The Governor recently signed AB 2011 and SB 6 which authorizes specified housing development projects to be a use by right on specified sites zoned for retail, office, or parking. Both bills take effect on July 1, 2023. In a nutshell the two bills – AB 2011, known as the “Affordable Housing and High Road Job Act of 2022,” and SB 6, known as the Middle-Class Housing Act of 2022 attempt to create more housing through an expedited process for the reuse of infill property zoned for retail, office, and parking in commercial zones. Thus, the net effect of the legislation is to erode a city or county’s zoning powers in commercial districts statewide.
Developers may prefer using AB 2011 on sites where they both apply because of the by-right provisions, the higher development potential, and the less costly labor provisions and the exemption from CEQA. However, AB 2011 requires the developer to include below market rate affordable units, pay prevailing wages to all construction workers and, under some circumstances make a relocation payment to a displaced commercial tenant. SB 6 does not require the developer to include affordable units but requires all construction contacts meet “skilled and trained workforce” requirements for construction workers, which in practical terms, will likely require most contractors and subcontractors performing work to be signatory with the construction trade unions. The net impact of the legislature is marginal to address the housing shortage in California, due the specific project areas that are eligible and the requirements for prevailing wages in most cases (‘skilled and trained workforce”) and CEQA compliance for SB 6.
BACKGROUND
Every city and county is required to develop a general plan that outlines the community’s vision of future development through a series of policy statements and goals. A community’s general plan lays the foundation for all future land use decision, as these decisions must be consistent with the plan. Cities and counties enact zoning ordinances to implement their general plans. Zoning determines the type of housing that can be built. In addition, before building new housing, housing developers must obtain one or more permits from local planning departments and must also obtain approval from local planning commissions, city councils, or county board of supervisors. A zoning ordinance may be subject to the California Environmental Quality Act (CEQA) if it will have a significant impact upon the environment.
A principal of zoning since the United State Supreme Court upheld an early zoning ordinance in 1926 (Village of Euclid v. Ambler Realty Co (1926) 272 U.S.365 has been that allowing some uses in one area but prohibiting others can be integral to protecting the public welfare. SB 6 allows residential use on properties that are zoned instead for office and retail uses, and therefore contravenes this principle. The bills will also undermine the planning decisions made by local officials, who establish which uses are allowed and at what intensity. If as the bills authors cite more consumers are shopping online and thereby reducing the needs for shopping malls, strip malls, and big box retailers closing their doors or going out of business leaving vacant, oftentimes run-down commercial centers there is an opportunity to convert commercial space to residence units. Normally, the process to change zoning (or permitted uses in zoning districts) would be conducted at the local level before planning commissions and city councils. This means there is not a unified statewide approach, as different cities and counties would take different approached to the vacancies of retail and office spaces. AB 2011 and SB 6 attempt to create a uniform statewide policy that encourages and, in some cases, as a matter of right, allows for residential uses in commercial zones.
Major differences between SB 6 and AB 2011 include:
- By right vs. allowable use. AB 2011 makes residential development by-right on commercial parcels; SB 6 makes it an “allowable use,” which means that local governments could still exercise a measure of discretionary approval over SB 6 projects. However, SB 6 does allow by-right development on commercial parcels if the project meets the requirements of SB 35, aside from that law’s requirement that the parcel for the project zoned for residential use.
- Development potential. AB 2011 allows developers to build to significantly greater heights and density, with smaller setbacks, than are often allowed under local zoning. SB 6, by contrast generally defers to existing local zoning that applies to nearby parcels allowing residential use, so long as the zoning meets the relatively modest Mullin densities. Accordingly, AB 2011 will allow many more units to be built on the same site when compared to SB 6.
- Applicability to parcels. Both AB 2011 and SB 6 apply to commercial zones. However, AB 2011 limits the mixed income portion of the bill to commercial corridors, requires the projects to be infill sites, and excludes specified sensitive sites. SB 6 instead applies more uniformly to commercial parcels because it does not include those limitations. However, SB 6 projects are subject to even greater limitations than AB 2011 if the developer uses SB 35 to gain by-right approval authority because it also excludes the coastal zone.
