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Saturday, July 13, 2024

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DevelopmentLots of housing laws. Not much housing

Lots of housing laws. Not much housing

Hearing, data show how the state's 'streamlining' supply-side approach is failing.

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Since the 1970s, apostles of growth have decried local control of land use as the evil that has to be stamped out if housing is ever to become abundant and broadly affordable. Today the gospel of market-oriented centralization has achieved hegemony—embraced by the planning profession, many environmentalists, virtually the entire news media, numerous academics, and the denizens of neoliberal think tanks from coast (Berkeley’s Terner Center) to coast (NYU’s Furman Center).

Most importantly, as documented by a February report from Terner and the Urban Institute, that doctrine has been read into state land use law across the country, with California leading the way.

So are the new laws working?

Yes and No.

In California, the state has effectively preempted local land-use prerogatives but failed to boost housing production or increase affordability. Despite mounting evidence of those failures, the state’s legislators are doubling down on their preemptive, market-friendly course.

Sen. Scott Wiener and Assemblymember Buffy Wicks talk about changes to CEQA.

SB 9’s paltry results

California’s disappointing housing outcomes were heralded in mid-January by Terner’s report on the impact of SB 9, Toni Atkins’ controversial 2021 bill authorizing property owners to split a single-family-zoned lot and then build up to three homes on each of the two new parcels “by right,” that is, without a public hearing. The law conclusively eliminated zoning for single-family homes in the state. SB 9 took effect on January 1, 2022.

A year later, Terner found that SB 9’s impact had been “limited so far,” with “some of the state’s largest cities report[ing] that they have received just a handful of applications for either lot splits or new units.”

San Francisco had received four lot-split applications and approved two; and received 25 applications for SB 9 units and approved four.

Staff sugarcoat the bad news

The news got worse on February 28, when the Senate Housing Committee and the Assembly Housing and Community Development Committee held a joint oversight hearing presided over by their respective chairs, Senator Scott Wiener and Assemblymember Buffy Wicks.

According to the background paper prepared by the committees’ staff, the goals of the hearing were “to understand the recent actions taken by the state Legislature to increase housing production in the state, to ascertain their effectiveness, and to discuss further measures that will be necessary to address the housing crisis.”

The staff paper recites the supply-side catechism. The crisis in California, “where homeownership is out of reach to all but the most affluent, lower income households struggle to pay the rent, and homelessness is rampant,” is due to a “lack of housing.” At fault are the usual suspects—“local permitting and zoning barriers [“loosen the ‘stranglehold’ of single-family zoning,” a favorite Yimby meme], opposition to neighborhood change, segregation and exclusion, mounting construction costs, and a shortage of labor”—plus a culprit that’s too rarely mentioned: “There have not been sufficient federal resources to build housing across the continuum in our state.”

Would that the staffers had delved into that factor.

The paper summarizes 74 housing bills that the state has enacted into law since 2017 and, curiously, one 2007 bill, Sen. Gilbert Cedillo’s SB 2. It groups the statutes into the following categories: Housing Streamlining, i.e. removing local discretionary review and approval; Housing Element and RHNA [Regional Housing Needs Allocations] Reforms; Oversight and Accountability; Density Bonus Law; Entitlement Reforms and Public Land for Affordable Housing; Accessory Dwelling Units [ADUs] Missing Middle Housing; and Reducing Barriers to Housing Access.

Though lengthy, the list is incomplete, as its authors acknowledge. A footnote to the Housing Streamlining Bills discussion states: “This list focuses on housing streamlining measures and is not an exhaustive list of CEQA [California Environmental Quality Act] exemptions available to specified housing developments (i.e., as the CEQA exemption for Homekey projects or infill developments).” Most notably, the staffers left out SB 375, the groundbreaking 2008 statute that sought to reduce greenhouse gas emissions by knitting together housing and transportation policies.

They also omitted a crucial point: CEQA only applies to projects that require discretionary review and approval. Eliminate discretion, and you block action taken under CEQA.

