In an Executive Directive dated February 7, 2023, Mayor London Breed declared that “San Francisco needs to fundamentally change how we approve and build housing.” The Directive, titled “Housing For All,” comes on the heels of the Board of Supervisors’ January 31^st adoption of its updated Housing Element, addressing San Francisco’s Regional Housing Needs Allocation (RHNA) of a daunting 82,000 housing units for the next eight-year cycle. (See earlier posts here and here).

With high construction costs and lengthy project approval processes, San Francisco produces only a few thousand units each year. Combining these ongoing challenges with the steep decline in demand for office space resulting from the pandemic, San Francisco is facing both an ongoing housing crisis and a less vibrant Downtown. The Mayor’s Executive Directive pointedly acknowledges these issues, identifies office-to-residential conversions in Downtown as one potential way to help resolve them, and directs that City officials and departments take specific, immediate actions to facilitate more housing development in the City.

The following are the key actions regarding housing production, generally listed by implementation deadlines:

• Create New Funding Mechanisms: By February 14, 2023, the Office of Economic and Workforce Development was directed to advance legislation to create new financing opportunities for pipeline projects that have been unable to move forward due to financing constraints, including authorizing the creation of new infrastructure financing districts (IFD). On that date, legislation was introduced by the Mayor and Supervisor Walton to create and establish rules for an IFD for the Potrero Power Station project site south of Pier 70, which would allow construction to commence on the project’s first 105 residential units.
• Remove Barriers for Office-to-Residential Conversions: By April 1, 2023, the Planning Department and DBI are directed to propose legislation to amend code requirements to facilitate the conversion of existing office uses to residential uses in Downtown San Francisco to spur pandemic recovery efforts. (Recognizing the opportunity that office-to-residential conversions present to help both the housing crisis and Downtown’s vibrancy, the Board of Supervisors also adopted a resolution on February 14, 2023 asking the Planning Department to report on potential candidates for conversion in the Downtown core, and to issue public facing criteria for office to residential conversions.)
• Reduce Procedural Requirements that Impede Housing Production: By May 1, 2023, the Planning Department is directed to advance an initial package of legislation that will remove unnecessary fees and procedural constraints that obstruct the development of housing, including eliminating Conditional Use Authorizations for certain types of housing developments.
• Housing Element Accountability and Oversight: An Interagency Implementation Team is charged with creating a Housing Element Action Plan that will describe specific steps for achieving the goals and actions set forth in the Housing Element and meeting the City’s RHNA obligations, to be presented to the Mayor by July 1, 2023.
• Reform Restrictive Zoning Controls: By January 31, 2024, the Planning Department is directed to present rezoning proposals that will allow the City to meet its RHNA target.
• Permit Review Timelines: City departments involved in development permitting, including Planning and the Department of Building Inspection (DBI), are directed to review their permit processes and reduce overall permitting timelines by at least 50% by February 1, 2024. Also by that date, the Planning Department is directed to eliminate the current Preliminary Project Application process and establish new procedures for providing early design feedback to large projects.
• Revise Inclusionary Housing Requirements: Following issuance of recommendations from the Controller’s Office (no date specified), the Planning Department is directed to propose modifications to the City’s inclusionary housing program and draft legislation that will increase overall housing production while serving the City’s affordable housing goals.

We will continue to monitor the City’s various legislative and administrative responses to the Mayor’s Directive and provide further updates.

Local landlords and owner-groups filed a lawsuit in San Francisco Superior Court last week in response to the recently-passed Proposition M, also known as the Empty Homes Tax Ordinance. We previously covered the new San Francisco legislation here. The Empty Homes Tax Ordinance imposes an Empty Homes Tax (the “Tax”), which ranges from $2,500-$20,000 per unit, applies to vacancies of more than 182 days in a tax year within residential buildings with three or more units, and is effective as of January 1, 2024. It passed in November 2022 with 54.5% of the vote.

The lawsuit was filed by the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, the San Francisco Association of Realtors, and four individual landlords. The lawsuit argues that the Tax is intended to force property owners to rent their vacant units by imposing burdensome charges, and thereby the Tax violates the Takings Clause of the Fifth Amendment of the U.S. Constitution and the state Ellis Act by penalizing owners for exercising their rights under those provisions.

