Zoning news in from the Office of the California Attorney General (OAG).

Senate Bill 10 (SB 10) was recently declared constitutional, according to the California OAG.

SB 10 allows cities and local governments to rezone in areas with an abundance of transit, job-rich areas, or urban infill sites — vacant or unused parcels located within highly developed areas. The bill allows up to ten residential units to be built on each parcel.

However, groups which oppose the bill argue allocating authority to rezone directly to local governments diminishes the programs already created by local initiatives — and it also takes power away from public votes.

The Attorney General’s defense hinges on California’s desperate and constant need for more housing. In fact, since the housing shortage is causing harm to residents throughout the state rather than merely at a municipal level, the state may enact legislation to address the statewide issue.

The California Supreme Court declared SB 10 constitutional, allowing the law to stand. However, the court notes there is nothing to stop opposing groups from challenging local government action to rezone when it occurs. Meanwhile, the opposing groups are appealing the decision. [AIDS Healthcare Foundation and Redondo Beach v. Rob Bonta and State of California (2022)]

Construction starts key for extreme housing shortage

The new law is major in terms of zoning regulations and dense residential housing.

Each city and county in California is required to develop a general plan that outlines the community’s vision of future development. Under SB 10, local governments may meet these plans by adjusting zoning for new developments of up to 10 units per parcel — making it easier for builders to receive permission to build near transit-rich areas.

Inventory has been a major sore spot for California. There is a housing shortage of 3.5 million homes, and the state is in need of 1.8 million homes by 2025, according to the California Department of Housing and Community Development (CDHCD).

Inventory has increased slightly from the historic lows experienced in 2021, but we are still well below what is needed to match demand. Expect inventory to climb slightly heading into 2023, the result of rising interest rates and slowing sales volume, but there is a long ways to go to catch up to the level of housing necessary to meet demand.

The inventory shortage is causing hardship on households, especially in big cities like Los Angeles where there is little room for construction. Denser building is vital to meet demand. For example, Q1 2022 saw California’s rental vacancy rate decrease to 3.8%, down from 4.8% a year prior, according to the U.S. Census Bureau. For reference, a healthy vacancy rate is closer to 5.5%.

Curbing low supply and high prices is not easy, but allowing less restrictive zoning and denser building is the uppercut needed to increase the supply, and bandage up the imbalance.

California has a big construction goal to meet with the CDHCD’s targeted 1.8 million additional housing units by 2025. But SB 10 makes it easier for local governments to zone, especially for infill development and higher-density construction. SB 10 and other bills like it are integral to continuing on the path of making zoning regulations less restrictive.

The way to curb lower supply is through bills like SB 10 which make zoning regulations less restrictive, and therefore much easier to actually spur construction starts.

Stay up to date on changes in zoning laws and watch for new legislation relevant to your real estate practice at firsttuesday’s Legislative Gossip page.