Despite these omissions, the legislative inventory is impressive. So, too, is the record of administrative activity entailed by the new laws. In the last seven years, California has:

—Increased the amount of land on which housing can be built within existing cities both by directly making it legal and by requiring local governments to increase development capacity via the RHNA process

—Expedited and simplified the approval process at the pre-entitlement, entitlement, and post-entitlement phases, including creating multiple pathways for by right approvals for ADUs, deed-restricted affordable housing, and market-rate housing.

—Substantially increase[d] the funding for development of affordable housing and simplified the process for applying for funding.

—Created and funded enforcement capacity of state housing laws at HCD [Department of Housing and Community Development]

—Established incentives to increase pay for construction workers, thereby creating a pathway to rebuild the construction workforce.

What, then, has this legislative and administrative juggernaut accomplished on the ground?

The staffers’ answer to that question is equivocal:

These changes have started to bear fruit. For example, ADU construction has exponentially grown from a handful each year statewide to over 10,000. In the past two years, affordable housing development has approached 20,000 units per year, doubling previous totals. And the adoption of local Housing Elements around the state has required cities to rethink how much housing they permit, where it is allowed, and the process to get it entitled. Nevertheless, there is certainly much more to be done before housing production reaches the levels necessary to ameliorate our housing crisis.

Much more needs to be done indeed. As the paper states, the Department of Housing and Community Development (HCD) currently estimates that “California must plan for the development of more than 2.5 million homes over the next eight years,” including a million homes for lower-income households. That works out to 312,500 units a year, of which 125,000 are affordable.

The paper includes a bar chart that shows the number of permits issued for residential construction and construction type per year between 1980 and 2020, with permit issuance serving as a proxy for construction.

The horizontal line across the top, at a little over 300,000, is misleading. It indicates the number of homes that, the state estimates, are needed to meet current statewide housing goals, not the goals for the entire 40-year period.

What the chart does make clear is that residential construction never recovered from the 2008 crash. Set against the state’s goal of 312,500 new homes a year, the permitting of 10,000 ADUs and nearly 20,000 affordable housing units is trivial.

The staff paper doesn’t consider that the gaping shortfalls might be due to basic flaws in the state’s approach, nor does it recommend future actions.

Hear no evil

Wiener and Wicks knew the numbers would be grim. Pointing to the meager production, especially the production of affordable housing, critics could question the effectiveness of the preemptive supply-side program at the very moment that legislators were starting to vet 2023 bills intended to expand it. The situation called for damage control.

Accordingly, the hearing was staged as a rally that featured attacks on CEQA and shout-outs to SB 423, Wiener’s amped-up version of his controversial 2017 bill, SB 35. The “witnesses” who’d been summoned to testify at the hearing all applauded the prior legislation and called for more of the same.

About an hour and a half into the meeting, Wiener even took a swipe at Terner for having reported SB 9’s dismal results. “The laws that we’re talking about,” pouted the senator,

have been in effect somewhere between two months and maybe five years really….We spent 50 years driving the car into the ditch….The Terner Center analysis about SB 9—great that that happened—but super-premature to read a lot into that analysis for a law that’s been in effect for 12 months.

The public rebuke of the Legislature’s go-to housing consultant was startling—and all the more so given that nobody at the hearing had mentioned the think tank’s January 18 study. Wiener must have been brooding over it for weeks.

Terner seems to have gotten the message. On April 11, it published “a review of California’s recent housing legislation” with the proviso that “[t]his brief..is not meant to be an evaluation of the effectiveness of these state laws” but “[r]ather…is an effort to characterize the breadth and goals of recent legislation, and to assess practitioner experiences”—Terner had interviewed unnamed planners and land use lawyers—“with using these laws to further housing production.”

Terner’s Metcalf: to see real progress, squint

The legislators attended most closely to the testimony of Terner Managing Director and former HCD Director Ben Metcalf, which opened the hearing. Like the committee staffers, Metcalf marked the “staggering” spate of recent housing legislation. California, he said, has enacted “more [housing] legislation than we see in other states in the nation.”

The first slide of his Power Point presentation provided an overview:

Since 2016, nearly 100 laws pertaining to housing have been passed and signed into law, collectively making over 275 changes to code sections (or creating new sections). State housing departments and agencies have promulgated hundreds of new guidelines, NOFAs [Notice of Funding Availability], regulations, and increased headcounts by unprecedented levels.