The lawsuit also argues that the Tax threatens the constitutionally protected privacy interests of due process and equal protection by, among other things, exempting units that are rented to strangers but not units that are rented to close family members. The Empty Homes Tax Ordinance provides that the Tax applies when a unit is vacant (unoccupied, uninhabited, or unused) for more than 182 days in a tax year, and none of the exemptions enumerated within the Empty Homes Tax Ordinance apply. One exemption is where the unit is subject to a bona fide lease with a third party. This so-called “Lease Period” exemption does not apply to a lease with a close family member. In other words, a unit is considered vacant and is subject to the Tax if a close family member leases the unit but does not occupy or use the unit for more than 182 days in a tax year, whereas if the unit is leased to a bona fide third party, that third party need not occupy or use the unit at all for the owner to avoid the Tax.

We will monitor the lawsuit and continue to provide further updates when they are available.

Contact Real Estate attorney Caitlin Connell at cconnell@coblentzlaw.com for additional information.

 

Voters in San Francisco and Oakland approved[1] two measures with significant implications for residential property owners: San Francisco’s Proposition M, also known as the Empty Homes Tax, and Oakland’s Measure V, which expands Oakland’s Just Cause for Eviction Ordinance.

Proposition M – the Empty Homes Tax (San Francisco)

The Empty Homes Tax provides that owners of San Francisco properties with at least three residential units will be taxed on any residential unit that is vacant for more than 182 days in a tax year, whether consecutive or not. The tax ranges per unit for each year of vacancy, depending on the unit’s size, from $2,500-$5,000 for the first year, to $5,000-$10,000 for the second year, and $10,000-$20,000 for the third year and beyond.  These amounts are subject to adjustment for inflation. The assessed funds will be deposited into a Housing Activation Fund to support housing for elderly and low-income residents and rehabilitate multi-unit buildings for conversion to affordable housing.

Exceptions to the tax include single-family homes, two-unit buildings, primary residences, units intended for travelers or other transient occupants, and units owned by nonprofit organizations or government entities.  In addition, the tax does not apply during certain periods of time following: (i) a building permit application for the repair, rehabilitation, or construction of a qualifying residential unit; (ii) City issuance of a building permit for repair, rehabilitation, or construction of a qualifying residential unit; (iii) a natural disaster that severely damages a qualifying residential unit; (iv) City issuance of a certificate of final completion and occupancy for a new qualifying residential unit; and (v) the death or medical absence of an owner-occupant of a qualifying residential unit.

The Empty Homes Tax is effective as of January 1, 2024 and will expire December 31, 2053. Owners of qualifying residential units (e.g., a building with 3 or more residential units, not owned by a nonprofit or government entity) must file an annual return in the form and manner to be prescribed by the Tax Collector.

The Empty Homes Tax is the third such tax in the United States, following Washington, D.C., which reportedly generated $9.4 million from a similar tax in calendar year 2016, and Oakland, which reported gross revenues from its empty homes tax in the amount of $7.3 million in calendar year 2020. Vancouver, British Columbia, has a similar law that generated the equivalent of $21.3 million US dollars in calendar year 2019; and in the first year after the tax was adopted, Vancouver had a 21.2% reduction in vacant units.[2]

The Empty Homes Tax has similarities to San Francisco’s previously enacted Commercial Vacancy Tax, which became effective on January 1, 2022.  The Commercial Vacancy Tax applies to ground floor, street-facing commercial space in certain commercial districts that is vacant for more than 182 days in a calendar year. The Commercial Vacancy Tax is calculated at an initial rate of $250 per linear foot of storefront facing the street, increasing to $1,000 per linear foot for the third or greater year that a space is vacant. Filing and payment of the Commercial Vacancy Tax will first become due on February 28, 2023.

Measure V – Expanding the Just Cause for Eviction Ordinance (Oakland)

Oakland’s Measure V passed with 65% of the vote, expanding Oakland’s eviction protections in several ways.

