California Takes Action on Housing Shortage

California has been plagued by a chronic housing shortage, especially for low- and middle- income earners, for decades. Since the Great Recession of 2008, production of both single-family and multifamily housing units dropped dramatically from over 200,000 units per year to just 120,000 units in 2021. According to reports from the California Legislative Analyst’s Office and California’s Housing Future, the shortfall in minimally required housing production in California ranges between 70,000 and 110,000 units per year, resulting in a statewide deficit of approximately 2.5 million homes.¹

The state’s latest effort has produced nearly 40 new housing bills signed into law on September 28, 2022. These laws apply to several areas of housing concern such as homelessness, tenant protection, single-family density, accessory dwelling units, and affordable housing production. Of particular interest, two bills — Assembly Bill 2011 and Senate Bill 6 — incentivize expedited housing construction of affordable and market rate housing in abandoned and underused commercial corridors zoned for retail, office, and parking near city centers, job centers, and transit networks. The two bills take effect in July 2023 and will create 10-year housing programs focused on increasing housing production and the wages and number of residential construction workers.²

Of the two bills, Assembly Bill 2011 (AB 2011), titled the “Affordable Housing and High Roads Job Act of 2022,” permits the fastest entitlement process and the broadest variety of affordable, workforce, and ownership housing product in the largest range of locations throughout the state. If the proposed project meets the threshold requirements, AB 2011 allows a ministerial “by right,” or streamlined approval process that bypasses the public involvement process and reduces the time and cost of getting through the normal entitlement process. The bill also overrides local zoning rules that conflict with its minimum standards for density and height.

The specific geographical focus of AB 2011 is “…on urban areas where access and amenities are already available and allows a range of higher-density housing types that are already being produced by non-profit and for-profit builders and developers across California.”³ Using the specific eligibility criteria for commercial properties defined in AB 2011, Urban Footprint identified a total of 159,000 commercial properties covering 108,000 acres across the state that are qualified for residential development under the law.⁴ Analyzing the site requirements that include unit density and mix, Urban Footprint and MapCraft determined that while AB 2011 could allow up to 10 million dwelling units statewide, approximately 1.6 million to 2.4 million total units are “market-feasible,” with 300,000 to 400,000 of those being inclusionary affordable units.⁵

Senate Bill 6 (SB 6), dubbed “The Middle-Class Housing Act of 2022,” focuses on market-rate residential development on abandoned and underused commercial corridors zoned for retail, office, and parking. There is no rezoning required, and the project site can be no more than 20 acres. Unlike AB2011, there is no requirement to include affordable units in any SB 6 development, subject to local requirements, and there is no expedited “by right” approval process. Instead, SB 6 allows applicants to invoke the Housing Accountability Act (HAA) to limit local discretion to deny or condition approval. SB 6 contains fewer site exclusions than AB 2011 and that, coupled with the lack of any affordable housing requirement, will make SB 6 projects most attractive in lower-cost areas of the state on sites that do not meet the more stringent AB 2011 requirements.⁶

Both laws include extensive labor requirements aimed at increasing the number of residential construction workers by increasing their pay and benefits. Under AB 2011, all construction workers must be paid the prevailing wage of per diem wages for the type of work in the geographic area. Apprentices registered in an approved apprenticeship program must be paid the prevailing apprentice rate. For projects with more than 50 units, a number of additional requirements apply including health care benefits. SB 6 takes these labor requirements one step further by adding a requirement that extensive “skilled and trained” construction workers must be employed in every project.

Each bill sets out its own detailed approval process and permissible development standards on approved commercially-zoned sites across the state not captured in this overview. What is especially noteworthy in these bills is that they provide the way to remove what have been historical obstacles to housing production in California — lack of land, over burdensome approval process, and shortage of residential construction workers. If successful, AB 2011 and SB 6 will drive the construction of millions of new affordable housing options for low- and middle-income renters and owners on underserved and idle commercial sites across California.

Contact

GARY BARAGONA
Director of Research
415.229.8925
gary.baragona@kidder.com

Written by John Fioramonti
Senior Business Writer
Kidder Mathews Research

Sources

¹ Urban Footprint, Can Commercial Corridors Solve California’s Housing Crisis, August 3 2022, Can commercial corridors solve California’s housing crisis? | UrbanFootprint

2 AB 2011 & SB 6: Pro-Growth or Slow Growth for Construction Workforce – Reuben, Junius & Rose, LLP (reubenlaw.com)
3 Urban Footprint, Can Commercial Corridors Solve California’s Housing Crisis, August 3 2022, Can commercial corridors solve California’s housing crisis? | UrbanFootprint
4 Id.
5 Id.
6 California Legislature Creates Pathways for Residential Development on Commercially Zoned Land | Insights | Holland & Knight (hklaw.com)