non conforming, incompatible land uses to make way for new housing opportunities. We've, through our community plans, rezoned communities, particularly in Barrio Logan, which is a very underserved community.

Historically in our city, we rezoned a lot of that community to provide land use compatibility to separate residential from industrial uses. Through that process of the planning, it's a good example of how a plan on itself doesn't do anything because of previously comb forming rights. So areas that our city has identified for housing that are currently occupied by an industrial incompatible use can continue to exist in perpetuity.

Our City Council did just in December adopt some new regulations requiring the phase out of these industrial uses, both to advance environmental justice as well as to provide new home opportunities as we envisioned within our plan. Other things that we've looked at include development impact fees.

This city, beginning in 2020 and then following up with full implementation in 2021, we adopted scaled development impact fees, which means that larger units generally pay more than units that are smaller.

We did have a little bit of a concern that we'd be disincentivizing larger homes for families again. And so we have some tweaks there that kind of max out a development impact fee if it's three bedrooms or larger, as long as it doesn't exceed 1500 square feet. We have also provided certain incentives through our parks development impact fee program to provide discounts for affordable housing as well as areas located near transit to advance our climate goals.

Some of the challenges with waiving development impact fees I do want to sort of implore the committee to consider is that every time we waive development impact fees, it is a loss of revenue to be able to fund needed infrastructure in our communities. Several of the ways we address this is through aggressively pursuing grant funding.

But because local jurisdictions have such limited ability to raise revenue and generate income needed to be able to serve our community members, any hit to our development impact fees is very problematic.

We, of course, comply with all the state law requirements for Nexus studies for our development impact fees, but it is still at this time a funding source that is very critical, and so it's something to be balanced with our housing policies. We moved to citywide development impact fees.

Previously, we had different fees for each of our 50 different communities. They range from as low as $600 per unit to as high as $120,000 per unit. As you can imagine, this was resulting in very disparate development patterns throughout the city because that changes the development performance significantly. It also was resulting in the opposite of affirmatively furthering for housing because the higher fees were generally located in the higher resource areas of our city.

At this time now, today, the program is fully phased in and fees are the same in every community throughout our city. Another thing that the City of San Diego did through our parks Master Plan, which had not been updated in over 60 years, is we looked at different things that can impact housing development.

And you would think that a parks Master Plan could be a nice, simple, feel good plan, but it actually was quite controversial for a variety of reasons, one of which is that there are stark disparities in the quality and quantity of parks, primarily in our underserved communities versus our more affluent areas. This is a result of disparate development impact fees that occurred over time, but also just development patterns.

Our city also had an outdated park standard for new development that was based solely on acreage of 2.8 acres of parkland per thousand people. That assumes a population that assumes a development pattern that is more based on urban sprawl.

New plan subdivisions with greenfield space have opportunities to provide those types of parks. But if we were to apply that 2.8 acre per thousand population standard to our downtown San Diego, that would cover the entirety of our downtown San Diego.

And so that's an unworkable standard and an example of things that we really need to be looking at as things that are a barrier to housing production. When we are requiring development to provide parks, we need to provide the flexibility to provide innovative public spaces that meet the needs of that.

The City of San Diego now does have a new park standard that focuses on recreational value and making sure that new development again has the needed public spaces to ensure that we have active, thriving communities, but is not unnecessarily stifling development with standards that cannot be achieved.

Other things that I am looking forward to us doing, I would be remiss if I did not mention that a lot of it is dependent on the REAP funding that we had anticipated from our awards from our MPO SanDag is we are looking at our city owned land to be able to provide a streamlined process as well as identifying where the opportunities are on our city owned land to provide more home opportunities.

This is intended to be a comprehensive plan to really look at the needs of our city operations, as well as where we can essentially squeeze affordable as well as market rate opportunities on our city owned property. Part of this is also providing in a master planning process, through a public process, through a certified environmental document, is to be able to identify what the expected standards are so that we can provide a streamlined path to project approval.

We are also looking forward to working with some key research associations to be able to identify funding strategies and maybe of interest to this committee, looking at different ways that we can do affordable housing, because a lot of the ways that we do it right now are not working.

And so we are excited to work with some research partners to be able to look at other types of housing, social housing, cooperative housing, other types of housing that provide homeownership opportunities and really community land trusts, and really look and see how we can think creatively to do things to deliver housing that meets the needs of people that live in our communities. We're also looking at missing middle housing and looking forward to being able to look at economic feasibility.

A lot of the work that the Turner Center provided is helpful. We also have our own consultants that we utilize economists to be able to tell us what types of projects will pencil because we don't want to create regulations for a product type that the market can't deliver or that we don't have some sort of strategy to be able to deliver.

So through our missing middle homes proposal that we'll be working on, we're looking to identify product types that make sense, show renderings like similar to what the City of Sacramento has done to show people how these can enhance their communities, as well as also provide that home ownership opportunities.

We do need some help from the state to be able to make that happen without unnecessary delays and appeals, especially through reforms from the Subdivision Map act.