Another slide focused on affordability, stating that California “has invested substantially in new affordable housing, roughly doubling the construction of affordable housing to about 20K a year—through No Place Like Home (bonds funds), Affordable Housing and Sustainable Communities (cap and trade), Permanent Local Housing Allocation (doc recording fee, SB 2), Multifamily Housing Program, Serna CalHome (budget), and HomeKey [conversion of hotels to housing].”

Under “Planning and Enforcement,” Metcalf noted the “[m]uch larger regional housing goals (SB 828/AB 1771),” as well as “stricter requirement on what counts as a valid site” for RHNA; “no-net-loss” of zoning capacity (AB 1397/SB 166)’ and a “Fair Housing Overlay on allocations and sites (AB 1771/686)—all backed up by ‘[n]ew enforcement authority (AB 72) [that] has been used to keep cities honest.”

He also marked the state’s new “prescriptive zoning requirements,” observing that “[m]any new laws require localities to approve certain kinds of housing and override local zoning controls.” For example, SB 1096, SB 13, and AB 1881 expedite the approval of ADUs. SB 9 , which made approval of single-family lot splits by right, has had a “slow uptake” due to “local barriers” and “capacity issues,” “but [it’s] still early.” The state’s Density Bonus law, strengthened by AB 2345 and AB 1763, is “working well, but only in some places.”

Streamlining entitlement to make housing reviews and approvals faster has had “mixed results.” Stating that “it’s hard to quantify” the effects of “streamlining reforms,” Metcalf only detailed the successes: “Housing Accountability Act reforms (SB 167) have deterred cities from rejecting zoning-compliant projects.” SB 35, AB 2167, and SB 330 “all show some promise, particularly for ministerial approvals for subsidized affordable housing and ADUs.”

At first it seemed as if, unlike the staffers, Metcalf would not flinch from reporting the scant results of the energized housing regime. “The problem,” he said, “is that when you look at the numbers, you don’t see what you expect to see after all that activity.” From 2017 to 2020, housing permits issued “actually declined.” He headlined one slide with the question: “Bottom Line: Is it working?”

The blunt answer: “Housing unaffordability remains high, and production relatively stagnant.”

But then Metcalf struck a propitiatory tone. “So we’re coming up short, but I think it’s important to say that it’s early, and that it’s important to spotlight places where we’re seeing progress.” He focused on the same places as the background paper: SB 35 and ADUs.

SB 35 says that if a jurisdiction hasn’t permitted the same number of homes as its RHNA, the city loses its discretion over residential development approvals, depending on whether its permit issuance has fallen short for lower-income housing, market-rate housing, or both.

In Metcalf’s view, SB 35 “seems to be working for affordable housing: Nearly three-quarters (13,215)” of the units that have been proposed under the law “are for lower-income households.” And it’s “become a very helpful vehicle for contending with historic Nimby challenges.” The catch: SB 35 “has not delivered in terms of unlocking market-rate housing.”

Praising ADU affordability, Metcalf opined that “[t]he median statewide construction cost of an ADU is significantly less than similar forms of housing. Many units are naturally affordable to households at or below 80 percent of Area Median Income [the official cut-off for affordability] and often located in areas with few other affordable options.”

His final slide asked: “Can Existing Housing Laws Deliver?” The answer was ambiguous:  “Time will tell. Numbers are lagging, we may need more time to assess. Impactful legislation like ADUs has taken many rounds of legislative fixes….Cost issues remain untouched: Labor, building materials, ever more stringent code requirements, growing impact fees.” The last of these is “an area that we really haven’t tackled in the last few years.” Metcalf didn’t note that impact fees is an area that the Legislature commissioned Terner to examine. (Expect to see aggressive anti-impact fee legislation, such as the scheme floated at a recent SPUR forum by Chris Elmendorf and Darien Shanske.) In any case, we need “greater enforcement. The state must keep its foot on the gas with HCD’s Accountability Unit, the Attorney General’s Strike Force, etc.”

