Construction & Real Estate

Authors: Tay C. Via, Megan A. Jennings, Stephanie Straka, Craig Spencer

UPDATE: As of September 30, 2024, Governor Newsom signed all but one of the bills we wrote about in our original post of September 16, 2024. We have updated that post to identify the bills that have been signed into law and to reflect the veto of AB 3068.

During the 2024 California Legislative Session, which closed on August 31, the State Legislature again passed many bills seeking to ease the state’s housing crisis. This post focuses on key housing-related bills that are, at the time of this publication, awaiting the Governor’s signature. He has until September 30 to either sign or veto the bills on his desk. This summary addresses legislation in the following categories: Housing Accountability Act compliance, entitlement streamlining and extensions, development impact fees, infrastructure finance, and Housing Element compliance.

Housing Accountability Act Compliance

AB 1893 (Wicks) [Modernizing the Builder’s Remedy] – SIGNED

The so-called builder’s remedy has sometimes been referred to by supporters as a “zoning holiday” for developers or, by opponents, as a “nuclear option” to avoid compliance with land use controls. It refers to a provision of the Housing Accountability Act (HAA) that generally prohibits a local government from denying a housing project that meets certain affordability standards if the jurisdiction has not adopted a Housing Element that substantially complies with law, even if the project is not consistent with the general plan or zoning. While it has been part of the HAA for decades, the builder’s remedy has gained recent attention as local governments throughout the state have tried, and in many cases struggled, to adopt 6th Cycle Housing Elements that pass muster with the state Department of Housing and Community Development (HCD).

AB 1893 is intended, according to its author, to “moderniz[e] the builder’s remedy to make it clear, objective, and easily usable.” It does this primarily by:

• Specifying that a local government can impose objective, quantifiable, written development standards and policies on a project only to the extent that they would have applied to the project if it had been proposed on a site with general plan and zoning designations that would allow the project at its proposed density (or if no such designation exists, the applicant may identify any other standards that “facilitate” the project), and that would not render the project infeasible or preclude it from being constructed as proposed.
• Clarifying that the builder’s remedy is available if the local jurisdiction does not have a substantially compliant Housing Element on the date the development application is deemed complete.
• Updating the thresholds of affordability that qualify a project for the builder’s remedy (shown in the table below), and making more mixed-use developments eligible.
• Expanding the types of actions that constitute “disapproval” of a housing development project, to include final administrative actions and pursuing a “course of conduct undertaken for an improper purpose … that effectively disapproves” the project.

Minimum Percentage of Units Required to Qualify for Builder’s Remedy, by Income Level

*Mixed-income housing developments may be required to dedicate more units, or at a deeper level of affordability, to comply with a local agency’s affordable housing requirement that was in effect as of January 1, 2024. However, the local agency may not require more than 20% of the units to be affordable, may not require dedication of those units at a level of affordability below lower income, and must make written findings that compliance with local requirements will not make the project infeasible.

Entitlement Streamlining and Extensions

AB 2243 (Wicks) [Affordable Housing and High Road Jobs Act of 2022 (AB 2011) – Clarification and Expansion] – SIGNED

The Affordable Housing and High Road Jobs Act (AB 2011, or the Act), also authored by Assemblymember Wicks, went into effect on July 1, 2023. AB 2011 provides for streamlined ministerial approval of qualifying affordable housing projects, and mixed-income projects located along commercial corridors, on land zoned for office, retail, and/or parking uses. AB 2243 is intended to clarify some of the Act’s provisions as follows.

Applicability and Requirements:

• AB 2243 amends the definition of a “use by right” to clarify that a project meeting the provisions of the Act is ministerial and streamlined, regardless of whether a local government’s zoning ordinance would otherwise require a project to obtain discretionary approvals or permits, such as a conditional use permit, or any review under CEQA.
• The Act does not apply to a housing development if it is located on a site or adjacent to a site where more than one third of the square footage is “dedicated to industrial use,” which includes vacant sites if the most recent use of the square footage was industrial. AB 2243 clarifies that the most recent use must have been within the last three years, and that a site designated as industrial in a pre-2022 general plan must prohibit residential uses for that site to be “dedicated to industrial use.”
• The Act requires qualifying projects to meet specified affordability criteria. AB 2243 clarifies that the affordability requirements apply only to the base units of the housing development project and not to units added by a density bonus and that a request for waivers or incentives pursuant to the State Density Bonus Law does not subject a qualifying project to discretionary review or to CEQA.
• The Act prohibits a housing development from being subject to the Act’s streamlined, ministerial approval process if it is located within 500 feet of a freeway. AB 2243 loosens this restriction by allowing such developments to be subject to the Act’s review process if the building meets specified criteria, including that it will have a centralized heating, ventilation, and air conditioning system.
• The Act also limits a mixed-income housing development subject to the streamlined, ministerial review process to sites of 20 acres or less, or 100 acres or less for regional mall sites.