We also are looking to basically provide templated designs for missing middle homes that can be processed ministerially by right through our development services department to be able to get these projects on the ground and moving as quickly as possible. Other things that we have to look forward to. And I'll wrap it up. I just want to put a quick plug in for the importance of community engagement and of all our land use planning decisions.

We are currently developing an inclusive public engagement guide, which is really critical to be able to have input from the communities so that we make sure that we're tailoring our housing policies that meet the needs of everybody that lives in our city. Thank you.

Thank you. Ms Vonblum thank you to both. I think remarkable examples for the local political will that we have in some areas of our state that can inform what other communities can do. And I want to hear from members. But let me just broadly both kind of touch on a couple of points. What are some constraints in state law that we should be focusing on?

When you have the political will at home, when you're planning for capacity, and then you're just running against those headwinds of some realities out there outside of your control, what more can we do to help you fulfill the vision that you're trying to do in your cities? You touched a little bit on, I think, the ability to appeal, and that's a constraint on working on Subdivision Map act.

What are some other things where the state is a barrier to your vision and your energy to produce more housing?

I can start first the appeals, the administrative appeals from a CQA perspective, while I think that they can work well in a smaller jurisdiction, in a large jurisdiction, it's very difficult to be able to take every single item to an appeal to our elected decision makers, and it results in significant delays to new development projects. The Subdivision Map act, in my opinion, is great and it's well intended.

It's intended to make sure that we are not subdividing land that doesn't have access and water and sunlight, et cetera. But in an infill environment, those concerns are largely already addressed through access.

And I do believe that there are ways that the state could creatively think to be able to identify objective standards, to approve subdivisions ministerially without requiring projects that otherwise would not be subject to that process, to be able to divide into homeownership opportunities without that discretionary process as well.

Other things just to consider in development impact fee reforms is to consider the impact of the municipality in terms of any fee waivers or reductions, and then also really to think about the types of things that we're incentivizing when we're only waiving development impact fees for small units. I could probably go on, but I'm going to share it with my colleague here.

Yeah, you mentioned the Subdivision Map act. We just had a project that exhausted the appeal process for our local entitlements, but it was a condo project, so it needed a tentative map. And tentative maps by state law can go to council. And so now that project is going to council in March for a lengthy debate. And I think the developer is also considering just changing that, just going with like a rental product instead and not even doing the condo, the airspace parcels.

Speaking of condos, I know this is tough politically, but condo liability, 10 years of liability, I think talked to a lot of developers. They want to provide ownership product, but that's just a very scary proposition. So in the meantime, I won't wait for that change. But I am looking at our condo conversion ordinance where perhaps if you're a class A apartment built within between 10 and 15 years, allow that conversion to happen.

We are concerned about conversion of low income apartments or some of the natural, affordable, attainable projects being converted to condos just because of what could happen there because the rents are so low. Mr. Garcia mentioned our building standards and codes. We absolutely need to maintain health and safety. But I do wonder, how does our building code compare to other states in terms of costs, things that we found important years ago to add to that code?

Are they still important in light of the housing crisis we're in?

Mr. Kalra.

Thank you, Mr. Chair. Thank you both for taking the time out today. I know you have plenty on your table to work, and so to be here to help us is very appreciated. And in condolability. You mean like in terms of converting it from ownership to rental?

My understanding is that as the developer that built the condo, they could still be sued within 10 years for construction defects. And so they get very expensive insurance policies to cover that potential liability. It seems to be unique compared to multifamily development and other houses.

I see what you're saying. Okay, so there's a distinction from specific to condos versus single family. And is that something that was placed in law, some relic, or is that something that was kind of court deemed more recently?

I don't know the history.

It's been in the civil code for as long as I've been in my career.

Okay, well, those are the kind of things that we otherwise may not be aware of that could be helpful in terms of facilitating that kind of development.

Yeah. And I think of demographic shifts. I think you have some folks that want to downsize, but they don't want. To rent, they want to move to urban environment, transfer the equity over. And I think that's a missing part of our housing market.

Yeah, I think you're right on that. Time flies like 19 years ago when I was appointed the Planning Commission in San Jose, and the conversations back then, even on the most minuscule reduction in parking requirements, were painful, hours long conversations.

So it's good that we've seen this partly based on urgency and need that we are having these conversations. I know, on no maximum density, no minimum parking, what have you.

And it sounds like that's something that's more current in Sacramento, but it sounds like San Diego has been doing that for a couple of years. And the results have been positive in terms of spurring and incentivizing higher density. Because I think that's the key, is whenever there is entitlements given to have it as high as density as possible, and sometimes developers don't necessarily want to go higher density. We've seen this in San Jose and other places, even if they're entitled to.

And so there is that carrot aspect as, hey, you can build X amount. They don't want to go and build that much. Is there any kind of other incentives that may, and I don't want to say sticks, because we certainly want to encourage more development, but how do we encourage them to develop to the maximum density even if it's allowable?

A lot of them aren't doing it because they want to get on market as fast as possible, so they may compromise some of the number of units. Other than allowing for that density, are there other incentives we can give to actually get them to build to that density?

