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HomeMy WebLinkAbout10-18-2016 Item 20, DietrickGtT Y fl� C Council Memorandum tris o October1 • TO: Mayor and City Council FROM: Christine Dietrick, City Attorney VIA: Katie Lichtig, City Manager SUBJECT: 22 Chorro Appeal, Background Information RECE )I1-1.1� OCT 14 2016 D Cid C R COUNCIL MEETING: IDIS 81 1 (P ITEM NO.: an Attached is a paper recently presented at the League of California Cities annual conference. The attorneys who wrote the paper analyzed California's Density Bonus Law which is at issue in the appeal for the project located at 22 Chorro. Also attached please find a 2011 article from the California Real Property Journal on both the Density Bonus Law and Housing Accountability Act. These analyses being highly relevant, are provided as additional background information. The Density Bonus Law: Has its Time Finally Arrived? By David H. Blackwell @2011 All Rights Reserved I. INTRODUCTION The confluence of a declining single-family market and a growing emphasis on "smart growth" infill projects has created an increased demand for urban multifamily development.) These projects, particularly those that include affordable housing units, face considerable financial and political constraints. To make such projects feasible, some California developers rely on Californias Density Bonus Law2 In general, this statute allows developers whose housing development3 proposals meet certain thresholds of affordability to receive density bonuses,4 incentives, and development waivers from the local agency. The Density Bonus Law is not well -organized, however, and its application by cities and counties (collectively "cities") varies considerably throughout the state. As noted during the most recent attempt to clean up the statute in 2008: Due to the substantial changes the law has undergone over the years, it is confusing- to interpret and is the subject of numerous debates as to both its intent and its actual requirements. Developers and cities frequently clash over what the law dictates, with developers increas- ingly demanding concessions and waivers -that cities do not feel they should have to grant underthe law 5 Unfortunately, there is little guidance from the courts, as only a handful of published appellate court decisions have examined the Density Bonus Law since its adoption in 1979. In particular, the courts have not yet addressed in any detail how much discretion a city retains to condition or deny a proposed project that otherwise qualifies under the Density Bonus Law. As with any exercise of police power, local development requirements cannot be imposed in a manner that conflicts with state statutes. However, the application of this limitation to specific projects is often disputed. A few key cases, however, have provided limited insight into the application of the Density Bonus Law to promote development and the corresponding limitations imposed upon cities. Most recently, the court in Wollmer v. City of Berkeley ("Wollmer If')6 provided some guidance concerning the scope of the statute and underscored the courts' growing reluctance to constrain cities' ability to use the Density Bonus Law to promote the development of affordable housing units. However, even the Wollmer II decision leaves questions unanswered. The Density Bonus Law has the potential to provide developers of multifamily housing projects considerable leverage during s the entitlement process. The awkwardness of the statute and the uncertainty of its application sometimes dissuades developers (and practitioners) from utilizing its provisions. Indeed, many cities exhibit an inherent distrust of the statute or are uncertain about what it actually requires a city to do. This article explores some of these practical and political realities, while positing that the Density Bonus Law is an often -neglected device that developers should consider using more frequently in this challenging real estate market. II. BACKGROUND The Density Bonus Law is one of several California statutes designed to implement "an important state policy to promote the construction of low-income housing and to remove impediments to the same.'17 As summarized in Wollmer II, the Density Bonus Law "is a powerful tool for enabling developers to include very low, low, and moderate -income housing units in their new developments." The purpose of the Density Bonus Law is to encourage cities to offer bonuses and incentives to housing developers that will "contribute significantly to the economic feasibility of lower income housing in proposed housing developments."9 As recognized by California courts, "the Density Bonus Law `reward[s] a developer who agrees to build a certain percentage of low-income housing with the opportunity to build more residences than would otherwise be permitted by the applicable local regulations."' 10 By incentivizing developers, the Density Bonus haw promotes the, construction of housing for seniors and low-income families.I I When the Legislature adopted the Density Bonus Law, it declared that a housing shortage crisis must be addressed and that the State should rely on local governments to provide the necessary increased housing stock "provided, that such local discretion and powers not be exercised in a manner to frustrate the purposes of this act."12 The author of a successful 2002 amendment to the statute noted that "too many local governments have undercut [the Density Bonus Law] by layering density bonus and second unit projects with unnecessary and procedural obsracles."13 According to the author and sponsors of the 2002 amendment bill, its purpose was to simplify the process for obtaining density bonuses "in order to increase Californias supply of affordable housing." 14 The Density Bonus Law applies to both general law and charter cities.15 It requires cities to adopt an ordinance that specifies how local compliance with the statute will be implemented, though failure to adopt such an ordinance does not relieve the city from complying with the law, 16 III. DENSITY BONUS LAW MECHANICS A. Density Bonuses 1. Density Bonus Thresholds A housing project must first meet certain thresholds of affordability in order to qualify for a density bonus. As California Real Property journal • Volume 25 Number 4 13 explained in Wollmer Il: Section 65915 mandates that local governments pro- vide a density bonus when a developer agrees to construct any of the following: (1) 10 percent of the total units within the project for lower income17 households; (2) 5 percent of total units for very low incomes$ households; (3) a senior citizen housing development or mobilehome park restricted to older persons, each as defined by separate statute; or (4) 10 percent of units in a common interest development for moderate-incomel9 families or persons.20 Section 65915(6)(1) of the Density Bonus Law provides that requests for a density bonus and incentives21 must be granted "when an applicant for a housing development seeks and agrees to construct a housing development" that meets one or more of the statute's thresholds. Although a city may eventually deny a request for an incentive if certain limited findings are made,22 the Density Bonus Law does not identify any findings that would allow a city to deny a density bonus request. Some have argued that the "seeks and agrees" phrase in the Density Bonus law limits its application to housing developments that are not otherwise required to provide affordable units under an inclusionary zoning ordinance. Indeed, this issue was the subject of a 2005 debate in the legislature concerning the intent of SB 1818 and SB 435, which were proposed amendments to the Density Bonus Law�3 If that interpretation were followed, however, cities could thwart the Density Bonus Law by imposing inclusionary zoning requirements at or above the qualifying thresholds in the Density Bonus Law, thereby preventing any project from qualifying for a -density bonus. Despite -these uncertainties -with the Density Bonus Law, 'it is clear that cities cannot impose thresholds higher than those provided under the Density Bonus Law for a project to qualify for a density bonus. In Friends of Lagoon Valley v. City of Vacaville,24 the city's density bonus ordinance contained thresholds similar to those set forth in an earlier version of the Density Bonus Law. "However, once the Legislature amended Section 65915 [to impose lower thresholds], state law preempted inconsistent provisions in these municipal ordinances."25 Therefore, as a matter of practice, applicants should compare any local density bonus thresholds to those set forth in Section 65915(b) to ensure that the city is applying the correct figures. 2. Density Bonus Calculations Once a project meets one of the minimum thresholds,26 the size of the density bonus is governed by the number of affordable units the project will provide. "In its specifics, section 65915 establishes a progressive scale in which the density bonus percentage available to an applicant increases based on the nature of the applicant's offer of below market rate housing."27 By linking the size of the density bonus to the number of affordable units offered by the developer, the statute promotes the voluntary production of more affordable housing. "The progressive level of benefits for deeper affordability is the mechanism by which municipalities entice developers to build low-income housing."28 Proposed projects reserving a minimum of 10% of total 6 units for moderate -income households receive a 5% density bonus, with every additional percentage point increase in applicable units above the minimum (up to 40%) receiving a 1% increase in the density bonus, up to a maximum 35% bonus 29 Developers agreeing to construct a minimum of 10% of units for low-income households are eligible for a 20% density bonus, and the multiplier for each' additional increase in units above the minimum amount (up to 20%) is 1.5%.30 A similar scale applies to construction of very low-income units, except the minimum 20% density bonus kicks in when only 5% of units are reserved for this classification, and the multiplier for each additional percent increase in units above the minimum amount (up to 11%) is 2.5%.31 Finally, for a senior housing development or age -restricted mobilehome park, the density bonus is 20% of the number of senior housing units.32 The total number of units for the purpose of calculating the percentages described above does not include units added by a density bonus awarded under the Density Bonus Law or any local law granting a greater density bonus.33 If permitted by local ordinance, nothing prohibits cities from granting a density bonus greater than what is described in the Density Bonus Law34 B. Incentives and Concessions 1. Defined Applicants for density bonuses may also request specific incentives or concessions from cities.35 Thus, "when an applicant seeks a density bonus for a housing development that includes the required percentage of affordable housing, section 65915 requires that the city not only grant the density bonus, } but provide additional incentives or concessions where needed based on the percentage of low income housing units."36 A "concession or incentive" (together, "incentive" as the statute does not distinguish the terms) includes: a reduction in site development standards, or a modi- fication of zoning code or architectural design require- ments, including reductions in otherwise mandated setback, square footage, and parking ratio require- ments, resulting in identifiable, financially sufficient, and actual cost reductions; • approval of mixed-use zoning in conjunction with the housing project if the nonresidential land uses would reduce the cost of the housing development and are compatible with the housing project and the surround- ing area; • other regulatory incentives proposed by the developer or city that result in identifiable, financially sufficient, and actual cost reductions.37 The legislative history indicates that the "identifiable, financially sufficient, and actual cost reductions" text in the incentive definitions was added to protect the developer from a city's attempt to force a developer to accept marginal incentives.38 The intent of the Density Bonus Law is to ensure that incentives offered by the city "contribute significantly" to the development of affordable housing and, therefore, unless the developer expressly agrees otherwise, "a locality shall not offer a 14 California Real Property journal • Volume 29 Number 4 a density bonus or any other incentive that would undermine the intent of the Density Bonus Law39 The "incentive" definition does not limit or require the provision of direct financial incentives by a city.40 Some rL commentators believe that an incentive also includes designating the development as "by right," and exemptions from any local ordinances that would Indirectly increase the cost of the housing units to be developed. i I 2. Calculations As with density bonus calculations, the number of incentives to which a developer is entitled depends upon the percentage of very low, low, or moderate -income units provided (no incentive is provided for the provision of non -income restricted senior units). The developer must receive the following number of incentives: • One