Processing and Approval Timeframes:

• AB 2243 specifies that when a development proposal is resubmitted to address inconsistencies identified by the local agency, the local government must provide any additional feedback in writing within 30 days and it may not require the applicant to provide any new information that was not included in the initial list of items that were determined to be in conflict. Once a development proposal is determined to be consistent with the Act’s standards, a local government must approve the proposed development within 60 days for projects consisting of 150 units or fewer, or within 90 days for projects with more than 150 units.

AB 2729 (Patterson) [Extending Residential Development Entitlements by 18 Months] – SIGNED

AB 2729 addresses the concerns of many developers across the state that entitlements for housing projects will expire during a period of high interest rates and construction costs. It extends by 18 months the timeframe for a “housing entitlement” for a “residential development project” that was in effect on January 1, 2024 and that will expire before December 31, 2025. The 18-month extension is tolled during a legal challenge to a housing entitlement.

“Housing entitlements” include legislative, adjudicative, administrative approvals or permits for a housing development project, ministerial approvals or permits for a housing development project, and tentative maps, vesting tentative maps, and parcel maps, and do not include a development agreement, an approved or conditionally approved tentative map that has already been extended, or a preliminary application. A “housing development project” is a residential or mixed-use development in which at least two-thirds of the square footage of the development is designated for residential use.

AB 3068 (Haney, Quirk-Silva) [Office to Housing Conversion Act: Streamlining and Incentives for Adaptive Reuse Projects] – VETOED

Recognizing a potential opportunity provided by the rise in office vacancies, the Office to Housing Conversion Act creates a streamlined, ministerial approval process for adaptive reuse projects that would convert existing office buildings to housing and provides certain financial incentives.

Projects meeting the requirements of the bill are considered “by right” in all zones, regardless of the zoning of the site, and are subject to a streamlined, ministerial review process provided that any non-residential uses included in the project comply with local zoning.

To qualify, a project must:

• Be located on an infill site;
• Convert an existing building that either:
  
  • Is less than 50 years old;
  • Is 50 years old or more but has been determined not to be a historic resource; or
  • Is a historic resource but would comply with the Secretary of Interior’s Standards for the Treatment of a Historic Resource.
• Comply with specified affordability requirements, generally that the project provide:
  
  • For rental projects: at least 8% of the units for very low-income households and 5% of the units for extremely low-income households, or 15% for lower-income households; or
  • For ownership projects: at least 30% of the units for moderate-income households, or 15% for lower-income households.
• Comply with prevailing wage requirements for construction; and
• Provide at least 50% of the square footage as residential.

AB 3068 requires a city or county to approve an adaptive reuse project if the local planning director determines that the project is consistent with the bill’s objective standards. If the planning director determines that the project conflicts with any of the objective planning standards, they must provide the applicant with a written explanation of the reason(s) for the conflict. The local agency’s review must be completed—and the project must be approved, if it is consistent with objective standards—within specified timeframes, depending on project size.

To alleviate some of the costs associated with adaptive reuse projects, AB 3068 exempts an adaptive reuse project from all impact fees that are not reasonably related to the impacts resulting from the change of use of the site from nonresidential to residential or mixed use.

Development Impact Fees

SB 937 (Wiener) [Timing of Impact Fees for Residential Projects] – SIGNED

SB 937 reduces front loading of certain impact and mitigation fee costs for qualifying projects. For “designated residential development projects”—defined as either 100% affordable, subject to AB 2011, SB 35, SB 4, or State Density Bonus Law, or with 10 or fewer units—SB 937 would prohibit a local agency from imposing fees or charges for the construction of public improvements or facilities until the first Certificate of Occupancy (C of O), including a Temporary C of O, is issued. This prohibition excludes certain utility service fees related to connections, and does not apply if construction of the residential development does not begin within five years of building permit issuance.