I think the density bonuses are critical in that space because when you typically look at the performance, when you achieve that density bonus, it does make financial sense for the projects to provide that additional density. A lot of zoning ordinances will allow for a maximum FAR that don't necessarily pencil at that FAR. But when you add in a bonus, it can change the equation. There, there is also an opportunity to look at minimum densities as.

Yeah. And is that something that is commonplace at all in jurisdictions in California, to your knowledge?

So right now, the City of San Diego is looking to, we hope to bring this to our City Council this year, but we are updating our General Plan to identify areas with minimum densities and intensities to be able to meet our climate goals.

And as part of that process, we are looking to provide for streamlined approvals, additional streamlined approvals through the adoption or certification of a program environmental impact report for projects that fall within the minimum, maximum densities that we've studied.

So inherently there, there is a disincentive to fall below the minimum because it would not be the beneficiary of the streamlining.

Yeah. It's not something that we definitely have to follow your lead in terms of what's working at the local level.

It's anything at the state level that can help incentivize minimum densities, because as we all know, how frustrating it can be, especially in urban areas, when you have these high rises being built or these taller buildings being built with higher density, and then you have these two story buildings being built that are going to be there for generations and completely stymie our efforts in terms of the zero city impact fees for affordable housing.

I heard, Ms. Vonblum, the citywide development impact fees in San Diego, which I think makes sense because to your point, what ends up happening is then you have these affordable housing projects built without impact fees, and they don't have the infrastructure of the parks and open spaces, bicycle, pedestrian infrastructure nearby.

Citywide allows, that kind of allows a city to kind of figure out where those types of amenities are necessary as opposed to where they're being paid into.

But how do we deal with the pushback that might occur from some of the wealthier areas that have a certain expectation of what they, quote, deserve? Has that been an issue at all, or is that something that because it's citywide, you're able to kind of buffer some of those concerns.

Yeah, that wasn't controversial at all. Yeah, it was very controversial. And that's the importance of the Nexus study and being able to establish through plans and policies that reasonable relationship between the burden posed by development and the amount of the fee that is being collected.

We are one city in San Diego. We may be separated, but the reality is that people do not live and work and play all in one community all day long. They use city services all across the city.

I think fire is a great example. A fire station in the northern part of our city is not going to stop at the border of the community and not save somebody that needs life saving services in another community. I mean, it's actually just kind of ridiculous, if you think about it, to do that. I have three small children. They play at parks all over the city. We go to soccer. We don't stay in our community.

And so these are things that we established very intentionally through the plans and policies that were adopted to be able to identify that there is obviously a political process associated with the expenditure of the funds.

But what we've done is we've provided prioritized policies for things like prioritizing investments from development impact fees in areas where the most people will be using it, efficient use of resources, as well as the areas experiencing the most growth, so that we can ensure that areas experiencing the development are having corresponding investments.

Thank you. And then finally, on the housing permitted and commercial zones, if that's something that certainly the state level, especially with the change in retail behavior as well as work from home and all these different factors that come to mind that continue to push to mixed use developments, especially in kind of traditional commercial areas, the large parking lot with little strip mall, and how we can reimagine that. And Mr. Sandlund, we're talking about how it can be.

You mentioned one particular project was very unpopular with the neighborhood and what have you. But ultimately, and we've seen the state level kind of creating some of these buy right developments that have also created some issues when they don't build to the density that we necessarily are hoping for in those kinds of situations.

And so as we look to some of the commercial zones, and I guess by having a staff level determination, it creates some kind of buffer, quite frankly, on the political side, because that's what we see a lot from the local level, is the local jurisdiction, especially the smaller jurisdictions, more so than the larger cities.

But we see it everywhere is it becomes more politically challenging for the elected officials to be able to push back against neighborhood concerns, even though most of the time, once a project is built, it's usually done in a manner that benefits the neighborhood and the fears are usually not met in terms of the reality. But are there ways in which we can help move more so than what the state has already done?

Production in commercial zones, given the changing landscape of how cities or how communities are interacting with one another, or have you given you the tools that you need now it's just a matter of kind of moving forward on it.

Yeah. In that regard, though, I just have our perspective where we allow that already by right. And the state now has required that with certain conditions. I think just development in commercial areas, we do have minimum wanted to note.

We do have minimum densities and minimum fars in our General Plan, particularly in our commercial corridors. Also areas around light rail stations, we have prohibited auto rented uses, drive throughs, gas stations, things like that, to preserve that land for more productive uses like housing. So it's also looking at that land and making sure it's available.

Similarly, the City of San Diego does allow it by right already. There's a lot of barriers to the conversion of existing commercial spaces into residential, and it has a lot to do with financing as well as just the configurations of the floor plates for the conversions. But there certainly is an opportunity to look at the parking spaces as well.

And I think that AB 2097 is particularly helpful with that in terms of eliminating those parking requirements to make space for the land to be able to productively use the land.

Thank you both.

Thank you. Mr. Kalra. Assemblymember Lee.

Thank you so much for being here. I haven't had the pleasure of serving on city councils like my colleagues have. So I have a question in City of Sacramento, you're doing, but I think it is good that our judiciary chairs asked about the condo law. So that would be in your jurisdiction. If anything, I have to give also accommodation, City of Sacramento, to trying to go towards a form based zoning.