incentive for projects that include at least 10% of the total units for low-income, at least 5% for very low income, or at least 10% for moderate -income house- holds.42 Two incentives for projects that include at least 20% of the total units for low-income, at least 10% for very low income, or at least 20% for moderate -income households. • Three incentives for projects that include at least 30% of the total units for low-income, at least 15% for very low income, or at least 30% for moderate -income households.43 In addition, an applicant may request that the -city not require a vehicular parking ratio -for a density bonus project that exceeds the following: 1 onsite space for 0-1 bedroom; 2 onsite spaces for 2-3 bedrooms; and 2.5 onsite spaces for four or more bedrooms.44 An applicant also may request parking incentives beyond those expressly set forth in the Density Bonus Law45 3. Required Findings for Denial of an Incentive Request A city must establish local procedures, approved by the city council, for complying with incentive provisions of the Density Bonus Law46 Even if local procedures are not established, a city must grant the incentive requested by the applicant unless the city makes a written finding, based upon substantial evidence,47 that the incentive: is not required in order to provide for affordable hous- ing costs; • would have a "specific adverse impact ... upon public health and safety or the physical environment" that cannot be feasibly mitigated without rendering the development unaffordable to low- and moderate - income households; or • would be contrary to state or federal law 48 The statute does not provide guidance on how a city should rr demonstrate that the incentive is not required in order "to provide for affordable housing costs." A 2002 amendment to the Density Bonus Law generated opposition from local government advocates who argued that this provision would require cities to prepare separate project feasibility analyses in order to refute an incentive request.49 Even though there is no generally accepted methodology to date, one potential approach is to subtract the mandated lower sales price for the affordable unit from the actual cost to build the unit, and then to compare that developer cost to the financial benefit created by the incentive. Local attempts to restrict the developer's profit margin by denying an incentive request under the first criterion, however, are suspect and may be considered hostile to the Density Bonus Law.50 The second finding expressly borrows the definition of a "specific adverse impact" from the Housing Accountability Act,51 specifically, "a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety standards, policies, or conditions as they existed on the date the application was deemed complete."52 This finding is narrower than the local standards used to deny use permit applications, which often invoke broader "general welfare" considerations. "Moreover, mere `[i]nconsistency with the zoning ordinance or general plan land use designation shall not constitute a specific, adverse impact upon the public health or safety."'S3 The third finding is self-explanatory, although as discussed below,54 issues may arise if a city attempts to rely on other development -related statutes such as the California Environmental Quality Act, the Subdivision Map Act, or other provisions of the Planning and Zoning Law to provide justification for denying an incentive. To add some teeth to a city's application of these findings, the Density Bonus Law mandates that a court award the successful plaintiff reasonable attorney's fees and costs if a city refused to grant a requested incentive and the court later determines that the refusal lacks the requisite written findings and evidence.55 C. DEVELOPMENT STANDARD WAIVERS In addition to, and separate from, requests for incentives, a density bonus applicant may request a waiver or reduction of development standards that would have the effect of physically precluding the construction of the project at the densities or with the incentives permitted under the statute.56 "Development standard" means a site or construction condition, including, without limitation, local height, setback, floor area ratio, onsite open space, and parking area ratio requirements that would otherwise apply to residential development under local ordinances, general plan elements, specific plans, charters, or other local condition, law, policy, resolution, or regulation.57 A request for a development standard waiver neither reduces nor increases the number of incentives to which the developer is otherwise entitled.58 Furthermore, there is no limit on the number of waivers that may be issued, As with incentives, although a city might ask a developer to modify a requested development standard waiver, it cannot force the developer to do so. Instead, a city's refusal to waive or reduce development standards must be supported by one or more findings similar to those available for denying a request for an incentive.59 Again, if a court determines that such refusal was unwarranted, it must award the developer attorney's fees and costs of suit.GO Importantly, even if the developer does not submit a request for a development standard waiver, a city is prohibited from California Real Property journal • Volume 29 Number 4 15 applying a development standard that would have the effect of physically precluding the construction of the project at the densities or with the incentives permitted under the Density Bonus Law61 This statutory restriction on a city's planning and zoning powers raises important questions about what a city can and cannot do when considering a project that qualifies for a density bonus. W. RELATIONSHIP TO THE HOUSING ACCOUNTABILITY ACT Context for the interplay between the state mandates under the Density.Bonus Law and local government discretion is afforded by the Housing Accountability Act for guidance,62 which similarly promotes the development of affordable housing (and housing generally). The HousingAccountabilityAct implements the state policy "that a local government not reject or make infeasible housing developments" that contribute to meeting the state's housing need "without a thorough analysis of the economic, social and environmental effects of the action and without complying with subdivision (d)."63 Courts have clarified that subdivision (d) of the Housing Accountability Act imposes strict limitations on a city's ability to disapprove or conditionally approve certain low-income housing projects, while subdivision (j) applies to housing development projects generally.64 Both subdivisions apply to affordable housing developments. Under subdivision (d), a city cannot disapprove or conditionally approve an affordable housing project in a manner that renders it infeasible (including through the use of design review standards) unless it makes one of five written findings based on substantial evidence in the record.G5 One of those findings is that the development project would have a "specific, adverse impact upon the public health or safety," which is similar to the finding available for denying an incentive request under the Density Bonus Law, although the latter includes consideration of impacts to the "physical environment."66 An affordable housing project under subdivision (d), however, differs slightly from a project that may qualify for a density bonus because the former requires that at least 20% of the units be sold or rented to "lower-income households" or 100% of the units be sold or rented to "moderate -income households "67 Therefore, a project that may qualify for a density bonus by providing only 10% of its units For lower-income householdsG8 may not qualify for the protections under subdivision (d) of the Housing Accountability Act. Subdivision (j), which is not limited to affordable housing projects but applies to housing development projects generally, provides that if the proposed development project complies with applicable planning and zoning standards and criteria (including design review standards) that are in effect at the time of project application completion, a city cannot disapprove or conditionally approve the project with a lower density unless it makes written findings supported by substantial evidence in the record that the proposed project would have a specific, adverse impactG9 on the public health or safety" and that there is no feasible mitigation.70 Notably, this limitation on a local agency's discretion is similar to the Density Bonus Law's restrictions for denying an incentive request or a proposed waiver or reduction of development standards. Section 65589.5Q) of the Housing Accountability Act thus imposes mandatory conditions limiting cities' discretion to deny the permit, and "does so by setting forth the only conditions under which an application may be disapproved.1171 In addition, the Act places the burden of proof on cities if its project disapproval or conditional approval is challenged in court.72 V. CITY DISCRETION TO TAKE ACTIONS NECESSARY TO EFFECTUATE THE DENSITY BONUS LAW Keeping the above framework in mind and understanding the interplay between the various requirements will help to understand the 2011 appellate decision in Wollmer II. Wollmer II continued the trend begun by Friends of Lagoon Valley and Wollmer I in 2007 and 2009, respectively, in which the courts deferred to a city's decisions promoting the supply of affordable housing.73 The key facts in Wollmer II involved the City of Berkeleys ("City') approval of a use permit to construct a five -story, mixed-use building with 98 residential units (74 base units plus 24 bonus units), including 15 affordable units, commercial space, and parking. In addition to a 20.3% density bonus, the City granted the developer's requests for development standard waivers applicable to building height, number of stories, and setbacks. Project opponent Wollmer sued, but the trial court denied his petition for writ of administrative mandate and entered judgment in favor of the Ciry. On appeal, Wollmer raised three density bonus related arguments (in addition to unsuccessful CEQA-based arguments): "(1) condition 68 of the use permit allowed the Developers to receive Section 8 subsidies for density -bonus -qualifying units, thereby exceeding the maximum `affordable rent' established in Health and Safety Code section 50053; (2) the City's approval of amenities should not have been considered when deciding what standards should be waived to accommodate the project; and (3) the City improperly calculated the project's density bonus;'74 The court of appeal rejected all three arguments. Wollmer first argued that the total amount of rent the developer would receive from very low income tenants qualifying for Section 8 subsidies would exceed the "affordable rent" allowed under the Density Bonus Law because the additional federal subsidies would exceed the statutory amount. In determining the merits of this argument, the court concluded: "Under this reasoning, the density bonus law caps the total rent a housing provider can receive from any source to the above amount, whether that rent comes from direct tenant payment or a combination of tenant contributions and a Section 8 subsidy. This is not the law"75 The court continued, "`affordable rent' within the meaning of our density bonus law is concerned with the rent that a tenant pays, not with the compensation received by the housing provider.... It would be nonsensical to equate the notion of setting of `an affordable rent' with that of setting and capping the developer's compensation."76 Finally, `imposing `costs' on a developer attempting to build affordable units is hostile to the letter and spirit of the density bonus law"77 Next, Wollmer argued that by granting a development standard waiver, the City violated the Density Bonus Law because itwas granted to accommodate certain project amenities, including an interior courtyard, a community plaza, and higher ceilings. The appellate court again rejected this argument, 16 California Real Property journal • Volume 29 Number 4 holding that "nothing in the statute requires the applicant to strip the project of amenities.... Standards may be waived that physically preclude construction of a housing development meeting the requirements for a density bonus, period."78 The court's reasoning suggests that a city may not micromanage the design of a project. If the project meets the requirements of the Density Bonus Law, the city must grant development standard waiver requests to ensure the project as designed is not physically prevented from being developed. Quoting the prohibition contained in section 65915(d)(1), the Wollmer II court warned, as it did in Wollmer L "Had the City failed to grant the waiver and variances, such action would have had `the effect of physically precluding the construction of a development' meeting the criteria of the density bonus law"79 Third, Wollmer argued that the City's calculation of the density bonus was improper because the City relied on the densities set forth in its zoning ordinance instead of its general plan. In rejecting Wollmer's third argument, the court explained that the City does not apply the general plan density standards to specific parcels, and found that