California’s legislature has taken major action on the statewide low- and moderate-income — or affordable — housing shortage. On September 14, shortly before the close of the 2017 legislative session, a number of housing bills aimed at adding additional affordable housing passed.
This article outlines what real estate agents and brokers need to know about the new laws.
SB 2: Building Homes and Jobs Act
One of the most controversial bills to be passed, Senate Bill (SB) 2 mandates a recording fee of $75 for certain types of real estate transactions.
Beginning January 1, 2018, a $75 recording fee will be required for every transaction on each single parcel of real estate requiring a recording fee, in addition to any other local recording fee. This does not include the recording of any home sale connected to the residence of an owner-occupied residence. This does include other transactions related to owner-occupied residences, such as a mortgage refinancing. [Calif. Government Code §27388.1(a)(1); (2)]
The recording fees collected under this Act will be put into a fund to increase the affordable housing stock. [Calif. Gov C §27388.1(a)(3)]
The funds collected during 2018 will be distributed as follows:
- 50% of the funds collected will be made available to local governments to update planning and zoning to make housing production more efficient, including:
- reducing regulations around environmental analysis for individual projects; and
- developing sustainable community strategies;
- 50% of the funds will be available to assist California’s homeless population, through:
- rental assistance;
- construction of new homeless shelters; and
- construction of new transition shelters. [Calif. Health & Safety Code 50470(b)(1)]
Beginning January 1, 2019, funds will be distributed as follows:
- 70% of the funds will be available to local governments who pledge to use the funds to assist their homeless populations or those at risk of homelessness;
- 20% of the funds will be spent on affordable owner-occupied housing for workers; and
- 10% of the funds will be split equally among non-entitlement areas of the state, which are cities with fewer than 50,000 residents or counties with fewer than 200,000 residents. [Calif. H & S C 50470(b)(2)]
These new funds will collect about $200-$300 million in new recording fees each year.
SB 35: Streamline planning and zoning process
SB 35 also passed on September 14. This new law will require local governments across California to streamline their approval processes for new housing and to enhance planning for new development and housing.
Current law requires local cities and counties to prepare zoning and planning strategies, and to report these plans to the California legislature. SB 35 goes a step further.
Beginning in 2018, local governments will need to follow statewide standards when developing and reporting their zoning and general plan. These standards include:
- subjecting multi-family projects to streamlined approval;
- limiting parking requirements on streamlined developments; and
- removing the expiration date on approvals for streamlined affordable housing projects. [Calif. Government Code 65913.4]
SB 35 will also require local governments to provide their plan to the legislature, the Department of Planning and Research and the Department of Housing and Community Development by April 1 of each year. The report is to include:
- the plan’s status and progress;
- how the plan is working to remove government restrictions on needed maintenance, improvements and development of new housing;
- how the plan is complying with SB 35’s instructions to streamline and enhance new housing development;
- the number of new housing units completed according to income category; and
- the number of new housing applications and approvals. [Calif. Gov. Code 65400(a)]
When the legislature or departments decide a local government is not complying with these new laws, they may pursue sanctions on the local government through court. [Calif. Gov. Code §65400(b)]
SB 3: Veterans and Affordable Housing Bond Act of 2018
This new measure seeks to step into the shoes of the redevelopment agencies that were eliminated during the Great Recession.
SB 3 allows for the issuance of bonds totaling $4 billion to finance various housing programs in California. $3 billion of these bonds will go toward existing state finance programs, and $1 billion will go to provide additional financing for the CalVet home loan program.
SB 3 is a bond measure, which means it needs to be passed by a majority of California voters. California residents will get to vote on this measure on November 6, 2018.
A similar bond measure passed easily in 2008. Thus, expect this bond measure to go into effect in 2018.
SB 166: Residential density and affordability
This law tightens existing measures requiring local governments to ensure adequate housing is available to meet the demand from residents.
Each local government will need to assess its regional housing needs for each resident, based on an income assessment. The new law adds more restrictions on local governments seeking to re-zone for lower density. [Calif. Gov. Code §65863(a)]
This will ensure enough housing is available for each income segment, addressing the current shortage of affordable housing units across the state. It encourages re-zoning of areas for certain types of housing development.