I do have a strong belief that people are much more worried about how a building looks and how tall it is rather than what's the use of it inside. It's quite outdated. So we had a previous conversation about impact fees, and I know you're trying to address it and right size right now. Why or why not? Have you looked at or explored doing impact fee based on square footage rather than units?

Because from what I understand, it seems both cities are still doing it on a per unit basis. Why or why not? Have you not looked at the option of doing square footage of units.

We do do square footage.

Square footage instead of the units.

Correct.

All right.

There's some utility impacts fees, though, that the nexus is a little challenging on a per square foot basis. But besides that, yeah, we've gone to square footage.

Okay. Thank you.

Thank you. I want to thank two phenomenal planning directors for sharing your observations and experiences, informing, I think, what more we can do here and then hoping to maybe lay on the table some things that we could be working on this year to help you really expand on that political will to be able to do more. Certainly the, I think, common goals are there. So I look forward to working with both of you and your respective cities to be able to help create stronger environments that are producing more homes.

Thank you very much.

We're going to move on to our final panelist, who's going to showcase an exciting method to help keep some costs low while working on a YIGBY project, something that started, of course, before the enactment of SB 4, but worthy of showcasing.

I think it'll be brief, but will, I think, surprise many watching today for what they were able to do in the form of reducing costs. So I'd like to welcome to the presentation table Mr. Doug Austin, the CEO of AVRP Studios, for his presentation and look forward to learning from your experience today. Thank you.

Yeah, well, this is working. Thank you. It's a pleasure to be here. And actually, I'm really glad that I showed up when this started because hearing the other presentations was great. I know a bit about San Diego, but finding out more about Sacramento and especially the Turner Center was terrific. So I'm going to talk about YIGBY and what we're doing. Yes, in God's backyard.

And that's clearly a response to no, in my backyard, which was the case far too long in California, which helped lead to the housing crisis that we have. So I'm going to talk a little bit about what we have done here. What we're doing here. It's under construction now. And a little bit about what we were able to take advantage of in terms of policy. But let me explain what it is. The other thing.

Well, I'll tell you what, with so many topics that were brought up, I was back there just going, boy, I'd love to jump into that conversation. I'd love to jump into that conversation. So I'll try to stick to what I'm here for. But on this, this was an attempt to build affordable housing.

Actually, our target in this case is at risk veterans, unhoused veterans, and with the whole idea of YIGBY, which is teaming with organizations of faith to use some of the land that's underutilized and find people that might have a heart to build housing for homeless or low cost housing. But how do we do it in a way which is more cost effective that you could actually do smaller projects?

As an architect, our firm works with a lot of capital, a affordable housing developers that get tax credit funding. And I'll tell you, it's start and stop and start and stop while you wait for that funding. And I know that just recently I was looking at a site with one of the big affordable developers and they said, okay, this is for construction only. And they build their own projects, said, well, for one bedroom units, it was mainly one bedrooms and studios.

They were figuring about $425,000 per unit. With this, you'll see that we're building these for pure construction costs somewhere around $250-260,000 per unit. So how do we do it? You can go ahead and go to the next slide. I can kind of see the slides. Okay, so we have 26 units.

Originally when I got into the project, it was actually only 16 units, and it was going to be a modular project. But modular does not necessarily mean cost savings. Sometimes it can mean it's more expensive, and in that case it was. So basically, I redesigned the project on a pro bono basis to get more density. We were able to get more density because we use complete communities to go higher, go denser.

We didn't have to provide parking, which was another big help here, because with this particular segment of the population, there are probably other better avenues than spending a lot of money on parking. Plus we're right near a corner that has good bus service.

So there's an office, there's washer dryers, and there's some outdoors areas for community gathering. But this shows you an image of what's there. You can go ahead and move forward. Let's see how we got this. All right, you know what?

I think I'm going to move to this because its pagination is the same. Thank you. So one of the things we look to do is do 100% private financing. And how do we do that? Well, the church donated the land.

Now they need a return on that. And that's one of the things that a lot of churches now they're downsizing. They have the free land, but they can't just give it away. They need to get something. We were able to figure out how to do that. Some of it was based on donations. In this case, it's about a $7 million project, and we got about 10% of that in just donations that never need to be paid back.

So having some pro bono services up front helps because you don't have to pay that back. But the rest of the financing was 100% financed privately, so we weren't paying big fees for doing the tax credit work, which that adds a lot of costs to a project.

And what we did is one of the wealthy benefactors, Andy Ballister, who was one of the co founders of GoFundMe, was willing to basically write a letter of credit. He underwrote a letter of credit. He'll get paid back when we get permanent financing. And it looks like the church will receive funds at the end of the day, which will help their congregation. Go ahead. Next slide.

This shows the basic configuration. What I did was redesigned the project to just be a very simple, double loaded corridor with one bedroom units. And believe it or not, those are 400 square foot units. But they work. They've got a bedroom.