the City properly calculated the density bonus based on the more specific provisions -of its zoning code.80 The Wollmer II decision reaffirms cities' ability to apply broadly the Density Bonus Law to promote its goals through the award of density bonuses and incentives, and by providing flexibility in granting development standard waivers. VI. LIMITS ON ABILITY TO CONDITION OR DENY A QUALIFIED HOUSING DEVELOPMENT What happens, though, if a city wants to deny a density -bonus project or impose conditions that make the project infeasible? As explained above,8'1" the Housing Accountability Act expressly provides that a city may not take such action against a qualified affordable housing project unless one of that statute's limited findings can be made, and similarly, the Density Bonus Law prohibits a city from denying a request for an incentive or development standard waiver on grounds not identified in that statute. There is less certainty, however, about whether a city can grant the density bonus, and incentive and waiver requests, then deny the project on other grounds. The Density Bonus Law provides that if a general plan amendment, zoning amendment, or other discretionary approval would not otherwise be required for a proposed project, approval of a density bonus or incentives does not require such approvals.82 For example, even if an approved density bonus makes the project's density exceed what was otherwise allowed under the applicable general plan land use designation and zoning district, the applicant would not be required to seek amendments of those local regulations. There may be situations, however, where a project may nonetheless require discretionary approvals not directly related to the density bonus or incentives. In such cases, some cities may argue that the Density Bonus Law does not affect their ability to deny or condition a project under their broad police powers: "A county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws:183 This constitutional authority given to cities to adopt local ordinances is derived from the "inherent reserved power of the state to subject individual rights to reasonable regulation for the general welfare"84 A city's police power "is as broad as that of the state Legislature itself."85 For example, local regulations based on aesthetics are permissible so long as they are reasonably related to the general welfare.86 Even though the police power is broad, it must not "conflict with the general laws"87 A local regulation conflicts with the "general laws," including statutes such as the Density Bonus Law, if it "duplicates, contradicts or enters an area fully occupied by general law, either expressly or by legislative implication"88 It is important to consider this issue in its historical context. Throughout the Density Bonus Law's development, the Legislature declared that affordable housing was critical to California and that cities should not create obstacles to developing affordable housing. This mandate is not limited to the Density Bonus Law, but is also embodied in other statutes, many of which are identified in Government Code section 65582.1. This legislative directive has been accepted by the courts, which have held that the Density Bonus Law should be fully implemented to encourage the creation of more affordable units.89 Therefore, the Legislature and the courts recognize that more affordable housing is badly needed in California, and local agencies should not impose roadblocks to thwart such development unless they can make one of the statutory fmdings.90 For example, in Building Industry Association v. City of Oceanside, the court held that a local ballot measure facially conflicted with, and was preempted by, the Density Bonus Law when it impeded the Density Bonus Law's promotion of construction of low-income housing.91 Similarly, in Friends of Lagoon Valley,92 the court examined the Density Bonus Law and its relationship to the city's police powers, and held that a local ordinance's imposition of a higher threshold for a project to qualify for a density bonus would be preempted by the Density Bonus Law and therefore void. Finally, Wollmer I and Wollmer II suggest that disapproving a density bonus project would -invoke the prohibition in the Density Bonus Law against applying development standards that would physically preclude construction of the project.93 In Wollmer I, the City of Berkeley approved use permits and variances for a mixed-use density bonus project consisting of residential units and retail commercial space.94 When the legality of the City's approval was challenged, the appellate court held: Had the City failed to grant the variances the result would "have the effect of precluding the construction of a development" (§ 65915, subd. (e)), which met the criteria of the Density Bonus Law. If the Project as a whole was not economically feasible, then the below market rate housing units would not be built, and the purpose of the Density Bonus Law to encourage the development of low and moderate income housing would not be achieved.95 A similar conclusion was reached in Wollmer IT regarding the Citys consideration of the project's use permit apphcation.96 Thus, both Wollmer courts have warned that denial of a use permit or variance might be contrary to the Density Bonus law, specifically, section 65915(e)(1). This judicial language implies that if a city California Real Property journal • Volume 29 Number 4 17 disapproves a density bonus project's application for a use permit, variance, design review, or similar permit, and the city cannot make any of the findings set forth in the Density Bonus Law to justify the disapproval, then the action would be contrary to the purpose of the Density Bonus Law and vulnerable to a writ of mandate issued by the courts,97 including attorneys fees and costs. To interpret the law otherwise would allow a city to undermine the purpose of the Density Bonus Law by subjecting the project to a discretionary approval process such as a conditional use permit, then disapproving the project based on broad "general welfare" concerns or similar grounds. Even though such an adjudicatory action would be subject to the standard of review in Code of Civil Procedure section 1094.5, which is a less deferential standard than is typical for legislative actions,$ it is a far easier to meet than the "specific adverse impact" standard provided in the Density Bonus Law. Denying density bonus projects or rendering them infeasible through excessive conditions would mean "that housing units for lower- income households would not be built and the purpose of the density bonus law to encourage such development would not be achieved."99 As a practical note, an applicant should consider formally requesting an incentive or development standard waiver that addresses potential grounds for denial (or excessive conditions of approval). This will invoke the restrictions on denial set forth in subdivisions (d)(3) and (e)(1) of the Density Bonus Law, thereby preserving the opportunity to recover attorney's fees if a subsequent lawsuit is successful. VII. POLITICAL REALITIES Although many cities struggle to meet their fair share of their respective regional housing need, 100- particularly the provision of affordable housing units, developers often encounter local resistance when proposing density bonus projects that would help remedy this shortfall. Indeed, affordable multifamily projects are regularly opposed by neighborhood groups. (These groups often include citizens who identify themselves with "anti - sprawl" and "smart growth" policies — an irony not lost on the development community.) Project opposition in Californias urban centers is often highly -educated and organized, and exerts significant influence on city staff and elected officials. As a result, density bonus projects regularly confront strong third - party opposition and unenthused local officials. A related political consideration is the resistance that developers encounter when city staff and elected officials perceive a development project is forced upon them. If a city believes that a developer is using the Density Bonus Law as a hammer without considering the effect of the project on the community, the city might resist the project with the tools it has available. Given this potential agency reaction, a developer should consider spending time with city staff and officials to discuss not only how the Density Bonus Law affects the project, but also how the project positively affects the city (e.g., by helping attain regional housing requirements, and promoting transit -oriented and sustainable development policies). A mutual understanding of the applicable legal environment and the impact of the project on the community should be viewed as a means for advancing the dialogue between the developer and the city, and need not be characterized as a confrontation. The reality, however, is that even if the statute limits a city's discretion to condition or deny a density bonus project, a city may decide to do so anyway due to neighborhood pressure or as a reaction to perceived strong-arming by the developer. A developer then must decide whether to seek judicial relief, which many are reluctant to do despite the potential to recover attorney's fees and costs, especially if the developer fears repercussions on future projects within that jurisdiction. Because key elements of the Density Bonus Law are still subject to various interpretations that have not been clarified by the Legislature, it will likely be the courts that provide guidance to both developers and cities on future projects. VIII. CONCLUSION The Density Bonus Law is a potentially powerful tool for developers of multifamily projects. Although the Density Bonus Law has existed for over thirty years, both developers and cities have struggled with its application. The statute "is confusing, convoluted, and subject to endless debate about its requirements."101 As a result, many developers are either unaware of the law or unsure about how it works. Many cities share this unfamiliarity and are resistant to attempts to limit their police powers when considering multifamily development applications. The current residential real estate market has begun to sharpen the focus of developers, cities, and practitioners with regard to this statute, and all parties should expect the Density Bonus Law to become a more integral component of the local multifamily housing projects entitlement process. David H. Blackwell is a partner in the Walnut Creek office of Allen Matkins Leck Gamble Mallory & Natsis LLP, where he specializes in all as ofland use entitlements and litigation. David represents landowners, businesses, develop- ers, and governmental agencies before adminis- trative agencies and state and federal courts. ENDNOTES 1 See, e.g., JX Dineen, Peninsula Housing: If You Build It, They Will Rent, S.F. Bus. TimEs, Aug. 26, 2011, avail- able at http://wwwbizjournals.com/sanfrancisco/print-edi- tion/2011 /08/26/peninsula-housing-if-you-build-it.html; Roger Vincent, Apartments Are the Development Du jour Among Builders, L.A. TwES, July 17, 2011, available at http: //www.ladmes. com/business/l a-fi-co mmre-quarterly- apartments-20110717,0,4977484,print. sto ry. 2 CAL. Govt CODE § 65915. All statutory references are to the California Government Code unless otherwise speci- fied. 3 Defined as a "development project for five or more residen- tial units." Id. § 65915(1). 4- Defined as "a density increase over the otherwise maximum allowable density as of the date of application" to the local agency. Id. § 65915(f). 18 California Real Property journal • Volume 29 Number 4 5 A.B. 2280 Bill Analysis, at 8 (Cal. Apr. 21, 2008). 6 Wollmer v. City of Berkeley, 193 Cal. App. 4th 1329 (2011) [hereinafter Wollmer II]. An earlier First District opinion involving Mr. Wollmer's challenge to the City of Berkeley's application of the Density Bonus Law to a different project is Wollmer v. City of Berkeley, 179 Cal. App. 4th 933 (2009) [hereinafter Wollmer 4. 7 Bldg. Indus. Assn v. City of Oceanside, 27 Cal. App. 4th 744, 770 (1994); CAL. GovT CODE § 65582.1({). 8 Wollmer 11, 193 Cal. App. 4th at 1339. 9 CAL. GovT CODE § 65917. 10 Friends of Lagoon Valley v. City of Vacaville, 154 Cal. App. 4th 807, 824 (2007) (quoting Shea Homes Ltd. P'ship v. County ofAlameda, 110 Cal. App. 4th 1246, 1263 (2003)). 11 Friendr of Lagoon Valley, 154 Cal. App. 4th at 825. 12 Notes to Stats. 1979, ch: 1207, at 4738, sec. 3 (Cal. 1979). 13 A.B. 1866 Bill Analysis, at 3-4 (Cal. Aug. 28, 2002). 14 Id. at 4. 15 CAL. GOVT CODE § 65918. 16 Id. § 65915(a). 17 CAL. HEALTH & SAPETY CODE § 50079.5. 18 Id. § 50105. 19 Id. § 50093. 20 Wollmer II, 193 Cal. App. 4th at 1339; see CAL. GovT CODE § 65915(b)(1)(A)-(D). 21 See discussion infra Part III.B.3. 22 See CAL. GOVT CODE § 65915(d)(1). 23 Stats. 2005, ch. 496, sec. 3. 24 Friends of Lagoon Valley v. City of Vacaville, 154 Cal. App. 4th 807, 824 (2007). 25 Id. at 830. 26 See discussion supra Part III.A.1. 27 Wollmer II, 193 Cal. App. 4th at 1340.- 28 Id. at 1343. 29 CAL. GOVT CODE § 65915(f)(4). 30 Id. § 65915(f)(1). 31 Id. § 65915(f)(2). 32 Id. § 65915(f)(3). 33 Id. § 65915(b)(3). 