Metcalf looked hopefully at “one great leap of faith,” the next RHNA cycle. “The [current] Sixth Cycle greatly increased residential zoned land and forced localities to seriously consider constraints to development, such as high costs or uncertainty. Capacity and experience will be much greater in the Seventh Cycle for Localities, the State, and advocates.” We still lack “objective city-wide measures of constraints.” Such measure will provide “an opportunity for harnessing data and onboarding a common yardstick and may be a gamechanger.” The Seventh Cycle will “introduce more of an evidence-based approach” that will allow us to see “whether policies that cities have in place are moderately or substantially inhibiting development.” Translation: more surveillance is on the way.

His final comment: “if you squint, you might see an optimistic path forward on making real progress on California’s historic housing shortage.”

Legislators ask hard questions, get muddled replies

Midway in the 3.5-hour hearing, the legislators quizzed some of the witnesses who had just testified.

Senator Dave Cortese asked whether the state has the capacity to implement HCD’s Surplus Lands program. (48 hills readers may remember how Cortese, then a Santa Clara County supervisor, was the point man in MTC’s hostile takeover of ABAG.) Senator Sharon Quirk-Silva asked for an audit of the program.

But most of the questions were about affordability. Senator Anna Caballero said it was “not clear what’s working and what’s not and where. Blue-collar communities tend to build affordable housing, and wealthy communities don’t.” She asked Metcalf “where the majority of housing is occurring generally in the state, and where the affordable housing is going.”

Metcalf’s reply was garbled. “Your characterization is generally correct,” he said. “Most of the state’s historically affordable housing was in higher poverty neighborhoods. Now it’s getting built more evenly across higher and lower opportunity regions.” Ditto for ADUs. But the senator had asked about “communities”—presumably cities—not neighborhoods or regions.

Quirk-Silva wondered “who got those $40,000 grants for ADUs?” Senator Aisha Wahab said she’d heard “lots about production, but not much about preserving and protecting [affordable] housing.” She pointed out that many “ADUs are not rented out to non-family members” or are rented out at market rates. “There no real discussion about affordability,” said Wahab. “What are we doing to tackle the vacancies in multifamily housing?” The housing crisis is “not just a development problem.”

Metcalf dodged Wahab’s query: “We are still seeing ADUs as an affordable by design solution, even where there are no deed restrictions.” ADUs offer “a different rental price than single-family home new construction.”

Senator Steve Padilla, like Wahab, a rookie state legislator, was the most persistent. He noted that the Statewide Housing Plan annually allots more than $18 billion dollars for the next eight years “to underwrite 140,900 produced units every year” to address the needs of lower income households. Padilla asked, “Are we characterizing this as construction subsidies? Or direct rental subsidies? And what were the assumed qualifying income thresholds that we used to arrive at that number for underwriting?”

Padilla’s questions befuddled HCD Deputy Director for Housing Policy Development Megan Kirkeby. After a long silence, she said, “Those numbers don’t track exactly for me, but that doesn’t mean they’re wrong. We might need to follow up on the statewide housing planning goals,” which are based on the Area Median Income for each region. “There are extremely and very low-income housing goals, low-income, moderate, and above-moderate income goals, and then they would adjust to the regional AMIs.”

Padilla, a former police detective, replied:

I understand how we characterize the different segments of the market and the demand of low-income households….What I’m asking is, we have an estimated annual expenditure on the part of the state to bring at least the majority of that demand into affordability. So, is that based on construction subsidies? Is that based on direct rental subsidy? And if so, what were the assumed qualifying income thresholds that would be served by those subsidies? And I am reading from the 2022 Statewide Housing Plan, as it’s cited in the background paper.

After another silence, Kirekby said, “I will look into that and figure out what source that is citing so we can answer the question directly. I don’t want to misspeak.”

Padilla:

Lastly, 21,000 annual production of ADUs is quite a robust number….The assumption [is that] because they are ADUs they are always going to be relatively affordable. However, oftentimes those things are really driven by market factors, geographic factors….Do we have any other data yet about what kinds of rents are being demanded for those ADUs or even costs?