I mean, they've got a bedroom, and they've got a bathroom, which complies with ADA. And they've got a living area and a kitchen. So it's very efficient. That was one of the problems we had with a modular. They're trying to do it with shipping crates, and shipping crates aren't really designed to be housing.

They're expensive to modify. And so just building this stick built was actually more cost effective. Now, when you get into higher density in the future. Mid rise. High rise.

We've been studying this for two decades. We think we finally have found one that will actually save money. And I'm happy to come back when we confirm that it is. There's a project under construction in LA right now that looks like it'll save about $100 a square foot, which is the first one I've seen. And then we may use that here as well. Go ahead. And to the next. And that's the typical floor.

You can see there's a big open area on the left hand side, in the upper left hand corner, which is a gathering area, but it's basically a low cost amenity. And there's nice views from here. Next, this is a typical unit. So you see it's got one bedroom, got a closet, got a bathroom and a kitchen. We have the option to put a washer dryer.

We ultimately decided, for ongoing operational costs, as well as just getting people together, we did a collective washer dryer area on site. Go to the next one. And so it's not a bad looking project. For a project that these veterans will get at a very reasonable price.

They can use basically what they call vash vouchers or veteran Administration vouchers. The actual total fee they will pay is a little over $1,600. And basically the voucher will close the gap on what they can afford.

Most of these will be under 30% of area median income. Probably be meeting their. If they earn anything, they're earning it probably under $25,000 a year. Go to the next one. So it just shows some more views.

We provided the conceptual design for this as pro bono, but there's an architect that we ultimately had to hire, because once you get into the full working drawings, that's something we needed to pay for. And this shows the schedule. We're on schedule right now. We did have the groundbreaking.

We hope to start framing in a few weeks. We've poured foundations. In spite of the nice rain we've had, a lot of our time has been spent cleaning out the site. Go to the next one. So this shows the financials, a breakdown of the financials. Let me just turn to it myself.

And so you'll see that we estimated the value of the land at about $500,000. There was previously an old duplex that was ready to be torn down and replaced with the 26 units. The consultants, engineers, blueprints, which you'd call soft costs, were $312,000. Permits and fees, $375,000. Now, that's another area where San Diego helped us by gearing this on a square footage basis per unit, as opposed to just a typical.

You can imagine if it was $40,000 a unit, we'd be underwater right to begin with. Then General administrative overhead of a couple of 100,000. And then the construction price of $5,450,000 which translates to about $182,000 per unit. And then a finance contingency.

And that came out to a total of $278,000, including the cost of land, which is pretty remarkable, actually. I was just back in Washington a week ago presenting this at the National Association of Realtors, and when I mentioned the cost per unit, there was a gasp. And people were amazed because they know that it costs a lot of money to build these. So it was a Complete Communities. You can go to the next slide, if you don't mind. Sorry, Complete Communities.

That was the program in San Diego that allowed us the increased density, no parking required, lower impact fees based on square footage. And we also got expedited processing, which all those were huge helps. You've heard the things that David was talking about, and we were able to take advantage of these programs in the future. The fact that you now have passed SB 4. We started before SB 4 happened, but now we're looking to a lot of other land.

There's 4675 acres of land that might be used for this. And I'm Presbyterian, so I can pick on us. We've always said we never saw a committee. We didn't like anything that might take three months, it'd be better if it could take a year and a half. But they're now looking at this real hard. And AME, which is Bethel, AME is the church that we partnered with.

The nice thing about AME is they own their own facilities, whereas in the Presbyterian church, the Presbyterian generally owns them. So it has a lot more to say. But with your SB 4, that's going to help. And so appreciate that. And so I'm here for questions and answers, if you have any.

Thank you, Mr. Austin. Questions. Mr. Lee, I really want to thank you for the presentation here today. I would agree with the association that you presented to. It's eye popping when you are able to see something reduced to a cost of $270,000 per unit. And I got some observations, but I wanted to go back to Assemblymember Lee, for maybe some of his thoughts.

Yes, thank you. Yes, I did have a question. You mentioned you are working on a project in Los Angeles as well.

Yeah, it's one that we're studying. We're actually not the kind. I've been studying manufactured housing for a long time. I've done some development. I'm mainly an architect. I've been a Planning Commissioner. I've been on the redevelopment agency. Got a lot of hats I've worn in the past. But one of my passions has been, how do we find a better way to build affordable housing? I'm going to take one detour for just a second.

I had an instructor at Cal Poly, at San Luis Obispo, who has a PhD in psychology, and I asked him, I said, why are you on the faculty for architecture at Cal Poly? And he said, because I believe there is no other thing that one human being can do for another that's more important than providing good housing. I thought, wow, that's profound.

So I've been looking and looking and looking to find ways to look through Europe, everything else right now, I actually have two patents I've developed now for building high rises cheaper. We think we can save $100 a square foot. But for the first time, I'm seeing this project in LA going up.

It's under construction now. They're going to start tours of their factory. They're actually building the units right across from the Hyundai factory in Tijuana. And then it's a Maquiladora, it's an American company.