34 Id. § 65915(n). The "[i]f permitted by local ordinance" limitation was added by AB 2280 in 2008. Both Friends of Lagoon Valley, 154 Cal. App. 4th at 826, and Wollmer 1, 179 Cal. App. 4th at 944, analyzed the pre AB 2280 version of section 65915(n) to hold that no implementing ordinance was required for a city to allow a greater number of density bonus units. 35 CAL. GovT CODE § 65915(4)(1). 36 Wollmer I, 179 Cal. App. 4th at 944. 37 CAL. GOVT CODE § 65915(k). 38 The legislative analyses of SB 1818 indicate that the pur- pose of this provision was to "ensure that the incentives have some value. The intent of adding `financially sufficient' is [to] ensure that value is more than nominal and actually of benefit to the developer." A.B. 1818 Bill Analysis, at 5 (Cal. Apr. 16, 2004). 39 CAL. GovT CODE § 65917. �.. 40 • Id. § 65915(1). The receipt of direct financial incentives provided under the Density Bonus Law, however, removes a rental housing project from the preemption provisions of the Costa Hawkins Act, as explained in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, 175 Cal. App. 4th 1396, 1402 (2009). 41 Mitchell B. Menzer & Svedana G. Attestatova, A Guide to California Government Code Section 65915: Density Bonuses and Incentives for Affordable Housing, 23 CAL. REAL PROP. J., Spring 2005, at 6-7. 42 Moderate income units must be in a common interest development. CAL. Go -VT CODE § 65915(b)(1)(D). 43 Id. § 65915(d)(2). 44 Id. § 65915(p)(1). 45 Id. 46 Id. § 65915(d)(3). 47 Although not defined in section 65915, "substantial evi- dence" is generally defined as evidence of "ponderable legal significance ... reasonable in nature, credible, and of solid value, and relevant evidence that a reasonable mind might accept as adequate to support a conclusion." Young u Gannon, 97 Cal. App. 4th 209, 225 (2002) (internal cita- tions omitted). 48 CAL. GO* CODE § 65915(d)(1). 49 A.B. 1866 Bill Analysis, at 5 (Cal. May 7, 2002); A.B. 1866 Bill Analysis, at 6 (Cal. Apr. 22, 2002); A.B. Bill Analysis, at 1 (Cal. Apr. 8, 2002). 50 See Wollmer II, 193 Cal. App. 4th at 1344. 51 See discussion infra Part V. 52 CAL. GovT CODE § 65589.5(j)(1). 53 Wollmer IT, 193 Cal. App. 4th at 1349-50 (quoting. CAL. GovT CODE § 65589.5(d)(2)). 54 See discussion infra Part VI. 55 CAL. Gov'T-CODE-§-65915(d)(3). 56 Id. § 65915(e)(1). The 2008 amendments added the refer- ences -to "physically precluding" the construction of a den- sity bonus project, and deleted subdivision (f), which read: "The applicant shall show that the waiver or modification is necessary to make the housing units economically feasible." See Wollmer II, 193 Cal. App. 4th at 1346. 57 CAL. GOVT CODE § 65915(o)(1). 58 Id. § 65915(e)(2). 59 Id. § 65915(e)(1). The statute does not identify any find- ings that may be applied to deny a density bonus request. 60 Id. 61 Id. 62 Id. § 65589.5. 63 Id. § 65589.5(b). 64 N. Pacifica, LLC v. City ofPacifica, 234 F. Supp. 2d 1053, 1057-58 (N.D. Cal. 2002). 65 The Housing Accountability Act defines "feasible" as "capa- ble of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, , social, and technological factors." CAL. GOVT CODE § 65589.5(h)(1). 66 Id § 65589.5(d)(2); see also id. § 65915(d)(1). 67 Id. § 65589.5(h)(3). 68 Id. § 65915(b)(1)(A). 69 Similar to the definitions in subdivision (d) (2) and (d)(1)(B) of section 65915, a "specific, adverse impact" is defined as "a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety California Real Property journal • Volume 29 Number 4 19 standards, policies, or conditions as they existed on the date the application was deemed complete." Id. § 65589.5(j)(1). 70 Id. § 65589.5(j). 71 N. Pacifica, LLC a City of Pacifica, 234 R Supp. 2d 1053, 1060 (N.D. Cal. 2002). 72 Id. at 1059. 73 Wollmer 1, 179 Cal. App. 4th 933 (2009); Friends of Lagoon Valley v. City of Vacaville, 154 Cal. App. 4th 807 (2007). 74 Wollmer II, 193 Cal. App. 4th at 1338. 75 Id. at 1342. 76 Id. at 1342-43. 77 Id. at 1344. 78 Id. at 1346. 79 Id. at 1347 (quoting Wollmer I, 179 Cal. App. 4th 933, 947 (2009)). 80 U. at 1344-45. 81 See discussion supra Part IV. 82 CAI.. GovT CODE § 659150(5), (j). 83 CAL. CONST. art. JCI, § 7. 84 Cotta v. City cr County of San Francisco, 157 Cal. App. 4th 1550, 1557 (2007) (citing 8 WITKIN, SUMMARY OP CAL. Law Constitutional Law § 784 (9th ed. 1988)). 85 Richeson v. Helal, 158 Cal. App. 4th 268, 277 (2007). 86 See, e.g., Novi v. City ofPacifrca, 169 Cal. App. 3d 678, 682 (1985). 87 CAL. CONST. art. XI, § 7. 88 Viacom Outdoor, Inc. v. City of Arcata, 140 Cal. App. 4th 230, 236 (2006). 89 See, e.g., Bldg. Indus. Assn v. City of Oceanside, 27 Cal. App. 4th 744, 770 (1994); Friends of Lagoon Valley v. City of Vacaville, 154 Cal. App: 4th 807, 823-24 (2007); Shea Homes Ltd. Plhip v. County of Alameda, 110 Cal. App. 4th 1246, 1263 (2003); Vollmer I, 179 Cal. App. 4th at 940- 41; Vollmer II, 193 Cal. App. 4th at 1339 . 90 See discussion supra Part III.B.3. 91 Bldg. Indus. Assn, 27 Cal. App. 4th at 770, 772. 92 Friends of Lagoon Valley, 154 Cal. App. 4th at 830. 93 CAL. GOv'T CODE § 65915(e)(1). 94 Vollmer I, 179 Cal. App. 4th at 936. 95 Id. at 937. 96 "If the project were not built, it goes without saying that housing units for lower-income households would not be built and the purpose of the density bonus law to encourage such development would not be achieved." Vollmer II, 193 Cal. App. 4th at 1347. 97 At least one trial court has ruled that the Density Bonus Law requires a city to approve a density bonus project where housing was otherwise entirely prohibited. See Lewis J. Soffer, Does the Density Bonus Law (Gov. Code 5 65915) Require Local Government to Approve Mixed Use and Housing Projects Where Local Zoning Does NotAllow Housing atAll?, 18 MILLER & STARR REAL ESTATE NEwsALERT, July 2008, at 2. 98 See, e.g., Topanga Assoc. for a Scenic Cmty. a County of Los Angeles, 11 Cal. 3d 506, 515 (1974). 99 Vollmer II, 193 Cal. App. 4th at 1347. 100 See CAL. Gov'T CODE §§ 65584-655.84.7. 101 A.B. 2280 Bill Analysis, Staff Comments, at 11 (Cal. Apr. • 21, 2008). 20 California Real Property journal • Volume 29 Number 4 LEAGUE° OF CALIFORNIA n trr+r r n Not Just Density Bonuses: Dealing with Demands Beyond the Bonus Friday, October 7, 2016 General Session; 8:00 —10:15 a.m. Lynn E. Hutchins, Goldfarb & Lipman Karen M. Tiedemann, Goldfarb & Lipman DISCLAIMER: These materials are not offered as or intended to be legal advice. Readers should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. Copyright © 2016, League of California Cities®. All rights reserved. This paper, or parts thereof, may not be reproduced in any form without express written permission from the League of California Cities®. For further information, contact the League of California Cities® at 1400 K Street, 4th Floor, Sacramento, CA 95814. Telephone: (916) 658-8200. League of California Cities® 2016 Annual Conference, City Attorneys' Track Long Beach Convention Center Notes: League of California Cities® 2016 Annual Conference, City Attorneys' Track Long Beach Convention Center A GUIDE TO CALIFORNIA DENSITY BONUS LAV (AT LEAST UNTIL THE NEXT LEGISLATIVE SESSION) Lynn Hutchins & Karen M. Tiedemann GOLDFARB & LIPMAN LLP League of California Cities City Attorneys Department Fall Conference Long Beach, CA October 7, 2016 1300 Clay Street, Eleventh Floor Oakland, CA 94612 510 836-6336 lhutchins@goldfarblipman.com ktiedemann@goldfarblipman.com 990052\1\1948900.4 A GUIDE TO CALIFORNIA DENSITY BONUS LAW The State's density bonus law (Government Code Section 65915 — 65918) has over the course of the last several legislative sessions been the subject of bills modifying the statute and once again is the subject of three bills currently poised for adoption by the California legislature. Although the goal of several past bills was to clarify the statutory language, the results have often been to create even more confusion for cities attempting to implement this poorly drafted law. The overall intent of the law is to create incentives for developers to include affordable housing within their projects by granting increased density and other regulatory incentives. The reality of the law is that developers who include only small amounts of affordable housing in their projects — as little as 5 percent — are entitled to receive large incentives: density bonuses of 20 to 35 percent, depending on the amount and type of affordable housing provided; parking reductions; up to three "concessions and incentives," and unlimited "waivers" from development standards. This paper will discuss the background and current provisions of the state density bonus law, including calculation of the density bonus, incentives and concessions, waivers of development standards and reduced parking mandates; the relationship of state density bonus law to other planning documents; and some strategies to consider in the context of a city's overall regulatory planning scheme. We anticipate providing an addendum to this paper at the conference to address any new statutory provisions if the pending legislation is enacted. A. Background of the State Density Bonus Law. The State's density bonus law, prior to amendments adopted in 2004, provided a 25 percent increase in density in exchange for 10 to 20 percent affordable housing. Anecdotal reports indicated that few developers took advantage of the legislation because of the relatively high percentage of affordable housing required to receive a bonus. In 2004, a coalition of housing advocates and the California Association of Realtors (CAR) achieved the passage of S131818, which made significant changes in the law. The changes reduced the proportion of affordable units needed to obtain a density bonus, increased the maximum bonus from 25 to 35 percent, required local governments to grant additional concessions, and added a bonus for land donation. The Legislature has since amended the law six times. Most recently, the density bonus law was amended in 2014 to increase the duration of affordability restrictions required for rental units, to require equity -sharing for all for -sale units, and to add replacement housing requirements for units occupied by or affordable to low and very low income households. In 2015 the statute was amended again to reduce parking requirements for certain projects located near transit stops. In the current legislative session there are three bills being considered to further amend the law. Regardless of the statute's ambiguity and complexity, all cities and counties must adopt an ordinance specifying how they will comply with the legislation.' The law is applicable to charter cities.2 ' Government Code §65915(a). All further references are to the Government Code unless otherwise indicated. In addition, all references are to the statute as amended by S13744, Chapter 699, Statutes of 2015 (effective January 1, 2016.) 990052\1\1948900.4 B. Basic Provisions. Density bonuses must be given for affordable housing, senior housing (whether or not affordable), donations of land for affordable housing, condominium conversions that include affordable housing, and child care facilities. In addition to density bonuses, applicants who provide the required amount of affordable housing qualify for various zoning modifications (defined as "incentives and concessions" or "waivers") and for reduced parking standards. If a development provides the required affordable housing, the applicable density bonus and reduced parking standards must be provided. There are no grounds in the statute to deny a developer's request. The density bonus law does contain specific findings by which incentives, concessions and waivers may be denied. 1. Projects Eligible for Density Bonuses. Density bonuses are available to five categories of residential projects: a. Affordable Housing. Housing developments for at least five dwelling units or unimproved lots3 are eligible for density bonuses if either: • Five percent of the units are affordable to very low income households earning 50 percent of median income or less;4 or • Ten percent are affordable to lower income households earning 80 percent of median income or less;5 or • Ten percent are affordable to moderate income households earning 120 percent of median income or less, but only if the project is a common interest development where all of the units, including the moderate -income units, are available for sale to the public.7 Rental units affordable to moderate -income households are not eligible for a density bonus. These required percentages of affordable housing apply only to the project without any density bonus, not the entire project.8 For instance, assume that a 100 -unit project is 2 §65918. ' §65915(i) (which states that the bonuses apply to housing developments consisting of five or more dwelling units but also defines "housing development" as including residential units, subdivisions, conversion of commercial buildings to residences, and rehabilitation of apartments that creates additional dwelling units). The definitions are poorly written and could be interpreted to allow a density bonus for an existing affordable development. However, §65915(b)(1) states that a bonus is available when an applicant "agrees to construct" a housing development, implying that the bill does not apply to existing developments. 