Kirkeby referred Padilla to the dashboard on the HCD website that has the data from cities’ annual progress reports on their RHNAs, including data that shows “where those rents are set relative to the incomes for the individuals… It gives you a sense of where those ADUs are coming online. Are they serving moderate income households? Are they serving lower income households for that community?”

Wiener must have sensed that his colleagues’ questions about affordability, coupled with Kirkeby’s halting replies, threatened the credibility of the supply-side narrative, because it was right after Kirkeby’s exchange with Padilla that he slapped Terner on the wrist and said it’s way too early to judge the effectiveness of the new housing policy regime.

Even if that were true, it’s well past the date to acknowledge that the supply-side narrative is full of hype. Take the claims about ADU affordability. It’s obvious that, as Metcalf claims, it costs less to build an ADU than a single-family home, and that ADUs offer “different rents” than single-family homes. But it’s not at all obvious that, given ADUs’ markedly smaller size and the inclination of many owners not to rent them to strangers, ADUs are an affordable alternative to single-family housing. Indeed, a glance at the HCD dashboard referenced by Kirkeby undermines the ADU affordability myth.

The SB 35 con

Far more devious—and consequential—than claims for ADU affordability is the promotion of SB 35 as an affordable housing success story. To show that “SB 35 seems to be working for affordable housing,” Metcalf displayed a pie chart taken from HCD’s Housing Implementation and APR [Annual Progress Report] Dashboard. Terner broke out the percentage of numbers of units.

What’s wrong with this picture:

First, the SB 35 numbers on the HCD dashboard are admittedly unreliable. A note on HCD’s SB 35 page cautions: “Many projects reported as SB 35 projects are likely reported in error. HCD encourages jurisdictions to confirm SB 35 projects and revise their APR [Annual Progress Report] accordingly if corrections should be made.”

Second, the chart shows the number of homes that have been proposed under SB 35. Proposed doesn’t mean approved, much less built.

Third, SB 35 only looks like an affordable housing success story when the affordable units are compared with the market-rate units. But the numbers for both kinds of housing are piddling.

Fourth, even if the numbers weren’t piddling, you can’t legitimately compare the production of affordable housing with the production of market-rate housing. That’s because market-rate housing depends for its financing on the market; and affordable housing mainly depends on funding from a government-created and government-administered source, the Low Income Housing Tax Credit program.

Metcalf showed a slide alluding to the LIHTCs. It stated that affordable housing is “[f]acilitated by state scoring systems,…but also compounding oversubscription problems.” Metcalf didn’t unpack that comment. Its meaning is essential to grasping the difference between funding for market-rate and affordable housing, and why SB 35 has facilitated more affordable than market-rate.

In his May 31 analysis of Quirk-Silva’s AB 346, Assembly staffer M. David Ruff explained that the LIHTC program

is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. The federal LIHTC program replaced traditional housing tax incentives such as depreciation, with a tax credit that enables low-income housing developers to raise project equity through the allocation of tax benefits to investors. Each year the Federal Government allocates funding to the states for LIHTCs on the basis of a per-resident formula for the 9% credit. State or local housing authorities review the proposals submitted by developers and select projects based on a variety of prescribed criteria. In California, responsibility for administering the federal program is assigned to CTCAC [California Tax Credit Allocation Committee.]

The problem, as Eden Housing wrote in support of AB 346, is that “[w]ith demand for affordable housing growing, California’s tax credit financing programs are seriously oversubscribed.” In other words, there’s a long line of qualified projects seeking funding. (See Ann Silverberg’s testimony below.) AB 346 would change the funding formula in ways that would give the state more flexibility in awarding tax credits to affordable housing projects.

Meanwhile, SB 35 says that if cities don’t permit their allocation of low-income RHNAs, they will lose their discretion over projects with at least 50 percent low-income housing units. Developers aren’t going to pull permits for projects that can’t get funded. The terms of SB 35 show that the state’s real priority isn’t affordable housing but consolidating power in Sacramento on behalf of the private real estate industry.