And right now they say they're on budget or slightly under budget, which would save about $100 a square foot on a mid rise project, about six stories. And that's one of the biggest problems is everybody in California pretty much wants infill development, and infill development costs more per square foot. And if you want more for sale housing. Wow, we got to fix the lawsuit problem. That's another story.

Yeah. I asked only because I was curious if this model has been success replicable, especially on the financial side, in any other sites in California that you know of, because to the gasp of realtors obviously are delivering 200 ish per door. So is that something you've seen in this model? Still replicable in other parts of California yet.

This model is. How scalable it's going to be is something we need to see. The YIMGY model. But the model of what they're building in California, that's a market rate project that could be applied to either affordable projects or market rate projects, which, as you mentioned, they mentioned.

What are the various factors? Obviously, there's things state can do, things that local government can do, but I think there's things we should do as designers and innovators. How do we bring that cost down so we can save $100 square foot? It's a big deal.

And since we have an architect here, I authored a bill last year to look at single staircase buildings, especially for mid rises. Do you think? Because this is a double loaded corridor, so says multiple stairs. But do you think that would be more effective in bringing the cost down if we had mid rises with single staircases, as we see in Asia?

Yeah, it's interesting because one of the things we sign up for is safety. Right? And that's one of our primary goals. So I'd say it depends because I actually believe more in scissors stairs, which you can go and go 70 stories with them. We have offices in downtown Vancouver and there, and I believe in New York, you can do a scissors stair.

And what that is, the footprint for the two exits is in the same exact footprint, but because that core is built out of concrete for structural reasons, but also fireproofing reasons, you have two exits. And as far as I know, there's never been a safety issue or failure.

But in California, we have to separate the stairs by at least 30ft physically, as well as be one third of the diagonal. And if you look at California buildings compared to Vancouver buildings, they're bulky. Right.

And that's one of the main reasons. And it costs more to do it that way in Vancouver. Look at the light and air that's hitting the street there. I don't know how many of you have been to Vancouver, but I encourage you to go because the public realm is really well done. That's a good model.

Fantastic. Thank you.

Sure.

Thank you. Possibly an update to the bill from last year. I really want to acknowledge how impressed I am with the timeline and some of that because of the streamlining undercomplete communities. But even with that under consideration, construction to opening in 10 to 11 months is phenomenal. So congratulations to the whole development team for doing this.

And do you see, I think, tearing off of Mr. Lee's comments when we had talked about SB 4, the analysis estimated that this would possibly open up 170,000 acres statewide of new opportunity sites that would be subject to this streamlining.

That's a lot of land. And of course, that's not all going to happen in the very near term, but a lot of it might. So do you see this kind of a project attracting more interest that might allow you to mass produce or. We've also, I think in the past looked at, I think locally, some local governments have looked at creating sort of, sort of pre approved models that you could kind of plug and play. And so is there some synergy here?

I think those are good ideas, yeah. The other thing is the model we took is good for smaller projects, bigger projects. I don't think we should abandon tax credit funding because one of the things that was mentioned is land is scarce. Right.

And if you need to do infill development. So I think SB 4 is going to be important. Some of the larger scale projects might be traditional tax credit funding, but you now have land that's contributed at a basis, which is attractive. Plus the fact that it's even there to be developed.

And the land that you're putting into it, it's there essentially on paper only. The equity is there to sort of, I think kind of it's accounted for there. But you don't actually pay for that, right?

We don't pay for it up front. No. But generally, if you're going to look at a traditional capital stack, it's part of the cost and you got to account for it. Right. So the fact that that can be part of the equity, something you don't have to pay for now, it's almost like a long term land lease in the sense that the church is willing to be patient. They really don't have income on it now anyway, or very little income. So it's something that's a win for them.

And you had noted, too, because of your, I think, reduced capital is that you were really looking almost exclusively at private financing. There's one thing that feels on its face, in conflict with what the Turner Center had presented, that this reliance more and more on private financing is causing higher expectations, higher rates of return. But did you find private financing that was lower than.

This is totally different because you've got people with a heart. This is mission based financing. Right. You don't find many Andy Balusters every day. What a gem that guy is. And he's willing to personally sign on the line, give a line of credit, and then he's willing to pass on that to us at a very reasonable rate. Whereas you're right, if it's a typical money manager just looking to maximize their returns, they're looking at housing as one of their many avenues.

And if it doesn't meet a certain threshold, then they're out of the market. And the more you need of that, the more expensive that project is. Somebody said, let's find more money from the banks because that's the cheapest money.

One of the problems with traditional financing for churches, having mentioned I was a Presbyterian and been an elder, there is most banks don't really want to lend to churches, and the reason is for public relations, they don't want to have to foreclose on a church.

It just doesn't do much for their public relations. So there are certain entities out there that do it because they're mission driven. Right. And in this case, hopefully, this is the first of many. It took us a while to figure this one out, and we're glad it's under construction.

But you had sectioned off this land, right, from the total parcel?

No, this is a piece of land that's owned free and clear. It's owned by the church. And the nice thing about it, it's basically a 50 x 100.