The pre-existing Just Cause for Eviction Ordinance (Oakland Municipal Code Chapter 8.22, Article II) (“Just Cause Ordinance”) provided eleven just causes for an eviction of a residential tenant, including, generally: failing to pay rent; failing to cure a breach of the lease; refusing to sign a new lease after lease expiration; damaging the premises and failing to repair the same; disturbing other tenants; using the premises for an illegal use; refusing the landlord’s reasonable entry; a move-in by the owner or its qualifying relative; removal of the unit from the rental market; and the owner’s performance of substantial upgrades. A local COVID-19 eviction moratorium that is still in effect prevents most evictions in Oakland, even those permitted under the Just Cause Ordinance. When the Oakland City Council lifts the local emergency, the moratorium will end and Oakland will revert to the Just Cause Ordinance, as amended by Measure V.

Previously, the Just Cause Ordinance only applied to residential rental units (“Rental Units”) built before 1996. Measure V extends the eviction protections to Rental Units of any age, except during the first 10 years after the issuance of a certificate of occupancy for a newly constructed Rental Unit or building containing Rental Units. Measure V also extends the Just Cause Ordinance to tenants of Vehicular Residential Facilities, which includes qualifying motor homes, travel trailers, truck campers, camping trailers, and park trailers.

Measure V prohibits “no-fault” evictions of children enrolled in school and educators during the school year. No-fault evictions are those unrelated to a tenant’s actions, such as an owner move-in or removal of the Rental Unit from the rental market. Evictions due to the fault of the tenant, such as failure to pay rent, may still be pursued at any time during the year.  Measure V also removes from the list of “just causes” for eviction a tenant’s refusal to sign a new lease when its lease expires, and clarifies that an eviction based on illegal use does not include residing in a Rental Unit that violates building or planning codes.

Finally, Measure V clarifies that if an owner (or qualifying relative) fails to comply with move-in rules following an owner move-in eviction, the landlord must allow the tenant to move back into the Rental Unit at the same rental rate the tenant was paying when they vacated, and the landlord must pay the tenant all of its expenses incurred to return to the Rental Unit.

We will continue to provide further updates when they are available.

Contact Real Estate attorney Caitlin Connell at cconnell@coblentzlaw.com for additional information.

 

 

[1] See San Francisco Chronicle article linked here and Alameda County Election Results website linked here.

[2] See City and County of San Francisco Board of Supervisors Policy Analysis Report dated January 31, 2022, available here.

The 2021-2022 California Legislative Session closed on August 31 and was dominated by further efforts to address the state’s continued housing crisis. The flurry of major legislation passed by the Legislature and now on the Governor’s desk for signature focuses on expanding the types of development sites eligible for housing production and streamlining approval of that housing (AB 2011, SB 6, AB 2234), expanding the Density Bonus Law and providing enhanced density incentives (AB 682, AB 1551, AB 2334), and restricting minimum parking requirements (AB 2097). Taken together, these are potentially powerful tools to generate new housing opportunities as cities across California face significant housing production goals and work towards meeting state law deadlines for the ongoing Housing Element updates in the coming months.

This post focuses on the key housing-related bills that are, at the time of this publication, awaiting the Governor’s signature. The Governor has until September 30 to either sign or veto the bills. We will follow up with more in-depth coverage on the legislation ultimately signed by the Governor and insights on the resulting potential impacts on the housing landscape.

Repurposing Commercially Zoned Land for New Residential Development

The two blockbuster bills of 2022 – AB 2011 and SB 6 – both have the potential to result in major changes to the housing development pipeline by allowing new qualifying residential development on eligible commercially zoned sites. Both bills are the result of significant and hard-won efforts among legislators, development and pro-housing advocates, and organized labor. Each bill includes very specific eligibility requirements, applicable development standards, and density calculation metrics. The details are beyond the scope of this analysis, but the highlights are described briefly below. If signed by the Governor, both laws would take effect on July 1, 2023 – not in January 2023, as is the case for most new laws – and would remain in effect for 10 years, sunsetting in 2033 unless extended.