The local agency can still require the payment of fees or charges at an earlier time if either of the following conditions is met:

• The fees or charges are to reimburse the local agency for expenditures previously made; or
• The local agency determines both of the following:
  
  • The fees or charges will be collected for public improvements related to providing water service, sewer or wastewater service, fire, public safety, emergency services, roads, sidewalks, construction and rehabilitation of school facilities, or other public improvements related to services to the residential development; and
  • An account has been established and funds appropriated for the public improvements or facilities.

SB 937 also restricts local agencies from charging interest or other fees on any deferred fees, which developers have cited as an additional impediment to making projects pencil. For developments with more than one dwelling, the local agency can decide whether fees should be paid on a pro rata basis (for each unit upon receipt of a C of O or when a certain percentage of units have received a C of O) or a lump-sum basis (when all units receive a C of O).

AB 1820 (Schiavo) [Increasing Fee Transparency] – SIGNED

AB 1820 attempts to provide more transparency regarding development fees, to allow developers to create more accurate budgets. While existing state law requires development fees to be posted online, many local agencies have not complied. In addition, many local agencies don’t disclose fees until projects are already under construction—which sometimes means developers take on huge financial risk when local agencies impose large, unexpected fees late in the development process. Further, even where fee schedules are disclosed, there is often ambiguity in how to calculate a particular fee as applied to a project.

AB 1820 will require cities, counties, and cities and counties, to provide an estimate of the impact fees housing developers will be required to pay within 30 business days of an SB 330 preliminary application, at a developer’s request. Cities, counties, and cities and counties, in addition to third-party agencies like school districts or special districts, are also required to provide a final impact fee estimate within 30 business days of housing development approval. By increasing the transparency of development fees, the bill is intended to allow developers to better understand their total costs before beginning construction.

AB 2553 (Friedman) [Enhancing the Scope of and Benefits for Transit-Adjacent Housing Development] – SIGNED

The authors of AB 2553 believe that there are too few locations that meet the current definition of “major transit stop” for purposes of impact fee collection and CEQA. This bill would revise that definition to expand the frequency of major bus route service intervals, to 20 minutes from 15 minutes or less, during the morning and afternoon peak commute periods. This change helps to counteract the reduction in transit ridership and reduced service frequencies resulting from the COVID-19 pandemic, and would allow more housing projects to qualify for lower traffic mitigation fees. AB 2553 also allows a major transit stop to be completed before or within one year from the scheduled completion and occupancy of the housing development. (Under existing law, a station must have been completed before the scheduled completion and occupancy of the housing development.) This bill would also allow more housing projects to qualify for CEQA exemptions available for infill sites and transit priority projects within one-half mile of a major transit stop.

Notably, AB 2553 would also extend the area within which AB 2097 applies. That law generally prohibits a local agency from imposing minimum parking requirements on any residential, commercial, or other development project located within half a mile of a “major transit stop.” The expanded service interval frequency would provide parking flexibility to more development projects near public transit.

Infrastructure Finance

AB 2488 (Ting) [San Francisco Downtown Revitalization and Economic Recovery Financing Districts] – SIGNED

Together with AB 3068, AB 2488 incentivizes conversion of qualifying downtown San Francisco commercial buildings to residential use. Until their dissolution in 2012, redevelopment agencies used tax increment financing (TIF) to finance infrastructure and other improvements, and the Legislature subsequently authorized several new local TIF tools to facilitate economic development.

To address the aftermath of the COVID-19 pandemic and associated extremely high commercial vacancy rates, and to reduce the impacts of the housing crisis, AB 2488 allows the City and County of San Francisco to create a new Downtown Revitalization and Economic Recovery Financing District (district) to finance commercial to residential conversion (reuse or replacement) projects with TIF. Unlike most other TIF tools, AB 2488 authorizes the use of TIF funds to finance residential development that is market rate or includes a relatively low percentage of affordable units. The Senate Committee on Housing report states that tax increment captured under AB 2488 will subsidize construction of projects that are at least 90% market rate units for as many as 30 years.

