California lawmakers recently declared victory in the passing of AB 2345, a bill aimed at easing the state’s housing crisis. Signed into law by Governor Gavin Newsom on September 28, 2020, the new law will expand the state’s current Density Bonus Law, boosting housing production and providing developers even more incentives to build affordable housing units.

So, what’s different?

The existing Density Bonus Law has been on the books for 40 years, but has failed to draw interest from developers and builders around the state.

Currently, when a developer agrees to construct a certain percentage of units for a housing development for very low-income or low-income households, the city or county in which they are building may grant them one or more concessions, such as reduced setback and minimum square footage requirements or reduced parking requirements, and a “density bonus.” The density bonus allots the builder a density increase over limits allowable under existing zoning laws and ordinances.

The law currently allows for a maximum density bonus of 35% to projects that comply with requirements for any existing dwelling units and restricts at least:

  • 11% of project units to very low-income households
  • 20% of units to low-income households; or
  • 40% percent of for-sale units to moderate-income households.

When a developer fails to meet the 35% threshold for the maximum density bonus, they are still eligible to receive lesser benefits.

Starting January 1, 2021, AB 2345 recalibrates the density from 35 to 50% for projects not composed exclusively of affordable housing. To receive the maximum bonus, a project needs to comply with unit replacement requirements and set aside:

  • 15 percent of units for very-low income housing;
  • 24 percent of units for low-income housing; and
  • 44 percent of for-sale units for moderate-income housing.

Further, the bill allows local governments to grant additional waivers for projects located within half a mile of transit and which are 100% affordable under the new density bonus law requirements. It also incentivizes additional density bonus projects by reducing the maximum parking required by lowering the maximum amount of spaces allowed per housing unit.

A proven track record

Experts say the change is much needed as the current law is lacking. A 2018 California Residential Land Use Survey conducted by the University of California, Berkley’s Terner Center for Housing Innovation found that most cities see little to no use of the Density Bonus Law. Housing builders have shown they do not believe the incentives go far enough to make new developments worth it, leading to an even further plunge in housing with not enough affordable units for those looking to move out.

How did they determine the change? AB 2345 is modeled after successful legislation that significant increased housing production in San Diego. In 2016, the city of San Diego expanded upon the state Density Bonus Law and increased the maximum bonus from 35 to 50% if developers provided 15% very-low income units, 24% low income units or 44% moderate income units.

According to Circulate San Diego’s 2020 report Good Bargain, data shows the expansion of the Density Bonus Law created more homes with annual increases including:

  • a 490 percent increase in the number of projects applying to use the program;
  • a 551 percent increase in the number of deed-restricted affordable homes entitled; and
  • a 356 percent increase in combined affordable and market-rate homes entitled.

AB 2345’s legacy

Lawmakers expect to see the effects of AB 2345 and its impact on California housing for years to come.

According to an analysis by Up For Growth, the state could see as many as 195,000 additional homes produced over a five-year period under the new law. 47,000 of those would be slated for very-low income housing.

And the best part about AB 2345? It kills two birds with one stone by increasing the amount of housing supply in the state, while lowering prices all around.

These housing projections show that lawmakers are looking ahead to the future and pushing back against not in my backyard (NIMBY) advocates, who have obstructed housing growth in favor of maintaining neighborhood character.

AB 2345 is hopefully just the beginning of a concentrated effort by California lawmakers to strike at the heart of the state’s housing issues.