AB 2011 (Wicks) [Streamlined Approval Pathway for Qualifying Affordable or Mixed-Income Developments] – AB 2011 provides a streamlined, ministerial review process that is CEQA-exempt, comparable to the existing SB 35 law (see our previous posts on SB 35 here and here), for qualifying multifamily housing development projects on commercially zoned sites (where office, retail, or parking are principally permitted uses) that include requisite affordable housing units and meet certain wage and labor requirements, including paying prevailing wage. The goal of AB 2011 is to unlock significant affordable and mixed-income housing development potential in existing commercial zones.

The bill creates two primary pathways to qualify for its protections: (i) 100% affordable projects located on a commercially zoned site, or (ii) mixed-income projects located along a “commercial corridor,” meaning a street with a right of way width between 70 and 150 feet. The affordability requirements applicable to mixed-income projects are:

• Rental: (i) 8% very low income and 5% extremely low income, or (ii) 15% low income; and
• For-sale: (i) 30% moderate income, or (ii) 15% low income.

AB 2011 also requires development proponents to meet certain wage and labor standards, including that construction workers be paid at least the general prevailing rate of wages (but not requiring a “skilled and trained workforce” as required under SB 6). For developments of 50 or more housing units, construction contractors must also participate in an apprenticeship program or request dispatch of apprentices from a state-approved apprenticeship program, and make specified health care expenditures for construction craft employees.

AB 2011 imposes a detailed list of specific site exclusions, similar to the existing SB 35 ministerial streamlining site requirements, which must be reviewed on a site-specific basis to determine whether a project would potentially qualify for the bill’s protections.

SB 6 (Caballero) [Residential Use of Commercially Zoned Property Without Requiring Rezoning] – Similar to AB 2011, SB 6 allows qualifying housing or mixed-use development projects as a permitted use on commercially zoned (office, retail, or parking) parcels of 20 acres or less without requiring rezoning or other legislative approvals. However, SB 6 differs from AB 2011 in some important ways, including that it:

1. Does not provide a new streamlined ministerial or CEQA-exempt approval pathway for these housing or mixed-use projects, which therefore may leave some discretion to local jurisdictions, although existing SB 35 streamlining can be used for SB 6 projects, so streamlining could be available, depending on the jurisdiction;
2. Mandates that applicants not only commit to prevailing wages but also to a more robust and cost-intensive “skilled and trained workforce” requirement for construction work (unless fewer than two bids are received, in which case this heightened requirement does not apply during the rebid);
3. Does not mandate housing affordability requirements, although local inclusionary requirements may still apply; and
4. Contains fewer site-specific exclusions than AB 2011.

In sum and as a comparison, AB 2011 provides a streamlined approval process for affordable and mixed-income projects and does not require the use of a skilled and trained workforce, but the location restrictions, particularly the “commercial corridor” requirement for mixed-income projects, make its use more limited, whereas SB 6 more broadly allows residential or mixed-uses on commercially zoned parcels and does not have an affordability requirement, but it does not provide any streamlining and imposes more rigorous labor standards. Both bills would provide eligible projects with protection under the Housing Accountability Act, which limits a local agency’s ability to disapprove or condition the project to reduce density. Determining which applies to a site and which option is preferable will require a site-specific analysis.

Coblentz attorneys have extensive experience with the state’s latest housing laws, including SB 35, the Housing Accountability Act, and Density Bonus Law, and can help to navigate these newest complexities and opportunities.

Restricting Mandatory Minimum Parking Requirements Near Public Transit

AB 2097 (Friedman) – AB 2097 would generally prohibit a local agency from imposing minimum parking requirements on any residential, commercial, or other development project located within half a mile of a “major transit stop,” meaning existing or planned rail/bus rapid transit stations, a ferry terminal, or two or more bus lines with 15-minute frequencies during commute hours. The bill provides exceptions for local agencies to impose minimum parking standards for developments within half a mile of public transit if the agency makes specific written findings establishing that removing minimum parking standards would have a “substantially negative impact” on the jurisdiction’s ability to meet its state mandated affordable housing obligations; on special housing needs for the elderly or those with disabilities; or on existing residential or commercial parking within half a mile of a housing development project. However, local agencies would not be able to utilize that carve out for residential projects that contain less than 20 housing units or dedicate 20% of units to very low-, low-, or moderate-income households, students, the elderly, or persons with disabilities. AB 2097 would not make any changes to requirements for parking spaces for electric vehicle charging or persons with disabilities.

