Affordable Housing Law Alert: Revival of the Density Bonus Law – Affordable Housing to the Rescue?

Since the onset of COVID-19, the global landscape has been turned upside down, bringing to light various social issues that have long been plaguing various communities throughout the country. Social issues such as unemployment, financial instability, homelessness, and the lack of access to healthcare and affordable housing are just some of the issues that have been brought to the forefront in this current climate. In California, the far-reaching effects of COVID-19 have only exacerbated already existing challenges, especially in the affordable housing arena. Even before the onset of COVID-19, housing production in California already averaged less than 80,000 new homes annually over the past decade, which fell far below the projected need of approximately 180,000 additional new homes annually.^[1] Understanding that California’s housing crisis cannot be fixed overnight, state legislators are hopeful that the passage of Assembly Bill 2345 (the “Bill”) will spur the development of new homebuilding in California.

Introduced by Assemblymembers Lorena Gonzalez and David Chiu, the Bill made its way through both the Assembly and the Senate without much opposition and is currently sitting on Governor Gavin Newsom’s desk for signing as of the time of this writing. The Bill is not a new law, however. Rather, the Bill aims to build on an already existing law known as the Density Bonus Law by encouraging developers to build more affordable housing units in California through added incentives and waivers.

The Density Bonus Law was first enacted by the California legislature in 1979 to address the shortage of affordable housing in California. The idea behind it is straightforward – “when a developer agrees to construct a certain percentage of the units in a housing development for low or very low income households, or to construct a senior citizen housing development, the city or county must grant the developer one or more itemized concessions and a ‘density bonus,’ which allows the developer to increase the density of the development by a certain percentage above the maximum allowable limit under local zoning law.”^[2] By offering developers varying levels of density bonuses, incentives and/or concessions in exchange for building an affordable housing development, the goal of the Density Bonus Law is to incentivize and encourage developers to create much needed affordable housing units in California.

Since its enactment, however, the Density Bonus Law has failed to make a dent in California’s housing shortage crisis. Estimates provide that California is currently facing a 3.4 million-home shortage.^[3] Additionally, of California’s almost 6 million renter households, more than 3 million households pay more than 30% of their income toward rent, and approximately 30% of renter households pay more than 50% of their income toward rent.^[4]

The Bill, which is based in part on the city of San Diego’s successful implementation of certain enhancements and modifications to the then existing Density Bonus Law, aims to expand the Density Bonus Law by offering to developers more attractive density bonuses, incentives and/or concessions in exchange for building new affordable housing units. Since its implementation in 2016, the city of San Diego has seen a 350% increase in multifamily housing production compared to the annual average of the previous 12 years.^[5] By incorporating density bonuses, incentives and/or concessions found in San Diego’s version of the Density Bonus Law, the Bill aims to emulate the success found in San Diego and apply it on a state-wide basis. The Bill proposes to amend the Density Bonus Law in the following respects:

• The Bill proposes to reduce certain thresholds for obtaining concessions or incentives. Specifically, existing law provides that a developer will receive 2 incentives or concessions for projects that include at least 20% of the total units for lower income households. As amended, only 17% would need to be reserved for lower income households. Similarly, existing law provides that a developer will receive 3 incentives or concessions for projects that include at least 30% of the total units for lower income households. As amended, only 24% of units would need to be reserved for lower income households. Typical incentives or concessions include, without limitation, reduction in setback and square footage requirements, the reduction of the ratio of vehicular parking spaces that would otherwise be required, allowance of mixed-use zoning, and waivers of certain other development requirements or standards.

• Existing law provides that a housing development that receives a waiver from any maximum controls on density is not eligible for a waiver or reduction of development standards or requirements. As amended, a housing development that receives a waiver from any maximum controls on density would still be eligible for any specified waiver or reduction of development standards (as determined by the local city or county).

• The maximum density bonus that a developer could obtain under existing law is 35%. The Bill would allow for a maximum density bonus of up to 50%. As used in the Density Bonus Law, a “density bonus” means a density increase over limits allowable under existing zoning ordinances.

• The Bill proposes to reduce the maximum ratio of parking required for developments with 2 or 3 bedrooms from 2 parking spaces → 1.5 parking spaces. The reduction of the parking ratio translates to more room reserved to the developer for building actual units.

• A city or county that has adopted an ordinance or housing program that incentivizes the development of affordable housing and allows for density bonuses that exceed the density bonuses required by the Density Bonus Law effective through December 31, 2020, is not required to amend or otherwise update its ordinance to comply with the Bill. Basically, cities like San Diego which have more generous density bonuses would not be required to amend or update its ordinance to comply with the Bill.

Though it remains to be seen whether or not the Bill will resolve the housing shortage crisis in California in the long run, the passage of the Bill is likely to encourage developers to begin exploring the feasibility and economics of building affordable housing developments in California. The full text of the Bill and the Density Bonus Law can be found here.