Hopeful for housing: Everything you need to know about California’s development incentives

California Gov. Jerry Brown lost a major skirmish with NIMBYs last week when his by-right housing proposal faltered on the Assembly floor. The initiative — which promises $400 million worth of funding toward affordable housing in exchange for a more streamlined approval process for developments that include affordable units — is dead until at least December. But he received a consolation prize at the last minute.

Known as AB 2501, a bill that strengthens the state’s existing density bonus policy is headed for his desk, after collecting bipartisan support on August 31, the last day of the legislative session. The governor is expected to sign the bill, spearheaded by Santa Monica Assemblymember Richard Bloom, when it reaches his desk.

Although AB 2501 isn’t as bold as Brown’s promise of $400 million in affordable housing, the measure would force local governments to abide by California’s 2005 law that grants developers permits for up to 35 percent of extra building space if they promise to include a certain number of affordable housing units.

Under current law, some municipalities can still curtail developments seeking density bonuses by imposing additional requirements or making them vulnerable to organized opposition.

Typically, cities will create their own policies based on the state law, according to Brett Gladstone, land use attorney and partner at Hanson Bridgett, LLP. “But some cities — particularly the cities where there’s a progressive elected body — are saying, ‘No, we don’t think [we have] to follow the state law,” he told The Real Deal. “[Bloom’s bill] would light a fire under these cities.”

Los Angeles follows the state regulations more closely than cities like Beverly Hills and Santa Monica, experts said. L.A.’s City Council passed its own version of the density bonus bill in 2008.

Jeff Weller, principal of Lion Real Estate Group, told TRD he has benefited from the bill. His latest multifamily project in Echo Park was streamlined as by-right. The 121-apartment complex at 401 North Boylston Street called for 14 low-income units.

“It took 12 months and it was a decent process,” he said.

Peter Wilson, a founding member of development firm Premier League Inc. agreed. His company has completed between 40 and 50 multifamily projects in the past two decades, all ranging between 20 and 100 units. Since the density bonus ordinance passed, every one of his developments utilized the incentive.

“[Density bonus] tends to be a streamlined process,” Wilson previously told TRD. “We really have no complaints.”

Still, the bonuses alone could not serve as the remedy to the housing shortage crisis.

A recent study from UCLA Ziman Center for Real Estate found that L.A. housing density has barely increased as a direct impact from zoning changes. By identifying the residential zoning designations of more than 780,000 parcels in 2002 and 2014, author C.J. Gabbe found that “downzoning” — or when an area is allowed less density in 2014 than it was in 12 years ago — occurred nearly as often as “upzoning,” or the opposite; the difference was less than one-quarter of a percent of total land area every year.

In other words, zoning changes that result in higher residential density haven’t offset zoning restrictions.

“My findings show that changes are rare and cover a relatively small land area,” Gabbe, a recent PhD graduate of the UCLA Luskin School of Public Affairs told TRD. “Change is happening but the pace of this change is not keeping up with the (population) growth that’s coming to Los Angeles.”

And for affordable housing advocates, the biggest draw in Brown’s by-right develop proposal wasn’t the incentive for developers to build a measly 20 percent of under-the-market units — it was the $400 million that would go toward structures with 100 percent of under-the-market units.

“I think it’s remarkable that the governor took very strong leadership on this issue,” Carol Galante, an affordable housing professor at UC Berkeley, told TRD. “The fact that the issue has been elevated at the state level was a very positive step.”

Some experts, in fact, questioned the impact of the density incentive route.

“Obviously there’s no shortage of building in L.A. under current rules — We’re seeing new construction levels that are the highest since the late 1980s,” CoStar multifamily analyst Steve Basham told TRD. “But the people who are getting projects through are the institutional developers and investors at the top level” — not necessarily the middle-income or lower-income housing builders.

With the density bonus incentives alone, he said, “there is a sense that it’s a band-aid on a much larger wound.”

Meanwhile, another weighty matter looms in the horizon. The Neighborhood Integrity Initiative, a measure that would force a two-year moratorium on any development in L.A. that require a zone change — which given the zoning code, is most developments — recently garnered enough signatures to earn a spot on the March ballot.

But between now and then, Brown’s proposal has another shot. When the next legislative session begins December 5, the by-right plan could return to the table, Gladstone said.

The plan’s most formidable opponent, he explained, was construction labor groups that sought a minimum construction salary equivalent to union wages. The measure has a chance if the governor works with labor groups, he said.

Although Brown has yet to announce a specific plan of action, compromise seems inevitable.

“The governor has been very clear that we need to constrain development costs and improve the pace of housing production,” a spokesperson from Brown’s office told TRD in an emailed statement.

“We will continue working toward solutions in the days and months ahead.”