AB 2097 is a two-year bill that faced opposition last year from some affordable housing advocates who argued that eliminating minimum parking requirements could weaken developers’ incentive to utilize the state Density Bonus Law, which requires a minimum percentage of affordable housing units in exchange for providing relief from development standards, including parking requirements. The Governor is anticipated to hear similar arguments again this year as he considers this bill.

Key Changes to Density Bonus Law

AB 682 (Bloom) [New Provisions for Shared Housing Buildings and Revised Base Density Rules] – AB 682 expands the existing state Density Bonus Law program to apply to shared housing projects that provide qualifying percentages of affordable units. Shared housing projects are defined as residential or mixed-use structures with five or more shared units designed for permanent residential use of more than 30 days (i.e., dwellings that include a bathroom and kitchenette features) that share one or more common kitchens and dining areas. These qualifying shared housing projects may also include non-shared residential unit types or commercial uses subject to certain limitations and requirements.

AB 682 also makes several important changes to the definitions of “maximum allowable residential density” and “base density” that would impact how base density and resulting bonus density must be calculated per project. The bill states that density shall be calculated based on dwelling units per acre (DU/A), but if the applicable local land use controls do not provide this type of DU/A standard, then AB 682 would require that base density instead be calculated by estimating the realistic development capacity of the site based on applicable objective standards. Also, in the event that the base density allowed under the applicable zoning is inconsistent with the density allowed under an applicable specific plan or general plan, AB 682 would require that the greater of the density applies – under current law, the general plan density prevails in the event of conflict. Overall, these proposed changes may prove helpful in reducing ambiguity for calculating base and bonus density for these projects and ensuring that Density Bonus Law is interpreted in favor of producing the maximum number of housing units.

AB 1551 (Santiago) [Reinstating Density Bonuses for Commercial Projects] – AB 1551 reinstates the expired density bonus program for commercial/non-residential developments (previously enacted under AB 1934 in 2016). This would allow a commercial developer to obtain one of six commercial density bonuses – for example, 20% increases in floor area ratio, height or development intensity – by partnering with a housing developer to provide qualifying affordable housing (at least 30% total units available to low-income tenants, or 15% affordable to very low-income tenants) through either directly building affordable housing units, donating land for affordable housing units, or providing direct funding to an affordable housing developer for development of an affordable housing project. This commercial density bonus program would be extended through January 1, 2028.

Data provided to HCD indicates that this commercial density bonus program was not widely utilized when previously in effect from 2016 to 2022, and it is unclear whether developers will now take advantage of the same provisions, as extended through 2028.         

AB 2334 (Wicks) [Enhanced Density Bonuses for Qualifying Affordable Projects in Low VMT Areas] – AB 2334 expands the Density Bonus Law to allow 100% affordable housing projects to receive unlimited density and a height increase of 33 feet or three stories if located within qualifying “very low vehicle travel areas” in 17 qualifying counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, Sonoma, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Ventura, Sacramento, and Santa Barbara). “Very low vehicle travel area” is defined as an “urbanized area . . . where the existing residential development generates vehicle miles traveled [VMT] per capita that is below 85[%] of either regional [VMT] per capita or city [VMT] per capita,” and additional analysis will be required at the local level to determine what specific areas within each county qualify for this enhanced density bonus.

This bill builds on the density bonus framework adopted under AB 1763 in 2019, which allowed for an enhanced density bonus for qualifying housing projects but only within a half mile of a major transit stop. AB 2334 aims to increase the number of eligible project sites to include all qualifying sites within very low vehicle travel areas that otherwise might lack the level of public transportation service required under AB 1763.