4 §65915(b)(1)(B) (referring to Health & Safety Code §50105 for definition of very low income households; see also 25 CCR §6926). Income levels for all categories are adjusted by household size and published annually for each county by the California Department of Housing and Community Development. See 25 CCR § 6932. ' §65915(b)(1)(A) (referring to Health & Safety Code §50079.5 for definition of lower income households; see also 25 CCR §6928). 6 As defined by Civil Code §4100. ' §65915(b)(1)(D) (referring to Health & Safety Code §50093 for definition of moderate income households; see also 25 CCR §6930). ' §65915(b)(3). 2 990052\1\1948900.4 entitled to a 20 percent density bonus, resulting in a total of 120 units. To qualify for the 20 percent bonus, the project need only provide: five very low income units (five percent of 100); or + ten lower income units (ten percent of 100). Continued Affordability. To be eligible for a density bonus, the affordable units must be sold or rented at affordable prices or rents and rental units must remain affordable for a specified period. • Rental Units: All very low income and lower income rental units must remain affordable for 55 years (unless a subsidy program requires a longer period of affordability).9 Housing costs for very low income units cannot exceed 30 percent of 50 percent of median income. For lower income units, rents cannot exceed 30 percent of 60 percent of median income. 10 ■ Ownership Units: Fur -sale units are only required to be affordable to the initial occupants of the units, who must be very low income, lower income or moderate income, as applicable. The for -sale unit must be sold to the initial occupant at an affordable housing cost as defined in Health and Safety Code Section 50052.5. 11 At resale, the local government must enforce an equity -sharing agreement (involving sale of the home at fair market value and sharing of the profits with the city) unless an equity sharing agreement conflicts with another public funding source or "law." 12 This latter provision is significant because it allows counties and cities to adopt their own laws imposing stricter resale controls on for -sale units, if desired. However, the requirement should be adopted by ordinance. Any equity sharing agreement must provide for the local government to recapture the difference between the fair market value of the home at time of sale and the actual sales price to the initial occupants plus any other assistance provided by the city or county, as well as a proportionate share of the appreciation.13 Any amounts recovered by the city or county must be used within five years to promote homeownership opportunities in the community. i4 In housing markets with rapidly increasing costs, the equity sharing formula mandated by the statute will rarely provide enough funds for the city to acquire another affordable unit at the same income level, with the result that the developer will have received permanent zoning concessions without the city's receiving long-term affordable housing. 9 §65915(c)(1). 10 §65915(c)(1) (referring to Health & Safety Code §50053). Agencies should use HCD's published income charts for each county to determine applicable very low, low, and moderate -income limits. These are available on HCD's web site. " §65915(c)(2) (referring to Health & Safety Code §§50093 & 50052.5). 'Z §65915(c)(2). " §65915(c)(2). 14 §65915(c)(2)(A) requires that the funds be spent for the purposes described in subdivision (e) of §33334.2 of the Health and Safety Code, the statute that governed the expenditure of low and moderate income housing funds held by redevelopment agencies. 990052\1\1948900.4 Affordable rents and sales prices for the affordable units must be determined by using the methodology included in the California Code of Regulations. 15 Total housing costs for rentals include rent, utilities, and any fees and service charges levied by the landlord. Total housing costs for ownership units must include principal, interest, property taxes, insurance, private mortgage insurance (if any), utilities, homeowners' association fees, and an allowance for maintenance costs. These formulas tend to result in lower sales prices than would be typical in the private market. Banks would generally be willing to loan more money to these buyers than is the case when the statutory formulas are used. b. Senior Housing. A senior citizen housing; development, as defined by Civil Code Sections 51.3 and 51.12,' or a mobile home park that limits residency to seniors in accordance with Civil Code Sections 798.76 or 799.5, is eligible for a density bonus even if none of the units are affordable. Senior housing projects eligible under Civil Code Section 51.3 must contain at least 35 units. 17 A developer of senior affordable housing may elect either the low income or senior bonus, although the low income bonus is much more advantageous (as discussed below). C. Replacement Units. The 2014 amendments to the density bonus law added replacement housing requirements for developments that result in the demolition or removal of rental units affordable to or occupied by very low or low income households. The language of the replacement housing sections of the statute is particularly confusing and difficult to implement. Under the statute, a density bonus is not allowed for a development proposed on property on which occupied rental dwellings exist at the time of application, or rental dwellings were vacated or demolished in the five year period preceding the application, if the dwelling unit was: • Subject to a recorded covenant, ordinance or law that restricts rents to levels affordable to very low or lower income households; Subject to rent control; or Occupied by households with very low or lower incomes; 18 unless the proposed development is 100 percent affordable (other than the manager's unit) to lower or very low income households or the proposed development replaces the units and provides enough total affordable units, which may include any replacement units, to be eligible for a density bonus. Projects with applications submitted before January 1, 2015, are exempt from this provision. Many of the replacement housing requirements contained in the 2014 amendments are either ambiguous or cannot be ascertained from the statute. It appears that AB2556 will be enacted in the 2016 legislative session to clarify these requirements but at the time of this paper the bill is still pending. 15 25 CCR §§6910, 6918 & 6920. 16 This code Section is applicable only to Riverside County. " Civil Code §51.3(b)(4). 8 §65915(c)(3). 4 990052\1\1948900.4 d. Donations of Land. A land donation can qualify a project for a density bonus if the parcel donated is large enough to accommodate at least ten percent of the market - rate units at densities suitable for very low income housing. 19 In other words, a 500 -unit market - rate project can receive a density bonus by donating land zoned at densities that can accommodate, and are suitable for, a 50 -unit very low income project. Land donations must meet strict criteria. In particular, the land donation must satisfy all of the following requirements: 20 • Land must have the appropriate general plan designation, zoning, and development standards to permit the feasible development of units affordable to very low income households in an amount equal to at least ten percent of the units in the residential development; of at least 40 units; Be at least one acre in size or large enough to permit development • Be served by adequate public facilities and infrastructure; Be located within the boundary of the residential development or within one-fourth mile of it (if approved by the local agency); • Have all necessary approvals except building permits needed to develop the very low income housing, unless the local government chooses to permit design review approval at a later date; • Be subject to a deed restriction to ensure continued affordability; ■ Be transferred to either the local agency or a housing developer approved by the local agency; and ■ Be transferred no later than the date of approval of the final map, parcel map, or discretionary approval of the housing development receiving the bonus. • Proposed source of funds for the construction of the very low income units must be identified. These criteria in effect make land donation an option only for larger projects which can donate sites of at least one acre. This option can be quite favorable for large developers, however, because a site large enough to accommodate ten percent very low income units will normally include much less than ten percent of the projects land area. That is because very low income projects are usually built at densities of at least 20 units per acre, greater than the density of most market -rate projects in "greenfield" areas. If a county or city is willing to allow higher densities, this can be an effective way to create significant affordable housing. 19 §65915(g). 20 §65915(g)(2)(A - H). 990052\1\1948900,4 e. Condominium Conversions. A condominium conversion is eligible for a density bonus if either 33 percent of units are affordable to moderate -income households or 15 percent are affordable to lower income households. 21 The bonus units must be located entirely within the structures proposed for conversion. 22 f. Child Care Facilities. A housing development is eligible for an additional bonus if it includes a child care facility and either qualifies as a senior citizens housing development or includes enough affordable housing to be eligible for a density bonus. 23 The statute requires counties and cities to place strict operating requirements on the child care facilities. The child care centers must: • Remain in operation for the period of time that affordable units must remain affordable (55 years in the case of rental units affordable to very low and lower income households, the affordability duration on ownership units is not specified so it is unclear how long the child care facility would be required to operate in an ownership development); and ■ Ensure that the children attending the facility come from households with the same or greater proportion of very low, lower, or moderate incomes as qualified the project for the density bonus.24 In other words, if the housing development qualified for a density bonus because ten percent of the units were affordable to moderate -income households, then ten percent of the children at the child care center must come from moderate - income households. These conditions are in a practical sense virtually impossible to enforce over time, although they must be imposed as conditions of approval. 2. Density Bonuses Available. a. Affordable Housing. The density bonus law gives higher bonuses for lower income housing and lower bonuses for moderate -income housing. Housing developments are eligible for a 20 percent density bonus if they contain: or • Five percent of units affordable to very low income households; 25 Ten percent of units affordable to lower income households. 26 Housing developments qualify for only a five percent density bonus if ten percent of the units are affordable to moderate -income families. 27 Z' §65915.5(a) (referring to Health & Safety Code §50093 for definition of moderate income households and to Health & Safety Code §50079.5 for definition of lower income households). 22 §65915.5(b). Given how unusual it would be for existing rental apartments to accommodate a 25 percent increase in density, this Section must have been intended for one particular project. 23 §65915(h). §65917.5 also allows a city or county to provide a density bonus for a commercial or industrial project that includes a child care facility. 24 §65915(h)(2). 25 §65915(1)(2). 26 §65915(f)(1). 6 990052\1\1948900,4 In addition, there is a sliding scale that requires: • An additional 2.5 percent density bonus for each additional one percent increase in very low income units; 28 • An additional 1.5 percent density bonus for each additional one percent increase in lower income units; 29 and • An additional one percent density bonus for each one percent increase in moderate income units. 30 No total density bonus can be greater than 35 percent unless the city or county by local ordinance allows for a higher density bonus.31 The maximum density bonus is reached when a project provides either I 1 percent very low income units, 20 percent lower income units, or 40 percent moderate income units. The table on page 8 shows these calculations. 32 A developer must choose a density bonus from only one affordability category and cannot combine categories. 33 Thus a project that includes, say, ten percent moderate -income units and ten percent lower income units must choose the bonus from either the moderate - income category or the lower income category. Since the project would be entitled to a 20 percent bonus based on the lower income units, but only a five percent bonus based on the moderate -income units, the developer would presumably select the density bonus based on the lower income category and would get no additional bonus for the moderate -income units. The effect is to encourage developers to concentrate units in either the lower or very low income categories. b. Senior Housing. A project qualifying only as a senior citizen housing development is entitled to a 20 percent density bonus of additional senior units only. 34 The bonus cannot be combined with the bonuses granted for affordable housing, but the developer of an affordable senior project can elect to use the very low or lower income bonus. 