California May Mandate Transit-Adjacent Development

Transit-oriented development in major cities across the Golden State is poised to take a much firmer shape with a piece of legislation that could help municipalities close the gap between housing demand and state-mandated planning goals.

Assembly Bill 2074, dubbed the Downtown Revitalization Act, is quickly working its way through the state legislature. The California State Assembly passed the proposed law in a 55-5 vote on May 28 and the State Senate amended and referred it to the Senate Housing Committee last week.

Authored by Assembly member Matt Haney of San Francisco, AB 2074 would supercharge housing development in seven of the state’s biggest transit-rich cities and “accelerate the recovery of dense, urban neighborhoods” by “streamlining the construction of high-rise, residential and mixed-use developments near regional transit hubs,” pro-housing organization California YIMBY said of the legislation. The bill would also provide a $500 million low-interest revolving loan fund that will help lower construction costs for developers.

Under the legislation, Los Angeles, San Diego, San Jose, San Francisco, Sacramento, Oakland and Long Beach would be required to designate regional transit districts within their city limits. In these areas, new projects would have a minimum height of 150 feet, with at least 25 percent of the district being permitted for buildings 450 feet or taller. Residential housing projects that meet the bill’s labor standards would qualify for expedited approval. The state-backed loan fund would be administered by the California Housing Finance Agency and offer low-interest loans to projects that meet labor and affordability standards.

So far, local leaders and residents have largely been in support of the legislation, with San Jose City Council member Anthony Tordillos saying in a Mercury News op-ed that the South Bay city “would gain immensely from this bill.”

“The state stands to benefit too,” Tordillos added. “New downtown housing means more construction jobs, a growing tax base and a more sustainable way to reduce housing costs than one-time assistance programs.”

While the land use, height and density provisions of the bill are critical in getting shovels in dirt, financing has been many developers’ biggest obstacle toward groundbreaking. In San Francisco alone, more than 20,000 units of housing have been approved for construction but remain in limbo as the developers don’t have the money to begin work.

“The current challenge is financing,” DTLA Residents Association co-founder Leslie Ridings said in a Los Angeles Business Journal op-ed, pointing out that L.A. has only permitted 17.8 percent of its housing target for the cycle ending in 2029. “High interest rates, taxes and rising fees mean high-rises don’t currently pencil,” he said. “Supply stays low, prices stay high and workers are pushed farther and farther away from jobs to find housing they can afford.”

For new development in the state’s biggest cities, particularly fire-resistant Type I skyscrapers, “financing is definitely key,” California YIMBY’s Saad Asad told The Real Deal. “Type I construction is just so much more expensive because of the steel and the much more complex technical work to build high-rises, so the financing piece [of AB 2074] is much more critical than it is for mid-rise buildings that are just five to seven stories.”

Big institutional developers are considered to be in a better position to erect high-rises and big amounts of new housing in downtown cores. Opposition to the bill, particularly to the $500 million loan fund, is often rooted in the belief that the money can only be used for large-scale developments.

“That money would be paid back, and it’s a virtuous cycle, so you’re constantly reusing that money,” Asad said. “There’s some groups that see that as sort of zero-sum — that if you set aside money for this, that means that money can’t be used for other purposes for other types of housing as well.”

With AB 2074 now in the Senate Housing Committee’s hands, lawmakers will have to schedule a hearing on the latest version of the bill before determining next steps.