The land is still owned by it. But to your point about nobody wants to foreclose on a church just for purposes of equity. If the project fails, no one's going to come back and go after the church property. Well, just that piece of land.

It could be divided off.

Yeah, right.

It could be sectioned off. Right.

Certainly a lot of lessons to be able to learn from here. The complete communities model, your three story example here, could you have gone higher? Yes, but they didn't want to go.

Higher on a 50 x 100 square foot. That would have kind of pushed the envelope a little too far. Plus, we had to look at what financing did we have available. I think somebody said, just because you zone it that way doesn't necessarily mean it gets built. And so we had to find that sweet spot because the 26 units did drive our cost per unit down.

But there was a point where we would have needed more equity or more loan or what have you, and we said, okay, we're kind of pushing the envelope as far as we want to push it on this one.

Well, I'd still remark that kind of tying all these conversations here together today, a project like this, while even maybe it could have developed a little bit more, probably would have raised additional expenses or additional costs per unit. So you sort of hit that sweet spot. But also from a form based perspective. Right. Is probably very not objectionable for a lot of communities and a lot of the landscapes that we see across California.

Not a very highly urbanized environment like a downtown of a major city, but something that, yes, it's 26 units, which is great, better than the duplex that was there before, but it's not this 120 unit, mid rise, I guess, opportunity that's appropriate for some areas. But certainly we're looking across a lot of landscapes, a lot of community typologies in California where this would fit in pretty synergistically with the existing.

No, I believe that this is a good model, and we hope to actually use it on another 50 x 100 foot lot. In fact, this is, we call Bethel 1, and we believe there's going to be a Bethel 2 coming because they have another lot about this size. But there are 50 x 100 foot lots all over San Diego, and I'm sure throughout California, which is great, but you bring up a really good point.

I just listened to three hour program, and if you'd like, I'll try to find it for you, because I'd encourage everybody who's interested in housing to look at it. And it was an academic presentation. They used a lot of the, I guess the housing from the Seattle area as a model, but they bring the same point up. It makes a point that there's, in most places, about 75% of the land is zoned single family, and most of those people are going to be nimmies.

They don't want to have something coming in where somebody's building a mid rise right next to their single family unit. But it talked about alternatives such as duplexes, triplexes, sixplexes, in this case, because of where it is actually the 26 unit project feels about right. So I'll try to see if I can find it for you because I think it was titled Single Family Zoning and Segregation, and it was eye opening.

Thank you. Thank you for that. Would love to be able to share that with my colleagues and really appreciate your time and your travel today to be here to share this example. Hopefully it inspires a lot more that we can do. It certainly has for me, and we've had a lot of ground covered at this info hearing today. I hope it's again groundsetting for the work that we need to do here as a committee and as an assembly.

And with that, we are going to conclude this morning's informational hearing. I want to thank all of our participants and people that have been observing today. I think our next hearing is tenant will be scheduled for Monday, March 11, as a Joint Hearing.

Our next hearing will be to be determined. I guess at this point I think it's in a work in progress, but I know that we want to be able to look a little bit deeper.

A lot of our state housing programs and what's working and what's not and the cost behind. Thank you. I am aware that we are having public comment on the agenda. Are there any members of the public wishing to speak? Please approach, identify yourself and you'll have up to two minutes.

Awesome. Thank you. Karen Stout here on behalf of Habitat for Humanity California, I wanted to really appreciate the mention of homeownership in this hearing. I think it's absolutely critical that we continue to focus on creating affordable homeownership opportunities for people in this state, which will help them not only for years, but for decades and for some generations. Right now, we are currently seeing the state in a home ownership crisis.

I mean, the Realtors Association has estimated that housing affordability is still dismally Low, with only 17% of people here in California being able to afford a median price home.

As these prices continue to skyrocket, this disproportionately affects our first generation homebuyers and people who have communities that have been traditionally excluded from the real estate market. This will only continue to get worse because there's only one state program that addresses the supply side of homeownership production, and that is Cal Home.

We are currently looking at a complete reversion of 150.25 million, which is going to be reverted in the January budget. We also really wanted to thank the Assemblymember Lee as well as our panelists for raising concerns about the prohibitive costs associated with construction defect liability law.

Habitat California has sponsored legislation in the past on this issue, and the data does prove that developers choose a rental product over for sale homes, as was also previously mentioned, because of this law.

In addition to our request for the legislature to restore our funding for Cal Home, we also would urge the committee and the legislature to start and continue focusing on policies and programs that will provide for sale units here in the state, especially for low income and minority communities, in order to create and access generational wealth. Thank you very much for your time.

Thank you.

Mr. Chair Members Rand Martin here on behalf of the AIDS Healthcare Foundation and its Healthy Housing Foundation, AHF currently has 13 projects open the City of Los Angeles, with three more in the works for a total, ultimately in the next couple of years, of almost 2000 units of affordable housing in the City of Los Angeles. I'm here today to reemphasize message we've been delivering for the last four or five years.

And that is that with the cost associated with ground up construction of affordable housing, we can never build ourselves out of the housing crisis that we have today. We need to embrace as enthusiastically as we can the use of adaptive reuse in terms of developing affordable housing across the state. I think AHF is a prime example of how successful that can be.