- Affordability requirements. AB 2011 requires 15 percent affordable units for lower-income households in rental projects. In the alternative, AB 2011 allows additional flexibility by allowing a project to qualify with 30 percent moderate-income units if the project is an ownership project or 8 percent of the units for very low-income households and 5 percent of the units for extremely low-income households. SB 6 does not require the developer to include affordable units.
- Labor Standards. AB 2011 includes less stringent labor standards than most other bills the Legislature has enacted on zoning in recent years. SB 6 requires the payment of prevailing or the use of a skilled and trained workforce.
- California Environmental Quality Act (CEQA). AB 2011 provides a streamlined process and requires the local government to approve a qualifying project on a ministerial basis, making the project exempt from CEQA. SB 6 does not have a streamlined ministerial process and would be subject to CEQA.
PROVISIONS OF SB 6
SB 6 allows cities to approve, through an expedited process, the reuse of infill property zoned for retail and office space for residential construction subject to the following:
- Is not adjacent to a parcel dedicated to industrial use
- The density for the housing development must meet or exceed the applicable density deemed appropriate to accommodate housing for lower income households under housing element law.
- Must comply with all local zoning, parking, design, public notice or hearing requirements, local code requirements, ordinances, and permitting procedure that apply in a zone that allows housing at the density required by the legislation.
- All other local requirements for the parcel, other than those that prohibit residential use or allow residential use at a lower density than provided by the legislation.
- The Project side is 20 acres or less and is located within an urban area.
- The housing development is consistent with any applicable and approved sustainable community strategy or alternative plan.
- The developer certifies that the project either is a public work or will pay prevailing wage and use a skilled and trained workforce for all levels of contractors.
- The Project consists of entirely residential units or a mix of retail commercial, office, or residential uses, except that the project cannot include a hotel or other transient lodging and must devote at least 50% of the square footage of the project to residential uses.
There are exemptions, but the legislation is design to permit housing in commercial zones, subject to prevailing wages and CEQA.
PROVISIONS OF AB 2011
AB 2011 provides that, notwithstanding any local regulations, a housing development that has 100 percent of its units affordable to lower-income households is a use by right in a zone where office, retail, or parking are a principally permitted use and subject to a streamlined ministerial review if the following apply:
100 PERCENT AFFORDABLE HOUSING DEVELOPMENTS IN COMMERCIAL ZONES.
- It is a multifamily project;
- It is a legal parcel that is either in a city where the boundaries include some portion of an urbanized area or urban cluster, or in an unincorporated area, the parcel is wholly within the boundaries of an urbanized are or urban cluster;
- At least 75 percent of the perimeter of the site adjoints parcels that are developed with urban uses.
- It is not on a site or adjoined to any site where more than 1/3 of the square footage of the site is dedicated to industrial use;
- It is not on a specified environmentally sensitive site, excluding the coastal zone;
- It is not located within 500 feet of a freeway;
- It is not on a mobile home park;
- For a vacant site, it does not contain tribal cultural resources that could be affected b development that were found prior to a tribal consultation and the effects of which cannot be mitigated; and
- The project has at least 2/3 of the square footage designated for residential use; and
- If the site is withing a “neighborhood plan,” meaning a specific plan or similar plans as defined, the site must meet the following requirements:
- The plan applicable to the site was adopted prior to January 1, 2024, as specified.
- The neighborhood plan allows residential use on the site.
MIXED-INCOME HOUSING DEVELOPMENTS ALONG COMMERICAL CORRIDORS.
AB 2011 makes certain mixed income housing developments a use by right within a zone where office, retail, or parking are principally permitted uses and subject to streamlined, ministerial review if it meets all of the following requirements:
- Includes 15 percent lower-income units for a rental project, or either 15 percent lower-income or 30 percent moderate income units for an ownership project, or greater or with more affordability if the local government has a policy that imposes such requirements. The affordable units must be comparable to the market-rate units, in a specified manner.
- Meets all the requirements for sites that apply to 100 percent affordable projects above;
- Abuts a commercial corridor and ahs a frontage along the commercial corridor of a minimum of 50 feet; and
- Is located on a site not greater than 20 acres.
AB 2011 does not apply if it requires demolition of affordable housing, rent controlled units, or housing occupied by tenants in the last 10 years, or a historic structure or on sites that contain four or fewer dwelling units, or is vacant and zoned for housing but not for multifamily residential use.
For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, Inc. at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.