California's 2021 Housing Laws: What You Need to Know

As California's housing supply and homelessness crisis continues to worsen, the state Legislature has for the past several years passed numerous pieces of housing legislation in each legislative session. (See Holland & Knight's previous alerts, "A Closer Look at California's New Housing Production Laws," Dec. 6, 2017; "California's 2019 Housing Laws: What You Need to Know," Oct. 8, 2018 and "California's 2020 Housing Laws: What You Need to Know," Oct. 18, 2019.) This year, the momentum in support of housing production ceased – and may have begun to swing in the opposite direction.

After the well-publicized January failure of SB 50, Sen. Scott Wiener's legislation to relax restrictive zoning near transit corridors and job centers, Gov. Gavin Newsom and legislative leaders vowed to take significant action to advance housing production, and legislative leadership in each house endorsed a package of housing production bills. (See Holland & Knight's previous alert, "California Housing Production Bills Focus on CEQA and a Pandemic," May 26, 2020.) But the Legislature failed to enact most of the bills its leaders had endorsed. Whether the failure was attributable to the governor and Legislature's attention to COVID-19, the logistical and practical challenge of a session that was truncated as a result of shelter-in-place and social distancing orders, or opposition from certain elements in the labor community, the bottom line was a dismal session for housing production. There is talk of a special session to make more progress on housing production legislation, but that remains uncertain given the ongoing COVID-19 and wildfire crises.

Instead, the Legislature focused on tenant eviction protection and passed minor but important streamlining, density, Accessory Dwelling Units (ADU), planning and California Environmental Quality Act (CEQA) bills. Housing development applicants should take particular note of an important extension on certain housing entitlements by 18 months and of important reforms to the State's Density Bonus Law.

This Holland & Knight alert takes a closer look at the laws the Legislature passed, grouped into following categories:

• COVID-19 Responses. AB 3088, the first bill of the package to be signed into law by the governor, establishes eviction and foreclosure protections on a temporary basis for tenants and property owners facing financial hardships as a result of the COVID-19 crisis, and reformulates the rules governing the residential eviction process. Separately, AB 1561 implements a uniform statewide extension on certain housing entitlements by 18 months to address the "pandemic induced recession."
• Density. AB 2345 revises a number of State Density Bonus Law provisions to provide additional entitlement benefits for projects that include qualifying affordable housing.
• Streamlining Housing Approvals. Modest reforms to promote development on parking lots of places of worship, require homeowner associations (HOAs) to allow home rentals, and amend SB 35's streamlined ministerial approval process.
• Accessory Dwelling Units (ADU). AB 3182 provides a "deemed approved" provision for ADU applications, but Gov. Newsom vetoed a bill that would have addressed the limited construction loan market available to ADU proponents by establishing a program to assist homeowners in qualifying for construction loans.
• Planning. AB 725 addresses the deficit of medium-density housing by imposing new requirements for a jurisdiction's preparation of an inventory of land suitable for residential development.
• CEQA. SB 288 extends the existing CEQA exemption for bicycle transportation plans and adds a new statutory exemption for transit-related projects

Except where urgency bills are specifically noted, the bills take effect Jan. 1, 2021.

COVID-19 Responses

AB 3088 (Assembly Member David Chiu) – Tenant, Homeowner and Small Landlord Relief and Stabilization Act attempts to deploy several tools to protect residential tenants and property owners from eviction or foreclosure because of conditions exacerbated by the COVID-19 pandemic. It was the first bill to be signed by Gov. Gavin Newsom on Aug. 31, 2020. AB 3088 expands, for example, the remedies for landlord retaliation against tenants who fail to pay rent as a result of COVID-19 hardship. The legislation similarly expands and clarifies protections for tenants whose landlords pursue "just cause" evictions – for reasons other than for nonpayment of rent. The new law also requires mortgage servicers of loans secured by residential property containing not more than four dwelling units to provide written explanations behind any denial of mortgage forbearance requested by borrowers who suffer COVID-19-related financial hardship. The changes to mortgage regulations also extend protections against foreclosure afforded by existing law to owner-occupied residential properties containing four or fewer units to similar properties that are occupied by tenants.