Key provisions of AB 2488 include:

• The San Francisco Board of Supervisors (Board) may form a district by resolution, and concurrently must create a district board consisting of three members of the Board, two members of the public chosen by the Board, plus an optional Board alternate.
• The district may use net available property tax increment (excluding tax increment that is allocated to other taxing entities) generated by qualifying, opt-in commercial-to-residential conversion projects to finance such projects. Projects must be of communitywide significance and provide significant benefits to the district or San Francisco.
• The district must also create and approve a financing plan, including specified information and requirements. Projects may opt in through December 21, 2032, and will be assigned a base assessed value by the district using the last assessment roll equalized prior to issuance of the first building permit for the project. The financing plan must also provide guidance on calculation of tax revenue to be distributed within the district.
• Eligible projects are considered public works for which prevailing wages must be paid, and are required to comply with labor standards adopted by the Board.
• The first 1.5 million square feet of qualifying projects are exempt from affordability requirements. Thereafter, projects must comply with one of the following affordability requirements (or the corresponding local inclusionary requirement, if higher): at least 5% of total rental units are affordable to very low-income households, at least 10% of the total units are affordable to lower-income households, or at least 10% of total units for sale are affordable to moderate-income households.

Housing Element Compliance

AB 2023 (Quirk-Silva, Alvarez) [Housing Element Compliance] – SIGNED

Consistent with trends in recent legislative sessions, AB 2023 is intended to give more teeth to the state’s Housing Element Law and HCD’s ability to enforce it. Generally, the Housing Element Law requires each local government to adopt a Housing Element every eight years that includes, among other things, an inventory of sites that are zoned, or will be rezoned, with adequate capacity to accommodate the local government’s share of the regional need for new housing, as determined by HCD.

Under existing law, once HCD has certified a Housing Element as substantially compliant with state law, there is a rebuttable presumption of validity if that Housing Element or actions related to it are challenged in court. AB 2023 creates a rebuttable presumption of invalidity for Housing Elements deemed noncompliant by HCD, raising the standard for jurisdictions to dispute or dismiss HCD’s determination of noncompliance.

In addition, AB 2023 imposes stricter deadlines on local governments for Housing Element submittal. Previously, a jurisdiction that completed and adopted its Housing Element within the statutory deadlines had three years from the earlier of (i) the date the Housing Element was adopted, or (ii) the date that was 90 days after receipt of comments from HCD, to complete any required rezoning to implement the Housing Element. Jurisdictions that failed to meet the deadlines had to complete the required rezoning no later than one year after the statutory deadline to adopt the Housing Element. To avoid the tighter one-year timeline for rezoning, some local governments rushed to adopt draft Housing Elements just before the statutory deadlines—before HCD has provided written findings on those drafts—with the hope that HCD would deem the drafts compliant after the fact.

To address this issue, AB 2023 now places all jurisdictions in a one-year rezoning cycle unless they meet certain benchmarks to qualify for a three-year rezoning cycle. These new benchmarks require a jurisdiction to (i) submit a draft element to HCD at least 90 days before the statutory deadline for adoption, (ii) receive written findings from HCD by the statutory deadline that the draft substantially complies with state law, and (iii) adopt the Housing Element no later than 120 days after the statutory deadline.

AB 1886 (Alvarez) [Defining When a Housing Element is in Substantial Compliance] – SIGNED

AB 1886 intends to stop local agencies from attempting to self-certify Housing Element compliance. The bill codifies a regulatory interpretation HCD issued on March 16, 2023, which stated: “where a jurisdiction submits an ‘adopted’ housing element before submitting an initial draft or before considering HCD’s findings on an initial draft, HCD will consider the ‘adopted’ to be an initial draft for purposes of both HCD’s review and the jurisdiction’s statutory compliance.” HCD took the position that “a jurisdiction is ‘in compliance’ as of the date of HCD’s letter finding the adopted element in substantial compliance.”

Accordingly, AB 1886 provides that Housing Element substantial compliance does not occur until a local agency has adopted a Housing Element and either HCD or a court determines that the adopted Housing Element substantially complies with state law. Some local governments have argued that self-certification of a Housing Element, without HCD’s determination, protects them from builder’s remedy projects, which developers can pursue when the jurisdiction lacks a compliant Housing Element. This bill eliminates those arguments.

The Coblentz Real Estate Team has extensive experience with the state’s latest housing laws and can help to navigate the laws’ complexities and opportunities. Please contact us for additional information and any questions related to the impact of these pending bills on land use and real estate development.