BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2556| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 2556 Author: Nazarian (D) Amended: 6/14/16 in Senate Vote: 21 SENATE TRANS. & HOUSING COMMITTEE: 11-0, 6/21/16 AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva, McGuire, Mendoza, Roth, Wieckowski SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 76-0, 5/19/16 (Consent) - See last page for vote SUBJECT: Density bonuses SOURCE: California Rural Legal Assistance Foundation Western Center on Law and Poverty DIGEST: This bill requires a jurisdiction, in cases where a proposed development is replacing existing affordable housing units, to adopt a rebuttable presumption regarding the number and type of affordable housing units necessary for density bonus eligibility. ANALYSIS: Existing law: 1)Defines "density bonus" as a density increase over the otherwise maximum allowable residential density as of the date of application by the applicant to the local government. AB 2556 Page 2 2)Requires all cities and counties to adopt an ordinance that specifies how they will implement state density bonus law. 3)Provides that the density bonus for low-, very low-, and moderate-income units increase incrementally according to a set formula. 4)Prohibits an applicant from receiving a density bonus or any other incentives or concessions, if a proposed housing development or condominium project is located on any property that includes a parcel on which dwelling units have, at any time in the five-year period preceding the application, been: a) Occupied by lower or very low-income households b) Subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income c) Subject to any other form of rent or price control through a public entity's valid exercise of police power 5)Provides that a developer may overcome the above prohibition if the proposed housing development would replace the existing affordable units with at least the same number and type of affordable units and either of the following applies: a) The proposed housing development, inclusive of the replacement units, contains affordable units at the percentages set forth in density bonus law b) Each unit in the development, exclusive of a manager's unit or units, is affordable to, and occupied by, either a lower or very low-income household 6)Defines "replace" to mean either: a) If any affordable housing units in the existing development are occupied on the date of application, the proposed housing development must provide at least the same number of units of equivalent size or housing type, or both, to be made available at affordable rent or affordable housing cost to, and occupied by, persons and families in the same or lower income category as those households in occupancy. AB 2556 Page 3 b) If all affordable housing units in the existing development have been faceted or demolished within the five-year period preceding the application, the proposed housing development must provide at least the same number of units of equivalent size or type, or both, as existed at the high point of those units in the five-year period preceding the application to be made available at affordable rent or affordable housing cost to, and occupied by, persons and families in the same or lower income category as those persons and families in occupancy at the time, if known. This bill: 1)Requires, if the income of the household that occupies the unit is not known, it to be rebuttably presumed that lower income renter households occupied the units in the same proportion of lower income renter households to all households within the census tract, in which the development is located, as determined by the last decennial census. 2)Requires, in cases where all dwelling units have been vacated or demolished within the five-year period preceding the density bonus application and the incomes of the persons and families in occupancy at the high point of the affordable units is not known, that it be rebuttably presumed that low-income and very low-income renter households occupied these units in the same proportion of low-income and very low-income renter households to all renter households within the jurisdiction, as determined by the most recently available data from the U.S. Department of Housing and Urban Development's (HUD) Comprehensive Housing Affordability Strategy database. 3)Allows a city or county, in cases where a proposed development is replacing existing affordable units, for any dwelling unit that is or was subject to a form of rent or price control through a local government's valid exercise of police power and that is or was occupied by persons of families above lower income, to do either of the following: a) Require that the replacement units be made available at AB 2556 Page 4 affordable rent or affordable housing cost, and occupied by low-income persons or families. If the replacement units will be rental dwelling units, these units shall be subject to a recorded affordability restriction for at least 55 years. Requires, if the proposed development is for-sale units, the units replaced shall be subject to existing law. b) Require that units be replaced in compliance with the jurisdiction's rent- or price-control ordinance, provided that each existing affordable rental unit that was vacated or demolished in the five years leading to the application, is replaced. Comments 1)Purpose. According to the author, the City of Los Angeles found that there is a need to clarify language in AB 2222 (Nazarian, Chapter 82, Statutes of 2014), which amended density bonus law to require that a developer building a density bonus project replace all existing affordable rental units on the project site, as well as any affordable rental units that