AB 3088 also makes broader changes to unlawful detainer and eviction procedures for residential leases, under the caption of the "COVID-19 Tenant Relief Act of 2020 (Tenant Relief Act)." The legislation establishes a statewide moratorium until Oct. 5, 2020, on the issuance of summonses, complaints, defaults or default judgments with respect to unlawful detainer actions on residential real property, and imposes new filing and submission requirements for unlawful detainer complaints. The Tenant Relief Act also changes the rules for notices of tenant defaults, extending the traditional "3-day notice" of default for most cases to 15 days, and the notice must advise tenants that they cannot be evicted if they deliver to the landlord a written declaration of COVID-19-related financial distress. For payment defaults that become due between Sept. 1, 2020, and Jan. 31, 2021, the tenant must pay at least 25 percent of the missed rent on or before Jan. 31, 2021, in order to avoid eviction (and evictions in any event are postponed). The new legislation does not afford rent forgiveness, but unpaid amounts that remain owing by COVID-19-impacted tenants cannot be made the subject of unlawful detainer actions. The Tenant Relief Act shifts to Small Claims Courts jurisdiction over landlord claims for unpaid rental amounts from tenants claiming COVID-19 hardship. Actions to recover COVID-19 rental debt cannot be commenced before March 1, 2021, and the otherwise applicable jurisdictional limitations pertinent to small claims have been lifted. Tenants are not required to substantiate their claims of COVID-19 hardship, except in the case of "high-income tenants" (defined as those with annual household incomes of at least 130 percent of the area median income, or $100,000, whichever is greater). Landlords may require high-income tenants to submit documentation of COVID-19-related financial distress.

AB 1561 (Assembly Member Cristina Garcia and Tim Grayson) – Housing Entitlement Extension extends by 18 months the period for the expiration, effectuation or utilization of a housing entitlement that was issued before, and was in effect on, March 4, 2020, and that will expire before Dec. 31, 2021. Housing entitlements are broadly defined and include more than just tentative maps; it includes discretionary and ministerial approvals from a state or local agency, among other entitlements and building permit related requirements. It explicitly excludes development agreements, a preliminary application under SB 330 and an application for a SB 35 permit. The legislation explains that a "uniform statewide entitlement extension measure is necessary to avoid the significant statewide cost and allocation of local government staff resources associated with addressing individual permit extensions on a case-by-case basis" needed to weather the "pandemic-induced recession" and continued housing affordability crisis. Cities and counties may still independently grant entitlement extensions too. Other amendments include the following:  

• Extends the time for a Native American tribe to respond to a consultation request for California Environmental Quality Act (CEQA) document by 30 days for any housing development application deemed complete between March 4, 2020, and Dec. 31, 2021.
• As part of the housing element process, authorizes housing element analysis of housing constraints for persons with a characteristic identified by a specified provision of the Unruh Civil Rights Act and requires an identification of sites where emergency shelters are allowed and the number of people experiencing homelessness that can be accommodated on each site.

Density

The Legislature compounded its failure to enact SB 50 by also failing to timely enact SB 1120 (Sen. Toni Atkins), a much more modest bill that would have allowed three units per parcel and ministerial processing for certain duplexes and lot splits. SB 1120's failure was particularly remarkable since it only failed to become law because the Assembly failed to bring it to the floor with sufficient time to meet a midnight deadline. However, AB 2345, which did pass, makes a number of important revisions to the Density Bonus Law.

AB 2345 (Assembly Members Lorena Gonzalez and Chiu) – State Density Bonus Law Amendments revises a number of provisions to provide additional benefits for projects that include qualifying affordable housing. The State Density Bonus Law has become an entitlement processing staple for multifamily projects, especially where jurisdictions already require affordable units pursuant to inclusionary housing ordinances. At a high level, the amendments:

• Eligibility: In order to qualify for the density bonus provided by AB 1763 (allowing 80 percent or unlimited density bonus), 100 percent of the total units, including the base units and density bonus units, must be affordable for lower income households, except that 20 percent of those units can be affordable for moderate-income households.
• Density Bonuses: Increases the maximum density bonus, to up to 50 percent, based on an updated sliding scale of housing affordability.
• Incentives/Concessions: Lowers the threshold required to qualify for two incentives/concessions from 20 percent to 17 percent for lower income households and the threshold to qualify for three incentives/concessions from 30 percent to 24 percent for lower income households.
• Development Standard Waiver: A housing development that receives an unlimited density bonus under AB 1763 is eligible for a development standard waiver if a jurisdiction agrees to grant such waiver.
• Major Transit Stop: Clarifies how to measure half-mile of a major transit stop (for purposes of qualifying to additional benefits (e.g., parking reductions)) and defines the term "natural or constructed impediments" for purposes of determining whether a development has unobstructed access to a transit stop.
• Parking: Decreases the maximum ratio of vehicular parking for developments with 2 to 3 bedrooms so that no more than 1.5 spaces may be required per unit. It also authorizes a developer to request that a jurisdiction not impose vehicular parking standards if the development is a for-rent housing development for individuals who are 62 years of age or older that will have either paratransit service or unobstructed access to a fixed bus route and meets other qualifying criteria.
• City Ordinances: Provides that a jurisdiction that has adopted an ordinance and/or a program that allows for density bonuses that exceed the density bonuses required by the State Density Bonus Law is not required to amend or otherwise update its ordinance or housing program to comply with the amendments made by AB 2345.
• General Plan Annual Report: Requires that the a jurisdiction's General Plan annual report include specified information regarding density bonuses.

Because of the number and technicality of amendments, the amendments should be reviewed and considered carefully in relation to the prior state law as well as an individual jurisdiction's Density Bonus Law ordinance and/or program.

Streamlining Housing Approvals

Each house of the Legislature promised to pass some significant streamlining legislation in 2020. SB 902 (Sen. Scott Wiener) would have permitted – but not required – local governments to implement zoning ordinances that would permit housing projects of up to 10 units without CEQA review, SB 1385 (Sen. Anna Caballero) would have authorized residential uses on properties zoned for commercial and retail uses, and AB 1279 (Assembly Member Richard Bloom) would have created streamlining opportunities in Housing and Community Development Department (HCD)-designated "high opportunity areas." Despite each of these bills being included in their respective house's housing package, the Legislature failed to enact any of them.

Instead, the Legislature passed a series of much more modest bills described below.

AB 1851 (Assembly Member Buffy Wicks) – The "Yes In God's Back Yard" (YIGBY) bill makes it easier for faith-based organizations to build affordable housing on their parking lots. Many places of worship have parking lots that are only used a few times a week, and some faith communities have expressed interest in developing those lots for affordable housing – only to run into restrictive local parking requirements that favor retaining parking over new housing opportunities. The legislation would reduce or eliminate various local parking requirements that would otherwise preclude development of housing parking lots, and prevent cities from forcing faith-based organizations to later make up lost parking spaces when a parking lot is developed for housing.

AB 3182 (Assembly Member Phil Ting) – Limit HOAs' Ability to Restrict Home Rentals would limit the ability of a Common Interest Development (CID), such as a condominium or planned unit development, to prohibit individual homeowners from renting or leasing their homes. Advocates hope that this could create new housing opportunities by creating more home rentals that are prohibited from being leased under homeowners association (HOA) rules. HOAs are currently prohibited from creating new restrictions on the rental and lease of homes, but rental bans in place before Jan. 1, 2012, are currently allowed to remain in effect. This bill would remove the exemption for pre-2012 rental bans. Instead, an HOA would only be able to impose rental restrictions that have the effect of limiting the total number of rentals of 25 percent or higher of the individual dwelling units in the CID – an exception designed to enable CIDs to remain eligible for government loans that are predicated on CIDs maintaining certain owner occupancy rates. (AB 3182 also made changes related to Accessory Dwelling Units, described in the following section.)

