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New Addition to the State Density Bonus Law Extends Incentives to Commercial Developers

Throughout 2016, housing advocates, developers, and local municipalities closely monitored the progress and eventual demise of Jerry Brown’s ambitious proposal to streamline the local approval process for residential projects. The Governor’s proposal would have set aside $400 million for housing projects in exchange for providing “by right” ministerial approval for housing developments that comply with local zoning and development requirements. The by right proposal would have kept in place the power of local municipalities to make long-term decisions on where housing should be zoned and what density and height restrictions are placed upon them.

Nonetheless, labor unions, environmental groups, and the California League of Cities formed an alliance to oppose the proposal as an effort to take away local control and bypass the California Environmental Quality Act.  Although significant public support exists for simplifying the local approval process for housing developments, and despite the $400 million incentive, the bill stalled in the legislature.

Yet the Governor’s by-right proposal was not the only bill seeking to promote affordable housing making its way through the legislature last year.

In fact, in the shadow of this by-right debate, the Governor signed into law a substantial addition to California’s Density Bonus Law aimed at incenting commercial developers to partner with affordable housing developers. AB 1934, codified as section 65915.7 of the Government Code, provides a “development bonus” to commercial projects if the developer agrees to contribute to affordable housing, either by directly building the units, donating land for its development, or making cash payments to an affordable housing developer for a separate project within the same municipality. The “development  bonus” granted to the commercial developer could include, among other things, a 20 percent increase in the maximum floor area ratio, a 20 percent increase in the maximum height requirements, a 20 percent reduction in the minimum parking requirements, or an exception to a zoning ordinance or land use regulation.

The new section is largely modeled after the residential components of the state Density Bonus Law codified in section 65915, which provides significant rewards and incentives for housing developers who commit to the inclusion of affordable housing in their housing projects. If developers include a threshold number of very low-, low-, or moderate-income housing in their development, then developers are entitled to a substantial increase in the maximum number of units provided by the allowable gross residential density of the site. This “density bonus” ranges from a 20 percent to a 35 percent increase depending on the percentage and income level of below-market-rate units proposed.

Housing projects that trigger the Density Bonus Law are further entitled to up to three regulatory “concessions and incentives” and as many development standard “waivers” as are needed to make the development financially feasible.  Once a development proposes the minimum required amount of affordable housing, then the local municipality has no grounds to deny the request for the density bonus, concessions and waivers.

It remains to be seen whether the rewards offered by the new commercial development bonus provisions of section 65915.7 will be substantial enough to sway commercial developers. A significant hurdle may be the uncertainty built into the statute. While the new provision offers examples of possible incentives, the list included is not exhaustive. Further, section 65915.7 requires the local jurisdiction and the developer to “mutually agree” to the incentive thus leaving significant doubt as to what “development bonus” the commercial developer could actually receive.

Additionally, the statute is ambiguous as to whether the partnered housing project must contain a minimum number of affordable units. Instead, section 65915.7 simply requires the developer to “partner with a housing developer that provides at least 30 percent of the total units for low-income households or at least 15 percent of the total units for very low-income households.”

Nonetheless, municipalities should be prepared for novel commercial and housing partnership proposals as developers look to take advantage of this development bonus. Affordable housing developers may be particularly eager to enter into these agreements, should they find willing commercial developers, as the new provision explicitly allows housing developers who receive assistance from commercial developers to also seek a density bonus under section 65915. As the legislature continues to pursue aggressive housing proposals in 2017, developers and cities should pause to consider the significant changes that in fact were enacted in 2016.