35 Because this bonus is so limited, it is typically used only by market -rate senior projects. C. Donations of Land. Additional density, which may be combined with the density bonuses given for affordable and senior housing, is available for projects that donate land for very low income housing. However, in no case can the total bonus granted exceed 35 percent. 36 27 §65915(f)(4). 28 §65915(f)(2). z9 §65915(f)(1). 30 §65915(f)(4). 31 §65915(n). 12 SB435 (2005) amended the law to include tables for each category showing the specific bonus granted for varying percentages of affordability. 13 §65915(b)(2). 14 §65915(f)(3). " §65915(b)(2). 16 §65915(g)(2). 7 990052\1\1948900.4 A density bonus of 15 percent is available for a land donation that can accommodate ten percent of the market -rate units in the development. An additional one percent density bonus is available for each one percent increase in the number of units that can be accommodated on the donated land, up to a maximum of 35 percent. 37 d. Condominium Conversions. A condominium conversion is entitled to a flat density bonus of 25 percent when either 33 percent of the units are moderate -income units or 15 percent of the units are lower income units. 38 Here, however, the local agency can instead choose to provide an alternative incentive of "equivalent financial value" if it does not choose to grant the density bonus. 39 Note that a conversion is ineligible for a bonus if the apartments to be converted received a density bonus when they were originally built.40 e. Child Care Facilities. A child care facility meeting the operational requirements of the statute and constructed in association with an affordable or senior project is entitled to either an additional density bonus equal to the amount of square footage in the child care center; or an alternative incentive that "contributes significantly to the economic feasibility" of the center. 41 Since a "density bonus" is usually interpreted to refer to the number of dwelling units permitted on a site, it is unclear how this requirement for additional square feet relates to the otherwise permissible residential density. The following table summarizes the available density bonuses. 37 §65915(g)(1). 3e §65915.5(a) & (b). 39 §65915.5(a). 40 §65915.5(fl. 41 §65915(h)(1). 8 990052\1\1948900.4 Additional Minimum Bonus for Each Percent Units Percent Bonus One PercentRequired in Category Affordable Units or Category Units in Granted Increase in for Category Units in Maximum 35 CategoryVery-low Percent Bonus income 5% 20% 2.5% 11% Lower-income 10% 20% 1.5% 20% Moderate -income (ownership 10% 5% 1 % 40% units only) Senior housing (35 units or 100% senior 20% -- more; no affordable units (senior required) or Senior Mobile units Home Parks only) Condominium conversion — 33% 25%ta' -- - moderate -income Condominium conversion — 15% 25% a -- -- lower-income A densi bonus may be selected from only one ategory above, except that bonuses for land 37 §65915(g)(1). 3e §65915.5(a) & (b). 39 §65915.5(a). 40 §65915.5(fl. 41 §65915(h)(1). 8 990052\1\1948900.4 f. Calculating the Density Bonus. ■ Bonus over Zoning Maximum or General Plan Maximum? The density bonus is to be calculated over the "maximum allowable residential density." Section 65915(o)(2) defines "maximum allowable residential density" as that allowed under the zoning ordinance and the land use element of the general plan, or, if a range of density is specified, the maximum allowed. If the density allowed under the zoning ordinance is inconsistent with the density allowed under the land use element of the general plan, the general plan density will prevail. Effectively, this provision means that the bonus is calculated over that shown in the land use element of the general plan. In some cases the maximum density allowed by the zoning ordinance is considerably less than the maximum density range shown in the land use element. Cities should attempt to make these consistent to avoid a surprise request for a density bonus substantially greater than allowed by zoning. Alternatively, developers may desire a bonus over the zoning maximum but have no interest in a bonus over a higher land use element maximum. While strict construction of the statutory language suggests this is not a request for a "density bonus," local agencies typically ignore this problem and treat the application as a density bonus request. 9 990052\1\1948900,4 Additional Percent Units Minimum Bonus for Each in Category Affordable Units or Category Percent Bonus One PercentRequired for Units in Cranted Increase in Maximum 35 Category Units in Category percent Bonus donation may be combined with others, up to a maximum of 35%, and an additional sq. ft. bonus ma be granted.for a child care center. Land donation for very -low 10% of 15% 1% 30% income housing market -rate units Child care center -- Sq. Ft. in -- -- day care centerl`" Notes: (a) Or an incentive of equal value, at the city's option. f. Calculating the Density Bonus. ■ Bonus over Zoning Maximum or General Plan Maximum? The density bonus is to be calculated over the "maximum allowable residential density." Section 65915(o)(2) defines "maximum allowable residential density" as that allowed under the zoning ordinance and the land use element of the general plan, or, if a range of density is specified, the maximum allowed. If the density allowed under the zoning ordinance is inconsistent with the density allowed under the land use element of the general plan, the general plan density will prevail. Effectively, this provision means that the bonus is calculated over that shown in the land use element of the general plan. In some cases the maximum density allowed by the zoning ordinance is considerably less than the maximum density range shown in the land use element. Cities should attempt to make these consistent to avoid a surprise request for a density bonus substantially greater than allowed by zoning. Alternatively, developers may desire a bonus over the zoning maximum but have no interest in a bonus over a higher land use element maximum. While strict construction of the statutory language suggests this is not a request for a "density bonus," local agencies typically ignore this problem and treat the application as a density bonus request. 9 990052\1\1948900,4 What If There's NO Maximum Density in the Zoning Ordinance? A few communities do not place any limit on the number of dwelling units that can be constructed on a site, but instead allow as many units as can be constructed given limitations on height, setbacks, floor area, and other zoning regulations. How is a density bonus calculated in that case? In at least one court decision, the fact that the city did not have a maximum density standard in its zoning ordinance meant that the bonus was calculated over the density standards in the land use element. In Wollmer v. City of Berkeley ("Wollmer II'),42 the petitioner argued that the city misapplied the density calculation by using the density standards of the zoning ordinance rather than the general plan. The city's zoning ordinance did not have a maximum density for the applicable zoning classification but rather relied upon the land use element of the general plan to determine density, which limited density by area rather than a particular property. The density bonus was based on the general plan densities and was upheld by the Court. • Rounding Up. Any density bonus calculation resulting in a fraction entitles the developer to another bonus unit. 43 For instance, a project with 102 units, ten percent of which are affordable to lower income households, is entitled to 21 bonus units (20% x 102 = 20.4, or 21 bonus units). The number of affordable units to be provided must also be rounded up. Thus, in a 102 -unit project, a developer would need to provide 11 units to meet the ten percent requirement (10% x 102 = 10.2, or 11 affordable units). With only ten affordable units, the developer would not reach the ten percent threshold. 3. Concessions, Incentives, Waivers and Reductions. Of greatest concern to cities are the requirements in the statute that give applicants the right to modifications in local development standards: zoning, subdivision controls, and design review requirements. As developers have become more familiar with the density bonus laws, they have frequently proposed projects with large height and setback exceptions, creating substantial public opposition. Unfortunately, if faced with requests for even large variations from local ordinances, cities' discretion may be limited. Applicants can have standards relaxed in two ways: by requesting "concessions and incentives;" and by asking for "waivers and reductions." In addition, applicants can request the reduced parking standards contained in the statute even if the applicant is not requesting a density bonus, as discussed in Section 4 below. a. Concessions and Incentives. An applicant who: (1) applies for a density bonus; and (2) bases the request on the provision of affordable housing may also apply for one to three "concessions or incentives." "Concessions and incentives" are defined as: 42 193 Cal. App. 0 1329 (2011). 49 §65915(f)(5) & (g)(2). 10 990052\1\1948900.4 • Reductions in site development standards or modifications of zoning and architectural design requirements, including reduced setbacks, increase in height limits, and square footage required, that result in "identifiable, financially sufficient, and actual cost reductions. ,44 • Mixed used zoning that will reduce the cost of the housing, if the non-residential uses are compatible with the housing development and other development in the area. 45 • Other regulatory incentives or concessions that result in "identifiable, financially sufficient, and actual cost reductions.'.46 One to three incentives or concessions may be requested on a sliding scale, depending on the amount of affordable housing provided, as shown in the table below. Target Units or Category Percent of Tar et Units Very -low income 5% 10% 15% Lower-income 10% 20% 30% Moderate -income (ownership units only) 10% 20% 30% Condominium conversion – 33% moderate - income Condominium conversion – 15% lower-income Day care center Maximum Incentive(s)/Concession(s) 2 3 Notes: (a) A concession or incentive may be requested only if an application is also made for a density bonus. (b) Concessions or incentives may be selected from only one category (very -low, lower, or moderate). (°) No concessions or incentives are available for land donation or market -rate senior housing. (d) Condominium conversions and day care centers may have one concession or a density bonus at the city's option, but not both. The developer has the right to select the incentives, although a city or county may of course encourage the developer to select other incentives on a voluntary basis. Many jurisdictions offer a menu of incentives that the city will approve without further evidence from the developer. However, to deny the specific incentives proposed, the local government must either find that they do not meet the threshold requirements set in the statutein particular, that they do not result in "identifiable, financially sufficient, and actual cost reductions"—or make the findings required to deny a request for an incentive, discussed below. Many communities " §65915(k)(1). 45 §65915(k)(2). 46 §65915(k)(3). 4' §65915.5(a). 48 §65915.5(a). 49 §65915(h). 11 990052\1\1948900-4 require a pro forma to justify an incentive. As a consequence, developers have increasingly requested waivers rather than incentives. No published case evaluates incentives. Note that there is no requirement that local government provide any "direct financial incentives" for a project. "Direct financial incentives" include provision of publicly owned land and waivers of fees and dedication requirements. 