Streamlining Post-Entitlement Permitting Issuance

AB 2234 (Rivas) [New Deadlines and Process for Review and Approval of Post-Entitlement Permits] – AB 2234 establishes time limits and other procedural streamlining changes for review and approval of post-entitlement permits related to housing development projects. These time limits are similar to those required for initial entitlements and approvals under the Permit Streamlining Act but do not apply to post-entitlement permits. The categories of post-entitlement permits covered by this new law include permits for demolition, most excavation and grading permits, building permits, and permits for most offsite improvements. In brief, AB 2234 requires that a local agency determine whether an application for a post-entitlement phase permit is complete and provide written notice of its determination within 15 business days after application submission. If the local agency fails to meet initial deadlines, the permit application may be deemed complete. Once the application is complete, the local agency then has a relatively short window to approve or deny the application, 30 business days for projects with 25 units or fewer and 60 business days for projects with 26 units or more. Local agencies may extend these timelines by making written findings that the post-entitlement phase permit might have a specific, adverse impact, as defined, on public health or safety and that additional time is necessary to process the application. Notably, a violation of AB 2234 requirements constitutes a violation of the Housing Accountability Act, which establishes penalties – including potential monetary fines – for violations by cities and counties. Other limitations and carve outs apply, so close review of this bill is required to determine specific applicability.

The Coblentz Real Estate team continues to track changes in state and local legislation impacting housing production. Please contact us for additional information and any questions related to the impact of these new bills on land use and real estate development.

 

 

 

In early June, we reported on the key land use-related ballot propositions San Francisco voters faced during the June 7, 2022 special election. Now that the dust has settled after the election, voters came very close to approving but ultimately rejected the new Muni bond, but did approve changes at the Building Inspection Commission and further restrictions on behested payments.

Summary of San Francisco Results:

Proposition A (Muni Reliability and Street Safety Bond)

Proposition A would have allowed the City and County to issue $400,000,000 in general obligation bonds to increase Muni’s reliability, safety, and frequency, including upgrades to its transportation infrastructure and equipment. The measure came very close to passing, requiring two-thirds (66.6 percent) affirmative votes but receiving only 65.1 percent. REJECTED.

This was a surprising result for many, as San Francisco voters are typically friendly to infrastructure bond spending. However, a two-thirds requirement is a difficult bar to pass even under the best of circumstances, and the results may have been influenced by the off-year election with lower voter turnout. As expected, according to the San Francisco Chronicle, Proposition A’s support centered in the typically transit-friendly downtown, central, and eastern neighborhoods, but did not fare as well in the somewhat more car-dependent southern and western neighborhoods of the City.

San Francisco Municipal Transportation Agency will attempt to find alternative sources for these funds, which may prove difficult for an agency still reeling from the financial effects of depressed ridership during the pandemic.

Proposition B (Building Inspection Commission)

Proposition B authorizes the City to amend the Charter to change the appointment process and qualifications for Building Inspection Commission (BIC) members and the appointment process for the Director of the Department of Building Inspection (DBI). This measure required a simple majority, and received nearly 62 percent affirmative votes. PASSED.

With this proposition, the Mayor will now have authority to appoint and remove the Director of DBI, after receiving a list of three qualified candidates from the BIC; previously, the BIC had sole authority to appoint and remove the Director.

Proposition E (Behested Payments)

Proposition E directs the City to amend its behested payments law to prevent members of the Board of Supervisors from seeking behested payments–donations made at the request of a City official for legislative, governmental, or charitable purposes–from certain contractors who received Board approvals, and to allow further changes to this law only if the City Ethics Commission and two-thirds of the Board of Supervisors approve those amendments. This measure also required a simple majority, but received almost 70 percent affirmative votes. This new ordinance was effective on or around July 8, 2022, 10 days after the official vote count was declared by the Board of Supervisors on June 28, 2022. PASSED.

In response to Proposition E, and with concern that it may constrain certain philanthropic activities in the City, Mayor Breed has proposed a ballot measure for the November ballot to modify some of Proposition E’s provisions. Similar legislation modifying Proposition E is pending at the Board of Supervisors and, if adopted, could preempt the need for the ballot measure. Stay tuned.