AB 831 (Grayson) – Modifications and Clarifications to SB 35's Streamlined Ministerial Approval Process makes a number of amendments to SB 35 of 2017, a law that allows qualifying housing and housing-rich, mixed-use projects to qualify for a streamlined, ministerial CEQA-exempt approval process if the project meets the local government's objective zoning, subdivision and design review standards, provides a specific minimum number of affordable housing units, agrees to pay prevailing wages and use skilled and trained construction workers, and meets other qualifying criteria. (For further information on SB 35's streamlined ministerial approval process, see Holland & Knight's previous alerts, "California Issues Initial Implementation Guidance on 2017 Housing Laws," Feb. 15, 2018, and "A Closer Look at California's New Housing Production Laws," Dec. 6, 2017.)

Most importantly, AB 831 amends SB 35 to help ensure that cities do not use post-entitlement review processes to avoid the intent of SB 35's ministerial approval process. Specifically, to address the fact that housing developments inevitably evolve after an entitlement permit issues, the bill provides that an SB 35 project may make certain specified qualifying minor modifications to the development prior to the issuance of the final building permit, so long as the project continues to meet specified objective standards that were in place when the original application was submitted to the local jurisdiction. The bill also provides that required off-site public improvements necessary for an SB 35 development should also be approved without delay and in a manner that does not inhibit, chill or preclude the development. Both amendments largely track already operative guidelines promulgated by HCD, which has statutory authority to issue guidelines that supplement and clarify SB 35's requirements. The bill also clarifies that mixed-use developments are eligible for streamlined approval if the development is at least two-thirds residential, which is consistent with how SB 35 has always been interpreted, since its enactment, by its author and by HCD in the guidelines. As an "urgency statute," the law took effect immediately upon being signed into law by the governor on Sept. 28, 2020.

AB 168 (Assembly Member Cecilia Aguiar-Curry) – Tribal Consultation Process in SB 35 adds a significant new restriction to SB 35, providing designated California Native American tribes that are traditionally and culturally affiliated with a geographic area the authority to require mandatory pre-application consultation intended to address whether there are tribal cultural resources on a property where an SB 35 application is located. Legislative committee staff offered serious constitutional and policy concerns about the bill's approach. It remains to be seen what effect AB 168 will have on the time-limited, objective process through which so many SB 35 affordable housing developments have been approved. The bill also amended SB 330, which provides that local governments can only require a housing application to comply with any applicable standards in effect at the time a preliminary application is submitted, to provide that the listing of a tribal cultural site on a national, state, tribal or local historic register shall not be deemed a change in the applicable standard. Also enacted as an "urgency statute," the law took effect immediately upon being signed into law by the governor on Sept. 25, 2020.

SB 1030 (Housing omnibus) makes a series of technical and clarifying changes to state housing law, including the following changes to provisions enacted by SB 330 of 2019 (the Housing Crisis Act):

• Under SB 330, a housing application is entitled to proceed on the basis of the standards in effect at the time that an applicant submits a preliminary application. As amended by SB 1030, if an applicant elects not to submit a preliminary application, the applicant is entitled to proceed on the basis of the standards in effect on the date that the applicant submitted a complete application pursuant to the Permit Streamlining Act.
• SB 330 provides that, even if a preliminary application has been submitted, a locality can subject a housing applicant to later-enacted standards, and require if the applicant changes the number of units or square footage by 20 percent or more. But the law excludes from this 20 percent calculation any additional density provided through the State Density Bonus Law. SB 1030 clarifies that this 20 percent calculation also excludes any increase in density from any comparable local density bonus ordinance.

SB 1030 took effect as an "urgency" statute on Sept. 25, 2020.

Accessory Dwelling Units

AB 3182 (Ting) – As described above, this bill prohibits HOAs from adopting or enforcing rental restrictions on more than 25 percent of the separate interests in a CID project. AB 3182 prohibits HOAs from imposing rental restrictions on ADUs, and makes clear that ADUs are not counted toward the overall 25 percent cap. ADUs and Junior ADUs, however, may still be subject to restrictions on "short-term" rental restrictions (i.e., less than 30 days), as provided under existing state law. CIDs that violate the protections under AB 3182 may be liable for civil penalties up to $1,000.

AB 3182 also makes an important clarification to the procedures of existing state ADU law. The bill specifies that if a local agency has not acted upon a completed ADU application within 60 days, the application shall be deemed approved.

