Low-income housing legislation gets the lion’s share of media attention — and rightly so — but what of America’s shrinking middle class? Amid a flurry of housing bills passed in California’s 2019-2020 legislative session, AB 725 stands out for real estate professionals serving moderate income clients.

On September 28, 2020 California lawmakers passed AB 725, a planning and zoning law aimed at producing housing units suitable for the “missing middle” households that earn too much to qualify for subsidized housing and too little to afford high-income properties. The plan is to require California cities to plan for more moderate-density housing like duplexes, fourplexes and townhomes in high-cost coastal areas.

More specifically, metropolitan and suburban cities in California need to allocate at least one-fourth of their state-mandated Regional Housing Needs Allocation (RHNA) for moderate income housing parcels zoned for at least 4 units. The requirement is capped at 100 units per acre and applies to housing units due beginning January 1, 2022.

It also requires local governments to allocate one-fourth of their RHNA to above-moderate income housing, also zoned for at least 4 units, due beginning January 1, 2022.

AB 725 defines land suitable for residential development as:

  • vacant sites zones for residential use;
  • vacant site zoned for nonresidential use that allows residential development;
  • residentially zoned sites that are capable of being developed at a higher density, including sites owned or leased by a city or county; and
  • sites zoned for nonresidential use that can be redeveloped for residential use and rezoned for as necessary to permit residential use (including sites owned or leased by a city, county or both).

What does this mean for my service area?

Prepare for another housing tug-of-war with this bill. California cities bristle at every perceived relinquishment of power to Sacramento, and this state-mandated local housing program is no exception.

This requirement for multi-family homes is already seeing pushback from not-in-my-backyard (NIMBY) advocates as cities prepare to satisfy this 25% allotment. Any promise of added density looms large over existing homeowners.

As part of California’s ongoing mission to increase multi-family housing, homeowners and real estate professionals alike need to familiarize themselves with their city’s building plans to see how their neighborhood or service area will be affected by this measure.

What are the risks?

The bill does not guarantee or require affordable housing, it merely addresses an abundance of housing without considering the root of income disparity. Developers are more likely to set a price which may not actually meet the appropriate income benchmarks for each individual city and further estrange middle income Californians from homeownership.

It will be on California cities to plan accordingly. Rapid development of poorly occupied or underdeveloped areas risks pricing out lower-income residents. The urbanization process may cause more congestion in already underserved areas.

In addition, AB 725 fails to address the need for infrastructure as a consequence of increased density, like local transit and traffic systems.

California is neck-deep into a financial deficit due to COVID restrictions and the 2020 recession, but the bill does not provide financial resources to cities for building to address their individual middle-income housing shortages. This bill could easily result in chasing out the very people it was meant to aid and exacerbate the housing crisis.

Even so, the measure has arrived too late for many residents, as record numbers of Californians left the state in 2020.

How can real estate professionals get involved?

As gatekeepers to the Golden State, real estate professionals are in a unique position to grasp the nuances of today’s housing crisis. Your local government’s development plans require your scrutiny; attend city housing measures and ordinances and be a vigilant participant in your community and local city government.

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