50 b. "Waivers and Modifications" of "Development Standards." Localities may not enforce any "development standard" that would physically preclude the construction of a project with the density bonus and the incentives or concessions to which the developer is entitled.51 In addition to requesting "incentives and concessions," applicants may request the waiver of an unlimited number of "development standards" that would physically preclude the construction of a project with the density bonus and the incentives or concessions to which the developer is entitled. These waivers and modification do not change the number of incentives or concessions available to the developer. Waivers and modifications are not limited to projects containing affordable housing and may be requested by any applicant requesting a density bonus, including bonuses for senior housing, condominium conversions, and child care centers. The statute defines a "development standard" as "a site or construction condition, including, but not limited to, a height limitation, setback requirement, a floor area ratio, an onsite open -space requirement, or a parking ratio that applies to a residential development pursuant to any ordinance, general plan element, specific plan, charter or other local condition, law, policy, resolution or regulation. ,52 "Site and construction conditions" appear to be confined to conditions affecting the physical location or type of construction and do not include use restrictions, procedural requirements, affordable housing requirements, and impact fees. Given the overlap of the use of "development standard" in both the "concession or incentive" context and the "waiver" context, developers typically request any number of waivers of development standards and focus their limited requests for incentives or concessions on standards they could not justify as a waiver. It is not clear how to determine that a development standard "physically precludes" a project with a density bonus. It means something less than "physically impossible." In Wollmer H, the plaintiff argued that height and setback waivers were not needed because ceiling heights could be reduced below nine feet, and amenities including an interior courtyard and community plaza could be eliminated. The court explicitly rejected this contention, stating: "Standards may be waived that physically preclude construction of a housing development meeting the requirements for a density bonus, period. The statute does not say that what must be precluded is a project with no amenities, or that amenities may not be the reason a waiver is needed. ,53 No case examines what changes a city can require to be made in a project when a waiver is requested, or what evidence is required to deny a waiver. so § 65915(1). 51 § 65915(e). 12 § 65915(o)(1). " 193 Cal. App. 4'h 1329, 1346-47 (2011) (citation omitted). 12 990052\1\1948900.4 4. Reduced Parking Requirements. The density bonus law entitles a developer who qualifies for a density bonus to parking reductions as a separate entitlement. A developer could request even lower parking ratios as a concession or waiver under the density bonus law. 54 a. Basic Parking Standards. If a project qualifies for a density bonus because it is a senior project or provides affordable housing, a city or county, at the request of the developer, must reduce the required parking for the entire project—including the market -rate units—to the following: zero to one bedroom – one on-site parking space; 0 two to three bedrooms – two on-site parking spaces; and • four or more bedrooms – two and one-half on-site parking spaces. 55 These numbers include guest parking and handicapped parking. The spaces may be in tandem or uncovered, but cannot be on -street. The standards are uniform throughout the state, with no ability to vary them for local conditions. b. Parking Standards Near Transit Stops A13744, effective January 1, 2016, mandates additional parking reductions for affordable housing and housing located within one-half mile of major transit stops if requested by the developer, as shown in the table on the next page. 56 A "major transit stop" is a site containing a rail station, a ferry terminal served by bus or rail, or the intersection of two or more bus routes that provide service every 15 minutes, or more frequently during the morning and afternoon peak commute periods, or a major transit stop identified in a regional transportation plan. 57 This definition permits lower parking requirements even where a major transit stop included in a regional transportation plan has not yet been constructed. A site has "unobstructed access" if a resident can "access" the stop "without encountering natural or constructed impediments. ,58 It is not clear how access must be obtained (on foot? by car?), but it is possible that some sites that appear to be within a one-half mile radius of a major transit stop may be excluded if the street network does not allow a driver or pedestrian to reach the stop in one-half mile. sa §65915(p)(5) & (6). ss §65915(p)(1). 56 §65915(p)(2). s' Public Resources Code § 21155(b). ss §65915(p)(2). 13 990052\1\1948900.4 C. Local Parking Studies. Communities may require higher parking ratios than those mandated for the housing types located near transit stops described in subsection 4(b) of this paper if a community adopts findings supporting the need for higher parking ratios, which are based on a study, paid for by the community and conducted in the last seven years, that includes: (1) an analysis of available parking; (2) differing levels of transit access; (3) walkability to transit; (4) potential for shared parking; (5) effect of parking requirements on housing costs; and (6) car ownership rates for lower income households, seniors, and residents s9 Health & Safety Code §51312. 14 990052\1\19489004 Maximum Ratio of Type of Development Required Off -Street Parking Spaces Rental or ownership housing development with: 1. At least 11 % very low income or 20% low income units; and 0.5 per bedroom 2. Within one-half mile of a major transit stop; and 3. Unobstructed access to the major transit stop. Rental housing development with: 1. All units affordable to lower income households except manager's unit(s); and 0.5 per unit 2. Within one-half mile of a major transit stop; and 3. Unobstructed access to the major transit stop. Rental housing development with: 1. All units affordable to lower income households except manager's unit(s); and 2. A senior citizen housing development; and either 0.5 per unit 3. Has paratransit service; or 4. Is within one-half mile of fixed bus route service that operates 8 times per day, with unobstructed access to that service. Rental housing development with: 1. All units affordable to lower income households except manager's unit(s); and 2. A special needs housing development(a); and either 0.3 per unit 3. Has paratransit service; or 4. Is within one-half mile of fixed bus route service that operates 8 times per day, with unobstructed access to that service. Notes: (a) "Special needs" housing is any housing designed to serve persons with needs related to mental health, physical or developmental disabilities, or risk of homelessness. 59 C. Local Parking Studies. Communities may require higher parking ratios than those mandated for the housing types located near transit stops described in subsection 4(b) of this paper if a community adopts findings supporting the need for higher parking ratios, which are based on a study, paid for by the community and conducted in the last seven years, that includes: (1) an analysis of available parking; (2) differing levels of transit access; (3) walkability to transit; (4) potential for shared parking; (5) effect of parking requirements on housing costs; and (6) car ownership rates for lower income households, seniors, and residents s9 Health & Safety Code §51312. 14 990052\1\19489004 with special needs. However, the maximum parking ratios that may be required by a city are those set forth in subsection 4.a above. 60 d. Relationship to Density Bonuses. Although the new parking provisions are incorporated into state density bonus law, a developer need not request a density bonus nor any other regulatory incentive to take advantage of the lower parking requirements. However, any development that is eligible to use the AB744 parking standards will also be eligible for a 35 percent density bonus and incentives and concessions under state density bonus law. It is possible that the lower parking standards allowed for a project containing only 11 percent affordable housing may induce some market -rate developers to provide the affordable units and then seek a density bonus and other incentives. 5. Local Agency Discretion. Can counties and cities deny requests for density bonuses, incentives, concessions, waivers, and reduced parking? Only with difficulty: either by making specified findings, supported by substantial evidence; or, by finding that the request does not meet the threshold requirements laid out in the statute. a. Threshold Requirements. Projects do not qualify for a density bonus — and hence the local agency may disapprove a request — if they do not meet the standards set in the statute. Local agencies can require that applicants show that they have met these threshold requirements. Some of the most important are these: a For affordable housing: Initial sales prices and rents must meet the requirements of the Health and Safety Code and California Code of Regulations. The applicant and local government must enter into appropriate restrictions to ensure affordability for rental units and equity sharing documents for ownership units. • For projects involving the demolition of residential rental units affordable to or occupied by lower income households: The project must comply with the replacement housing requirements set forth in Section B.l.c. above. a For senior housing: The project must meet the requirements of a senior housing development or mobile home park set forth in the Civil Code. a For land donations: The project must comply with the long list of conditions included in Section 65915(g)(2). a For incentives and concessions: The regulatory concessions requested must result in "identifiable, financially sufficient, and actual cost reductions ."61 Local agencies can encourage applicants to apply for certain concessions and incentives by making a finding in their ordinances that certain concessions do result in actual cost reductions, and the developer need not provide his or her own economic analysis. 60 §65915(p)(7). 61 §65915(k)(1) & (3). 15 990052\1\1948900.4 • For waivers and reductions: The applicant must show that the development standard being waived will preclude the physical construction of the project with the density bonus, incentives and concessions to which the project is entitled.61 • For additional reduction of parking requirements near transit stops: The applicant must show that the project meets one of the three requirements set forth in Section 4.b. above. Because projects are eligible for a density bonus, incentives, waivers and additional reduced parking ratios only if they meet the threshold requirements contained in the statute, local agencies should be able to deny these requests if the application fails to meet these requirements. b. Findings for Disapproval. The statute lists findings required to deny incentives, concessions, waivers and reductions, however, no findings are listed for the denial of a density bonus or the mandated reduction in parking requirements. 63 Findings that may be used to deny incentives/concessions or waivers are listed in the table below. Code Section Applicable To: Procedural Requirements Finding (A) The concession or incentive is not required in order to provide for affordable housing costs, as defined in Section 50052.5 of the Health and Safety Code, or for rents for the targeted units to be set as specified in subdivision (c); (B) The concession or incentive would have a specific adverse impact, as defined in para 11 In writing, (2) of subdivision (d) of Section 65589.5,(° upon 65915(d)(1) Incentives & based on public health and safety or the physical concessions substantial environment or on any real property that is listed evidence in the California Register of Historical Resources and for which there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact without rendering the development unaffordable to low- and moderate -income households; or (C) The concession or incentive is contrary to state or federal law. 62 §65915(e)(1). 63 §65915(p)(1) ("Upon the request of the developer, no city, county, or city and county shall require a vehicular parking ratio ... that exceeds the following ratios ..."). 16 990052\1\1948900,4 Code Section Applicable To: Procedural Requirements Finding 1. Nothing in this subdivision shall be interpreted to require a local government to waive or reduce development standards if the waiver or reduction would have a specific, adverse impact, as defined in paragraph (2) of subdivision (d) of Section Agency must 65589.5(') upon health, safety, or the physical adopt environment, and for which there is no feasible 65915(e)(1) Waivers & procedures for method to satisfactorily mitigate or avoid the modifications specific adverse impact. ers granting 2. Nothing in this subdivision shall be interpreted waivers waiv to require a local government to waive or reduce development standards that would have an adverse impact on any real property that is listed in the California Register of Historical Resources, or to grant any waiver or reduction that would he contrary to state or federal law. Notes: (a) Paragraph (2) of subdivision (d) of §65589.5 states: "[A] 'specific, adverse impact' means a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety standards, policies, or conditions as they existed on the date the application ication was deemed complete." his requirement is in §65915(d)(3). C. Attorneys' Fees. An applicant is entitled to attorneys' fees and costs if a city or county denies a request for a density bonus, incentive, concession, waiver, or reduction in violation of Section 65915.64 Local Ordinances and Procedures. The density bonus law requires all cities to adopt an ordinance that specifies how the city will implement compliance with the density bonus law. Failure to adopt an ordinance does not relieve a city from complying with the density bonus law.65 Additionally, Section 65915(d)(3) mandates that communities establish procedures for dealing with incentive or concessions requests, which should be covered in the local ordinance or local guide to administering the density bonus law. Section D below discusses provisions that cities may want to consider including in their local ordinances. In the past cities often prepared detailed density bonus ordinances that attempted to explain the requirements of the statute in more easily accessible language. Given the frequent amendments, cities may wish to confine their ordinances to procedural requirements and prepare informal guidance for the benefit of staff and applicants. Nonetheless, cities should consider updating their ordinances, procedures and application requirements in the near future to ensure that they are consistent with the recent amendments to the statute. 