were vacated or demolished on the site in the past five years. The bill required the replacement of deed-restricted affordable units, units occupied by low-income households, and rent-controlled units to ensure that a law designed to increase the supply of affordable housing was not resulting in a net loss of affordable units. AB 2556 maintains the intent of AB 2222 in requiring developers to replace affordable units while providing greater clarity for developers and local governments in meeting replacement requirements. It also recognizes that adequate affordable housing is an issue of statewide concern and preserves and promotes the supply of affordable units for years to come. 2)Density bonus law. Given California's high land and construction costs for housing, it is extremely difficult for the private market to provide housing units that are affordable to low- and even moderate-income households. Public subsidy is often required to fill the financial gap on affordable units. Density bonus law allows public entities to reduce or even eliminate subsidies for a particular project by allowing a developer to include more total units in a project than would otherwise be allowed by the local zoning in AB 2556 Page 5 exchange for affordable units. Allowing more total units permits the developer to spread the cost of the affordable units more thinly over the market-rate units. The idea of density bonus law is to cover at least some of the financing gap of affordable housing with regulatory incentives rather than additional subsidy. Under existing law, if a developer proposes to construct a housing development with a specified percentage of affordable units, the city or county must provide all of the following benefits: a density bonus, incentives, or concessions (hereafter referred to as incentives); waiver of any development standards that prevent the developer from utilizing the density bonus or incentives; and reduced parking standards. To qualify for the benefits of this provision, a proposed housing development must meet one of the following criteria: a) Include at least 5% of the units affordable to very low-income households b) Include at least 10% of the units affordable to low-income households c) Include at least 10% of the units in a for-sale Common Interest Development affordable to moderate-income households d) Be a senior housing development Units affordable to lower income households must remain affordable for 55 years, and for-sale units affordable to moderate-income households must be subject to an equity-sharing agreement that returns a proportionate share of appreciation to the local governments upon resale of the home. If one of these four options is met, a developer is entitled to a base increase in density for the project as a whole (referred to as a density bonus) and one regulatory incentive. At higher levels of affordability, the developer is entitled to a sliding scale of density bonuses, up to a maximum of 35% of the maximum zoning density and up to three incentives. While a local government is not required to provide financial assistance or fee waivers, a local government must grant AB 2556 Page 6 certain incentives. A local government may not apply development standards that preclude the density bonus or incentives from being used unless waiving such standards will have a significant, adverse impact upon public health, public safety, or the environment. 1)Clarifying prior legislation. AB 2222 encouraged the preservation of existing units by prohibiting an applicant from receiving a density bonus, incentive, or concession if a proposed housing development or condominium project is located on property where dwelling units have, at any time in the five-year period preceding the application, been occupied by very low- or lower income households or subject to rent control. An applicant may overcome this prohibition by at least replacing all of the existing affordable units with units of equivalent affordability, size, and/or type. In implementing the provisions of AB 2222, cities, housing advocates, and developers have discovered several places where the law needs clarification. AB 2222 did not address how to determine the number of units that have to be replaced when resident income information is not known. This bill provides a method for making this determination, basing it on data from U.S. HUD's Comprehensive Housing Affordability Strategy database.. Additionally, AB 2222 did not provide guidance on what the rent level for the replacement unit should be in cases where the current occupant of the rent-controlled unit is not lower income, for example due to wage increases. This bill allows cities to require that these units be replaced either with a deed-restricted unit affordable to low-income families or with another rent-controlled unit. Although a jurisdiction cannot mandate that rent control apply to new developments, in this case, developers may voluntarily choose to comply and offer rent-controlled units if they are seeking a density bonus for their project. For developers, one benefit of rent-controlled units relative to affordable units is that the former generally include an escalator for rent increases. FISCAL EFFECT: Appropriation: No Fiscal AB 2556 Page 7 Com.:YesLocal: Yes SUPPORT: (Verified8/1/16) California Rural Legal Assistance Foundation (co-source) Western Center on Law and Poverty (co-source) American Planning Association, California Chapter OPPOSITION: (Verified8/1/16) None received ASSEMBLY FLOOR: 76-0, 5/19/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Wood, Rendon NO VOTE RECORDED: Chang, Mathis, McCarty, Williams Prepared by:Alison Dinmore / T. & H. / (916) 651-4121 8/3/16 18:40:31 **** END **** AB 2556 Page 8