California Issues Initial Implementation Guidance on 2017 Housing Laws

HIGHLIGHTS:

• One of the most notable laws in California's package of housing laws passed by the State Legislature and signed by Gov. Jerry Brown in 2017 is SB 35, which requires most local governments to issue housing developers streamlined approvals in 90-180 days for projects that comply with a number of qualifying criteria.
• Significantly, SB 35 projects are statutorily exempt from the need for environmental review under the California Environmental Quality Act (CEQA).
• The California Department of Housing and Community Development (HCD) recently issued an initial set of guidance documents on the 2017 housing laws, including HCD's official determinations about which local jurisdictions are subject to SB 35 streamlining and what percentage of affordable housing a project must include to qualify, based on each jurisdiction's progress toward meeting its Regional Housing Needs Assessment (RHNA) goal.

In the 2017 legislative session, Gov. Jerry Brown signed into law a package of 15 housing laws in response to California's ongoing housing crisis. (See Holland & Knight's "A Closer Look at California's New Housing Production Laws," Dec. 6, 2017, and "California Governor Signs into Law Major Reforms to Housing Accountability Act," Sept. 29, 2017.)

One of the most notable laws in this legislative package is SB 35 (Chapter 366, Statutes of 2017; Sen. Scott Wiener). It requires most local governments to issue housing developers streamlined approvals in 90-180 days if a project 1) complies with the jurisdiction's objective planning standards applicable to the project site and in effect at the time the project application is filed, 2) pays construction workers prevailing wages, 3) includes a minimum of 10 percent (or any higher applicable local ordinance percentage) of deed-restricted, low-income affordable units if a city has failed to meet its market-rate housing Regional Housing Needs Assessment (RHNA) obligations, or a minimum of 50 percent affordable units if a jurisdiction has met its market-rate obligations but not its affordable housing RHNA production obligations, and 4) meets SB 35's other qualifying criteria, which generally focus on multifamily housing production on "infill" locations within developed areas of existing communities.

Significantly, by virtue of SB 35's "by right" (also called "ministerial") approval process, SB 35 projects are statutorily exempt from the need for environmental review – and cannot be challenged in lawsuits – under the California Environmental Quality Act (CEQA). Because such projects are required to comply with objective zoning and related local requirements which already triggered CEQA compliance obligations, SB 35 avoids the need for a second round of CEQA processing and litigation risks for projects that comply with these previously approved requirements.

Highlights of HCD Guidance

The California Department of Housing and Community Development (HCD) has now issued an initial set of guidance documents on the 2017 housing laws. Highlights of these guidance documents are HCD's official determinations about which local jurisdictions are subject to SB 35 streamlining and what percentage of affordable housing a project must include to qualify, based on each jurisdiction's progress toward meeting its RHNA goal:

• All but 13 jurisdictions in California are subject to some form of SB 35 streamlining
• In 378 jurisdictions, projects that provide at least 10 percent affordable units are entitled to streamlined approval, provided the projects meet SB 35's other qualifying criteria
• In 148 jurisdictions, projects that provide at least 50 percent affordable units are entitled to streamlined approval, provided the projects meet SB 35's other qualifying criteria

The complete list of jurisdictions now subject to SB 35's streamlined approval mandates was revealed, and HCD has prepared a map that show each jurisdiction's status in various areas of California. For the processing benefits mentioned above, we encourage project applicants to utilize the recently released RHNA target evaluations to consider eligibility for streamlined permitting under SB 35.