Breed’s rep cozies up to Wiener and HCD, raps democratic planning

Next up were the witnesses from three very different cities, Arcata, Pomona, and San Francisco. Presumably they were chosen to demonstrate the wide range of municipal support for the state’s housing agenda. In a turn worthy of 1984, all three speakers thanked the state for preempting local control of land use—in other words, for mandating their disfranchisement.

But the testimony of the official from San Francisco, Lisa Gluckstein, Mayor London Breed’s housing and land use policy advisor, stood out. For starters, Gluckstein outdid her counterparts in paying tribute to the Legislature and HCD. She said that “recent legislation to streamline housing has benefited San Francisco immensely, especially SB 35 and the Density Bonus law.” She gave some details: Since 2018, SB 35 has authorized the approval of more than 3,000 housing units in the city, most of them affordable; and permitting is now four times faster—down from 18-24 months to three to six. Gluckstein applauded Wiener’s “work to extend SB 35” via SB 423, as well as former Supervisor, now Assemblymember Matt Haney’s AB 1114, “which would help us with the fact that a lot our building permits are discretionary.” Legislation aside, the February 1 certification of San Francisco’s Housing Element “reflects the strong partnership with HCD and the hard work of many state and city employees.” Her slide deck included a photo of Breed and HCD Director Gustavo Velasquez sharing smiles.

Moreover, unlike the speakers from Arcata and Pomona, Gluckstein extensively denigrated her town. “San Francisco’s housing crisis” she said, “is rooted in a long history of exclusion, population and jobs growth, and chronic underproduction of housing.” A big factor is the city’s “notoriously complex process for approving housing,” some of which is “baked into the Charter, which means they have to go to the voters to be changed.” Besides the problem of voter accountability, “we also have a very strong advocacy community that doesn’t always support new housing,” and “other decisionmakers” who can’t be relied upon to “do the right thing.”

Fortunately, in Gluckstein’s telling, the “mayor is taking decisive action to support new housing production very much in line with the state’s mandates….[W]e have to move quickly, because San Francisco’s RHNA obligation is quite sizeable”—82,000 units, including more than 46,500 units of affordable housing—by 2031. That, said Gluckstein, is “a 20 percent increase in the city’s total housing stock,” currently about 410,000 units, in eight years. It’s also an enormous (okay, absurd) increase over the nearly 5,000 new units that, she reported, have been built in recent years. “Our RHNA requires an average of 10,000 units per year, or roughly three times historical production.”

To meet the state’s fanciful goals, Breed has a two-pronged plan. First, said Gluckstein, the mayor proposes to increase zoning capacity in “well-resourced neighborhoods,” especially “those that haven’t seen much development in recent years.” Breed want to upzone transit corridors on the city’s westside to accommodate 36,000 homes. Gluckstein cautioned that “zoning capacity is meaningless if we can’t actually get those units built.” To that end, Breed also seeks to “reduc[e] government constraints by making housing approvals simpler and faster, limiting discretion and touch points in the process for decisionmakers to interfere, and reducing fees and exactions.”

Gluckstein didn’t name any names, but anyone with a passing familiarity with San Francisco politics would know that her reference to allegedly obstructionist officials was code for the progressive members of the Board of Supervisors who are in a pitched battle with Breed about housing and much more.

With an eye to eliminating such dissent and to “prioritizing Housing Element implementation,” earlier in February Breed had introduced Housing for All Executive Order 23-01. The directive “established oversight structures;…set clear and faster for certain legislative actions—for example, put[ting] forward ordinances that remove certain approval requirements such as conditional use authorizations; re-evaluate[d] the city’s inclusionary requirements, which are quite high compared with other jurisdictions across the state; and look[ed] at new financing mechanisms such as infrastructure financing districts.”

Given that San Francisco’s Sixth Cycle RHNAs includes 46,500 affordable homes, Breed’s proposal to lower the city’s inclusionary requirements might seem perverse. The unspoken rationale here is that, as we’ve just seen, affordable housing is very hard to finance. Requiring less of it in a mixed-income project would presumably entice development. (On July 25, the Board of Supervisors voted 10-1, with Dean Preston dissenting, to cut the city’s affordable housing requirements and reduce the impact fees that developers are charged to fund, among other things, Muni service and parks.)