On Sept. 28, 2020, Gov. Newsom vetoed AB 69 (Ting), which would have required the State Treasurer's Office to establish a new "Help Homeowners Add New Housing Program" to assist homeowners in qualifying for construction loans for ADUs. The veto message acknowledged ADUs as a "critical tool for increasing housing supply in California," but opined that AB 69 would harm the California Housing Finance Agency's credit ratings and therefore negatively impact affordable housing production generally. The governor directed the Business, Consumer Services and Housing Agency to continue departmental efforts to increase access to capital markets for ADU applicants.

Planning

AB 725 (Wicks) – Housing Element location designation requirements for moderate- and above-moderate-income housing in cities. AB 725 imposes new requirements for city housing element updates that are required to be prepared under the already underway sixth cycle of the Regional Housing Needs Assessment (RHNA) process. Existing RHNA requirements mandate designation of adequate overall housing sites to accommodate RHNA housing growth, as well as designation of adequate housing sites for low income and other specified subcategories of housing. AB 725 requires that cities designate sites to meet at least 25 percent of a jurisdiction's share of the regional housing need for moderate-income housing, and at least 25 percent of a jurisdiction's share of the regional housing need for above moderate-income housing. For these sites, zoning that allows at least four units of housing, but not more than 100 units per acre of housing, is required.

CEQA

Legislative leaders recognized that CEQA reform is critical to housing production by including in their Senate and Assembly housing packages reforms to CEQA such as AB 2323 (Assembly Member Laura Friedman) and SB 995 (Atkins), each of which would have created limited CEQA reforms for qualifying infill housing developments. Like all other housing production bills, these failed. The Legislature did pass one new CEQA statutory exemption for designated bicycle, pedestrian and transit projects – and local ordinance amendments reducing minimum parking requirements.

SB 288 (Weiner) – New CEQA Exemption for Sustainable Transportation Projects creates a new CEQA exemption for certain classes of qualifying transit-related projects until Jan. 1, 2023, including:

• pedestrian and bicycle facilities
• projects that improve customer information and wayfinding for transit riders, bicyclists or pedestrians
• transit prioritization projects (e.g., traffic signal coordination and timing modifications)
• projects that establish or increase of new bus rapid transit, bus or light rail service, including the construction of stations, on existing rights-of-way
• projects to construct or maintain charging infrastructure for zero-emission transit buses
• designating and converting general purpose lanes or highway shoulders to bus-only lanes, provided the highway involved has existing public transit or will within six months of the conversion
• projects carried out by a local agency to reduce minimum parking requirements.

To qualify, the project must be carried out by a public agency, be located in an urbanized area and within an existing public right-of-way, not require demolition of affordable housing units, be completed by skilled and trained workforces, and not entail adding physical infrastructure that would increase new automobile capacity. Projects costing $100 million or more would need to satisfy a number of additional requirements to qualify. SB 288 also extends the existing CEQA exemption for bicycle transportation plans in urbanized areas for another nine years.

Conclusion

While the Legislature did not enact any major housing production laws this year, there is still much work to be done to publicize, implement and enforce the laws that were enacted in recent sessions. For example, few stakeholders are aware that last year's ADU laws (AB 68 and AB 881) allow ADUs in multifamily buildings in an amount up to 25 percent of the existing multifamily dwelling units. Important action will take place at the regulatory level, where HCD has an important role implementing existing laws to keep the pressure on municipalities to meet their Housing Element Law obligations. Moreover, one can expect to see more litigation and enforcement of existing housing laws such as the Housing Accountability Act and SB 35. (See "Holland & Knight First in California to Secure Housing Approval Through Litigation Under Streamlining Law," Sept. 11, 2020.)

However, if California is to come anywhere close to creating the 3.5 million homes that Gov. Newsom vowed to create by 2025, bold legislative action will be needed. In light of this, the Legislature's 2020 retreat from housing production legislation should be a concern. It remains to be seen whether the governor and legislative leaders can regain the momentum of past legislative sessions to pass much-needed housing production laws in 2021.

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.