64 §§65915(d)(3) & 65915(e)(1). 65 §65915(a). 17 990052\1\1948900.4 C. Issues. 1. Relationship to Local General and Specific Plans. The density bonus law, at its heart, prioritizes the provision of incentives for affordable housing over local planning. By allowing 35 percent bonuses and unlimited waivers to accommodate density bonuses, the law assumes that the need for any amount of affordable housing is more important than any other local planning requirement. But the state Department of Housing and Community Development (HCD) gives no credit to communities that encourage density bonuses in its review of housing elements. In calculating zoning capacity (the number of dwellings that can be built given present zoning), HCD does not allow communities to increase their presumed site capacity based on developers' ability to obtain a density bonus. The statute provides specifically that the granting of a density bonus, concession, or incentive by itself shall not require a general plan amendment, zoning change, local coastal plan amendment, or any other discretionary approval.bb Consequently, cities cannot establish a "density bonus permit" or other special permit for projects that request density bonuses. Rather, the density bonus and any request for concessions or waivers should be heard as part of any other discretionary approval needed. 2. Relationship to Local Inclusionary Requirements. a. Inclusionary Units Count as Affordable Units for Density Bonus. In Latinos Unidos del Valle de Napa y Solano v. County of Napa, 67 the Court held that affordable units required by a local inclusionary ordinance could be used to make a project eligible for a density bonus. Napa County's ordinance had provided that the affordable units required under density bonus law were to be provided in addition to the affordable units required by the County's inclusionary ordinance. Although the County's ordinance resulted in the creation of more affordable units before a developer was entitled to a density bonus, the Court found that "[t]o the extent the ordinance requires a developer to dedicate a larger percentage of its units to affordable housing than required by Section 65915, the ordinance is void."68 However, any units proposed to meet the requirements of both a local inclusionary ordinance and to qualify the project for a density bonus must meet the requirements of both the local ordinance and state law. Similarly, if a local inclusionary ordinance requires more affordable units than required by density bonus law, nothing excuses the developer from compliance with the local inclusionary ordinance. b. Avoidine the Anpiication of the Costa -Hawkins Act by Granting Density Bonuses. The Costa -Hawkins Rental Housing Act (Civil Code Sections 1954.51 et seq.) regulates local rent control. It gives the owner of any rental unit the right to set both the initial rent and the rent when a tenant vacates the unit ("vacancy decontrol"). In Palmer/Sixth 66 §§ 5915(fl(5) & 659150)(1). 67 217 Cal. App. 4th 1160 (2013). 68 217 Cal. App. 4th at 1169. 18 990052\1\1948900.4 Street Properties L.P. v. City of Los Angeles, b9 the Court found that the regulation of rents through inclusionary ordinances violates the Costa -Hawkins Rental Housing Act. However, Costa -Hawkins states that its provisions do not apply when the owner of rental apartments has agreed by contract with a public agency to control rents in consideration for "a direct financial contribution or any other form of assistance specified in ... Section 65915.i70 Inclusionary rental units are therefore exempt from Costa -Hawkins when the project includes: (1) a contract with the local agency; and (2) any of the incentives listed in the density bonus law. Consequently, giving density bonuses and the other development concessions for rental inclusionary units allows the provision of affordable rents in rental housing. To avoid the application of Costa -Hawkins, an agreement with the developer must recorded. It should recite that the developer has agreed to control rents in exchange for the incentives granted by the locality, consistent with Costa -Hawkins. 3. Relationship to Local Coastal Plans. The statute provides that it shall not be construed to supersede or in any way alter the effect of the California Coastal Act. 71 However, it also provides that density bonuses, incentives, and concessions do not, in and of themselves, require an amendment to a local coastal plan. 72 Coastal communities should refer to their local coastal plan and Coastal Commission staff to coordinate implementation of density bonus law under their local ordinances with the local coastal plan requirements and process. 4. Application of CEQA to Density Bonus Projects. Section 65915 does not establish an exemption from CEQA requirements. The regulatory concessions that must be offered to a qualifying project cannot include non- compliance with CEQA, which would violate state law. CEQA is not limited by the statute. Under the state density bonus law, the granting of a density bonus and incentives or concessions, in and of lhernselves, are not discretionary approval S'73 so those actions are not subject to CEQA as ministerial acts.74 The new mandatory parking requirements also leave no discretion to the local government and should also be considered exempt from CEQA. The density bonus statute does not address whether waivers or reductions of development standards are discretionary or ministerial. Most typically, however, cities require that requests for bonuses and all other incentives requested under the statute be submitted with all other required discretionary applications, and the CEQA analysis is completed on the project as a whole, including any requests submitted under the density bonus law. '9 175 Cal. App. 4`h 1396 (2009). 70 See Civil Code §1954.52(b). 7 1 §65915(m). 'Z §65915(1)(5) & §659150)(1). " §65915(fl(5) & §659150)(1). 74 Public Resources Code §21080(b)(1); 14 CCR §§15002(i)(1) & 15268. 19 990052\1\1948900.4 Two recent appellate cases have discussed the density bonus statute relative to CEQA. In Wollmer v. Berkeley ("Wollmer 1"),75 the court found that appellant failed to demonstrate that the city's actions in interpreting and complying with the state density bonus law (including providing a larger density bonus than mandated under the state law) was a change in policy that constituted a project to which CEQA applied. In Wollmer II, the city waived a number of development standards and approved the CEQA categorical exemption for infill projects (CEQA Guideline Section 15332). That exemption requires compliance with applicable general plan and zoning code designations, policies and regulations. The Court noted that the density bonus law specifically states that a granting of a density bonus does not require any discretionary approval and that the city is prohibited by state density bonus law from applying any development standard that physically precludes the construction of a density bonus development. Accordingly, the court found that the waived development standards were not applicable general plan and zoning designations, policies, and regulations, and so the use of the infill exemption was not precluded by use of state density bonus law. Because density bonus projects will exceed general plan and zoning densities and may include reduced development standards, they may not be within the scope of program EIRs and similar EIRs prepared for general plans, specific plans, and zoning ordinances; although, based on Wollmer II, a court could find that since the granting of a density bonus is not discretionary, no further environmental analysis may be required. A local agency may deny a proposed incentive, concession, or waiver when there is substantial evidence that it would have a "specific adverse impact," as defined in Section 65589.5(d)(2), on "public health and safety" or the physical environment, and there is "no feasible method to satisfactorily mitigate or avoid the specific adverse impact without rendering the development unaffordable to low- and moderate -income households." Similarly, a local government may deny a proposed incentive, concession or waiver that would have an adverse impact on a property listed on the California Register of Historical Resources, or that is contrary to state or federal law. An EIR would likely provide the basis for such findings. The agency could deny a proposed incentive, concession, or waiver if an EIR or other study identified: (1) significant public health or safety impacts; (2) based on objective written standards; (3) that either cannot be avoided; or (4) that could be mitigated but the mitigation would make the project unaffordable. D. Density Bonus Requirements in the Context of a Land Use Regulatory Scheme. There are some strategies that localities can use in drafting their own density bonus ordinances to enable local plans to be implemented to the extent possible. A local ordinance with defined requirements can also better protect the agency from legal challenge. Some provisions to include are these: 1. Application requirements. Require detailed information to ensure that the project complies with the threshold requirements discussed earlier. These may include, for instance, calculations of affordability, evidence that incentives and concessions provide "identifiable, financially sufficient, and actual cost reductions," and analysis to show that any waivers are required to avoid physically precluding the construction of the project. 75 179 CA. App. 4th 933 (2009). 20 990052\1\1948900.4 2. Enforceable written agreements. Require that the affordability requirements be enforced through a recorded written agreement. Some communities also require the developer to provide the documents to be recorded that will enforce the obligation, or to pay for ongoing public agency monitoring of affordability or public agency preparation of the documents. There is also no requirement to subordinate these agreements to project financing. 3. Findings required for approval and denial. Include as findings in the ordinance the threshold criteria needed for project approval (such as the need for incentives to result in "identifiable, financially sufficient, and actual cost reductions") and, for those projects that meet the threshold criteria, the statutory findings that could justify denial. This will help guide decision -makers' deliberations to those aspects of the project that justify approval or denial of the bonus, incentives, or waivers. Note that the city or county retains full discretion to approve or deny the project for reasons unrelated to the density bonuses, incentives, or waivers. 4. Encouraging certain incentives and concessions. Although the developer, rather than the public agency, has the right to choose the incentive or concession, some ordinances attempt to encourage certain favored incentives by requiring less information from the developer when the favored incentives are proposed. 5. Limitations on certain incentives. If the local zoning ordinance already grants incentives for affordable projects, ensure that these incentives do not automatically apply to a density bonus project. This will prevent the project from requesting incentives in addition to those that the project is already entitled, but will allow the public agency to grant the normal incentives pursuant to density bonus law. 6. Conduct a parking study. If the community anticipates a higher need for parking within 1/2 mile of major transit stops than allowed by A13744, the community should conduct a transit study to permit it to require the maximum parking ratios rather than the parking requirements mandated by the statute for projects within 1/2 mile of a major transit stop. 7. Require long term affordability for ownership units. To avoid losing affordable ownership units with the first resale, adopt a requirement that requires long-term affordability for ownership units that make a project eligible for a density bonus. CONCLUSION California's density bonus law is a confusing, poorly drafted statute that allows major exceptions to local planning and zoning requirements. The law contains numerous protections for applicants, and communities that are unprepared may find themselves seemingly forced to approve an undesirable project. Preparing a local density bonus ordinance and procedures that clarify ambiguities and require detailed information from the applicant can give cities the tools they need to better evaluate these projects and achieve results similar to those intended by local planning. 21 990052\1\1948900.4 22 990052\1\1948900.4