SB 167: Anti-NIMBY action
SB 167, known as the Housing Accountability Act, makes it harder for a local government to disapprove of an affordable housing project.
Local governments may only disapprove of an affordable housing development, farmworker housing or emergency shelter when:
- the local government has an updated housing plan and, under this plan, housing need for all income types has been met;
- the development will have a specific adverse effect on public health and safety, which cannot be mitigated by revising the development’s plan;
- in order to comply with state or federal law, the development needs to be denied approval;
- the proposed development is on or surrounded on two sides by agricultural or preserved land;
- the water or waste facilities are inadequate to serve the development; or
- the development is inconsistent with the local government’s zoning ordinance and general plan prior to the date the application for approval was submitted (so the local government cannot change their zoning or plan in order to deny the project). [Calif. Gov. Code 65589.5(d)]
Housing developments for very low, low or moderate incomes may not be disapproved for any other reason. This essentially cuts off not in my backyard (NIMBY) advocates who prefer their neighborhoods remain low density.
SB 540: Workforce Housing Opportunity Zone
This new law aims to speed up the approval process for affordable housing.
The California Environmental Quality Act (CEQA) requires local agencies to follow numerous protocols to evaluate a project’s environmental impact before granting a permit.
The CEQA process can delay and cancel development projects, making it more costly, and risky, for builders to build. Further, NIMBY advocates are frequent abusers of CEQA to halt projects not to their liking.
This new law advances the CEQA review process by allowing local governments to establish Workforce Housing Opportunity Zones. Once these zones are in place, the government may conduct an advance environmental impact report review of the area. This will speed up the approval process by efficiently evaluating a large area upfront for later development.
The Workforce Housing Opportunity Zone will include 100-1,500 residential units, which cannot count for more than half of the area’s regional housing needs. [Calif. Gov. Code §65621]
AB 1505: Overturns inclusionary housing ruling
Under this new law, local governments may impose housing policies requiring certain percentages of developments to include housing for low- and moderate-income residents. This supersedes a 2009 ruling which caused confusion around local governments’ ability to mandate rents prior to tenancy. [Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009) 175 CA4th 1396]
AB 1505 gives the California Department of Housing and Community Development the authority to review development proposals that are required to include affordable housing for at least 15% of their units when:
- the local government has met less than 75% of its affordable housing goal; or
- the local government has not submitted the appropriate planning documents to the Department. [Calif. Gov. Code 65850.1(a)]
Other housing bills passed
The legislature also passed these other housing-related bills:
- AB 571, which adds a tax credit for farmworker housing;
- AB 1521, which places selling and tenant notification restrictions on owners of subsidized housing developments;
- AB 879, which calls for an examination of nongovernmental constraints on development;
- AB 1397, which changes how cities count existing units in their housing stock; and
- AB 73, which provides monetary incentives to local governments that increase their residential density.
Demand for rentals and low-tier homes for sale is high, but the large majority of homes available are in the high tier. These bills go a small way toward fixing the shortage of housing for low- and moderate-income individuals.
Residential construction has lagged far behind what is needed to keep up with California’s ever-growing population. Builders are simply not building enough housing to meet demand.
Builders will be willing to build more mid- and low-tier housing — when land is available.
Currently, the cost of land is so high in desirable areas that it only makes financial sense to build high-tier homes. Low-tier homes are relegated to far-flung suburbs, where the cost of land is cheaper. These areas are far away from jobs, amenities and public transportation. This lack of affordable housing in the right areas compounds the problem, making these low-density units even more desirable for lack of other available inventory.
These bills attack the problem from a few angles, including:
- encouraging, and sometimes requiring, local governments to re-zone for higher density;
- streamlining the construction approval process;
- loosening CEQA review regulations; and
- limiting NIMBYs from taking over local re-zoning efforts.
Coming years will see a steady increase in construction, especially of the multi-family type. This will be good for the housing market, as it will inject some stability to prices and balance the home inventory. It may not be as exciting as the rapid price increases seen in recent years, but real estate professionals’ income streams will be more predictable.