We have attempted to moderate existing state law through both the budget and through legislation that Mr. Santiago carried and last year's legislation that Mr. Lee partnered with us on in terms of streamlining things at the local level so that we can make adaptive reuse a more viable process.

There's more that needs to be done, and some of it is much like we've been hearing today associated with local government's efforts to move things along. But it's not just getting the project off the ground.

It's also making sure the project is operational. Beyond that, we have run into problems in the City of Los Angeles in particular, but certainly in other cities as well, where what we pass here in the state house does not get implemented as effectively as we need it to in the local level. Some of the things that are streamlined end up taking two or three years. That's not streamlining. You have other problems that crop up afterwards.

We have been subject to a long standing problem at our Madison Hotel operation with the City of Los Angeles relative to an elevator that has gotten repeated attention in the LA Times and others. And so we need to make sure that we take care of those issues after the project opens. So we hope that we can continue to work on this with you. Thank you.

Thank you.

Good morning, Mr. Chairman and members. Mike West on behalf of the State Building and Construction Trades Council of California, representing nearly half a million working men and women in the construction industry, including over 65,000 enrolled in our State of the Art Apprenticeship program around the state, the building trades agrees that we do need to build more affordable housing and that all Californians, including the men and women of the building trades, should be able to live and thrive in those units.

Developers often self proclaim to be affordable housing developers when a fraction as little as 5% in some cases are affordable, and then they are essentially 95% market rate housing developers. According to a recent UC Berkeley labor study on the residential housing market, almost half of California construction workers are enrolled in a safety net program costing $3 billion per year to the state.

19% of construction workers are misclassified as independent contractors earning 67 cents on every dollar earned by workers with employee status. Construction workers paid under the table earn 52 cents for every dollar earned. These workers earn a median wage of $14.98 an hour. A disproportionate share of workers in residential construction are also undocumented immigrants, 13% nationally in 2014, who may fear reprisal for speaking up for their rights.

The wage gap between homebuilding and nonresidential construction sector exceeds 40%. Make no mistake, this is a low wage industry. Any legislation from Sacramento needs to take into account the workers who will actually do the construction are not forgotten.

We shouldn't build our way out of the housing problem on the backs of low wage workers who have no voice on the job. We've heard the term pencil out at least a dozen times in this hearing. But we often hear that paying prevailing wage and providing common sense labor standards does not pencil out. These comments come after for profit developers take what is normal and customary for them in the form of profit.

Why not sharpen the pencil at the beginning of the process so that we can ensure that the women and men building the housing have a chance of the American dream of affordable housing and homeownership. Thank you.

Thank you.

Good morning. Chair Ward and Members of the Assembly Housing Committee. Cornelius Burke with the California Building Industry Association. We are California's homebuilders. About 90% of the housing are built by members of CBIA. We build it all. We build market rate affordable. We build condos. We build ADUs. We build master plan communities. We build it all. I just want to thank you from the bottom of our hearts and my heart for this hearing today.

It was a great hearing to really deep dive on our housing crisis and solutions and challenges that we face to really produce more housing, which is the solution to the housing crisis. It was really great to definitely hear from the Turner Center the math behind development. It has to pencil out a lot of times. There are a lot of costs, fees and burdens that will make projects pencil out, and that's why we cannot build. Number two, the second panel.

It's great to have two rockstar planning directors, one from the City of Sacramento, of course, one from San Diego. And I was a Planning Commissioner in City of Sacramento for close to a decade, and they talked about some of the challenges they have locally and particularly the nimbyisms that we have and the use of sequel to stop projects and obviously the fees.

And just lastly, it was great to hear from Mr. Doug Austin, who's a proud Member of the Building Industry Association of San Diego.

And it's BIA members like Doug and others who really work hard every day to build the housing that we need in our state. So CBI is looking forward to continued conversations and working with this Committee to really advance policies to make sure we produce the housing that we need for everyone in this great State of California. Thank you so much.

Thank you.

Good morning, Lauren De Valencia, representing the American Planning Association California Chapter. Our members are the ones who are on the ground implementing all the various laws that are passing year after year. And it was, as my colleague had said, it's really great to hear from two stellar planning directors, and we really look forward to working with the legislature to continue to be a partner to ensure that implementation at the local level is achievable.

We are hearing from our members that there's a lot of issues around capacity and resources to implement the various laws that are passing.

We know the state is facing very challenging times with the budget deficit as well, and so we're looking for some maybe minor things that can be helpful at the local level, such as sequoia exemptions for adopting the ordinances to pass the various laws. To implement the various laws that are passing, perhaps a little bit of delayed implementation to make sure that there is proper implementation time to get those ordinances in place and do the good planning work that we know that everybody wants to do to reach the same ultimate goal of achieving and addressing the housing crisis that our state continues to face.

So we look forward to working with your committee and with the legislature, and we really thank you for a great hearing. Thanks.

Thank you. Thank you, everybody, for your participation today. With that, this hearing is adjourned, and we will be in touch, I guess, with the scheduling of the next hearing as well.