Other highlights of HCD's guidance documents include the following:

• HCD's "Frequently Asked Questions" confirms that local jurisdictions cannot require a Conditional Use Permit for qualifying SB 35 projects, even if the local jurisdiction's laws and ordinances would otherwise require one.
• HCD has prepared a list of projected milestones in the development of the 2017 housing laws, including a projection that planning grants and homelessness grants funded by SB 2 will become available in Spring 2019 and Fall 2019, respectively. HCD will develop official guidelines to implement numerous laws in the 2017 housing package, including additional guidance on SB 35 as well as SB 2 (Building Homes and Jobs Act funding), SB 540 (Workforce Opportunity Zone streamlining), AB 73 (Housing Sustainability District streamlining) and AB 879 (Housing Production Reporting, Development Constraints Analysis and Local Fees Study). The guidelines will play an important role in the implementation of these laws. The laws are, however, already in effect while the guidelines are under development.
• HCD will periodically revise its list of jurisdictions and remove jurisdictions that have met applicable RHNA targets. HCD's determinations about which jurisdictions are meeting their RHNA targets provides a glimpse into how other laws in the 2017 housing package will be implemented and which jurisdictions will be operating under increased state oversight. For example, AB 1505 authorizes HCD to oversee any jurisdiction that imposes a rental inclusionary housing ordinance if the jurisdiction has not met at least 75 percent of its RHNA target.
• Some jurisdictions (including, notably, wealthier jurisdictions that engage in intense lobbying efforts to shift housing obligations to other cities in the region) have sidestepped SB 35 because they have exceeded their very modest RHNA requirements. The politicization of the RHNA process has prompted calls to reform the state's RHNA laws in order to increase housing production obligations on such cities to assure that they do their fair share in helping solve California's housing crisis. This concern is worth watching in the 2018 legislative session, which has started with its own controversial new suite of proposals, including a statewide "upzoning" of land near rail, ferry and frequent bus stops to automatically allow four-story to eight-story buildings in such locations. (See SB 827 of 2018.) The author of this 2018 proposal, Sen. Wiener (D-San Francisco), was also the lead author for SB 35. SB 35 promises to prompt resistance and further litigation in some jurisdictions, while other jurisdictions – including San Francisco – have already issued application procedures for projects seeking SB 35 streamlined approvals.

Takeaways and Considerations

For qualifying projects, SB 35 promises to cut entitlement time and associated costs for urban multifamily projects by more than half (to approximately six months), eliminate CEQA-related costs and processing times, and avoid the risk of CEQA litigation. Most housing experts have agreed that SB 35 is likely to increase housing production costs, based on the new law's labor mandate (requiring that all projects, even those not receiving public funding, pay all construction workers prevailing wages), as well as its inclusionary housing mandate. The market will decide if SB 35's regulatory streamlining, including its CEQA exemption, will save enough time and money to offset higher labor costs and applicable inclusionary housing requirements.

We anticipate that SB 35 will be most useful in producing multifamily housing in higher-cost areas with higher-wage workers in California's coastal regions such as the Bay Area, Los Angeles/Orange County and San Diego. These, of course, are the same areas with staunch and well-funded Not in My Backyard (NIMBY) opponents, as well as environmental, historic preservation and anti-gentrification advocates – and with local governments that are burdened by higher pension and service costs as well as aging infrastructure. That means SB 35's rollout is likely to be punctuated with litigation challenges to the applicability and legality of this state effort to speed up significant urban-area multifamily housing production.

Politically, SB 35 also backs up Gov. Brown's conclusion that CEQA reform has been blocked by construction unions that use CEQA litigation threats to get Project Labor Agreements (PLAs); the construction unions that make the most prolific use of CEQA litigation threats as leverage to secure PLAs supported SB 35 after the prevailing wage requirement was added.  

For more information about the 2017 housing laws and to determine whether your project may qualify for SB 35's CEQA exemption and streamlined permitting process, contact Holland & Knight attorneys Jennifer L. Hernandez, Chelsea Maclean or Daniel R. Golub.

For an in-depth look at CEQA and the state's housing crisis, see "California Environmental Quality Act Lawsuits and California's Housing Crisis," Jennifer L. Hernandez, Hastings Environmental Law Journal, Vol. 24, No. 1 (Winter 2018).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.