Gluckstein acknowledged the “affordable housing funding challenges.” Financing the mandated 46,5000 affordable units would require $19 billion in local funding, $30 billion from the state in tax credits and soft debt plus other sources. The city, she said, now funds about 40 percent of each affordable housing project locally. Noting that the “competitive CDLAC process [California Debt Limit Allocation Committee] has limited access,” Gluckstein said that the California Housing Accelerator “has filled the gap,” but there’s still “a lot of outstanding need.” She mentioned “new tools, specifically “new bond measures that are in the works” and Wiener’s 2023 “replacement housing bill,” SB 593. That measure would authorize the successor of San Francisco’s dissolved Redevelopment Agency, the City and County of San Francisco, to draw on the city’s Redevelopment Property Tax Trust Fund to finance certain affordable housing projects—an option unavailable to other cities and counties.

Smearing CEQA, fronting for UC 

After the three city officials had made their presentations, Wiener invited Arcata Community Development Director David Loya to expand on his comment on the need to strengthen CEQA infill exemptions, adding: 

A consistent refrain that I hear from city planning staff, from city councilmembers and mayors is that “Hey—we’re trying, and CEQA is making our lives a lot harder. We’re trying to comply with state housing law, we’re trying to build sustainable housing near jobs and transit, and we’re having CEQA appeals and lawsuits, and so forth.

Loya was happy to comply. He said that Wiener “had characterized [the situation] correctly.” A city could “go through its process” and “even” approve a housing project, and then someone could delay construction by filing a CEQA appeal. Unless the project was “protected by a CEQA exemption,” it might be required to go through an environmental review, which 

could get pumped up to an EIR, which is added time and money. And even if [the jurisdiction] prevail[s], it’s been my experience that developers are looking at their holding costs as much as they’re looking at they’re looking at the cost of development. And so each of those procedures, every hearing, every legal challenge that they have to go through, is a holding cost. It creates less housing ultimately. 

Loya recommended “clean[ing] up” the exceptions to the CEQA exemptions. 

I’d just like to see more of that…It would support jurisdictions that are trying to do the right thing and to promote housing, in spite of the fact that in every community you’re going to have at least one person—and that’s all it takes—who’s ready to raise a legal challenge.

Loya’s remarks encapsulated the prevailing housing absolutism: New housing trumps everything, including environmental protection.

The Arcata official’s testimony was Wiener’s cue to go on an anti-CEQA rant. First, the senator derided the law as a tool of elitist opponents of housing.

Yeah. Anyone who can pay a lawyer—we’ve seen this with affordable housing in Lafayette—is it Lafayette? I can’t remember the East Bay city [someone says, “Livermore”]—Livermore. Their city council did the right thing and approved a great affordable housing project, and some mega-Nimbys who have money funded a CEQA lawsuit—they don’t represent a majority….It’s super-undemocratic. 

Wiener then claimed that CEQA’s provisions against noise are being used to defame students. 

And of course we’re seeing what’s happening right now at UC Berkeley, where the California Court of Appeal issued a decision that college students are pollution—they frame it in a rosier way—because everyone knows apparently that college students make noise. Human beings make noise, we all make noise at all ages [Wicks, seated to his immediate left, gives him an appreciative smile], but it was fun to be a college student. 

Wiener’s anti-noise-regulation diatribe was joined by his colleagues. Senator Nancy Skinner volunteered that “[f]amilies with a lot of kids can be loud, too.” Wicks agreed: “Yes, a six-year-old and a two-year-old [the ages of her own children]—they’re very loud.” Turning to Wicks, Wiener said, “People who like music are loud, too. Lots of loud people.” Wicks flashed him another appreciative grin.

Milking his “college students are pollution” trope, which he now unconditionally attributed to the court, Wiener said the CEQA lawsuit over the university’s plan to build housing at People’s Park was dashing students’ aspirations to get an education and join the middle class.

College students, according to the court, are pollution, and so they have to be mitigated, as if they were like tailpipe exhaust or like fumes from a refinery. That’s literally how the California Appeals Court classifies college students, who are just trying to get an education and be part of the middle class, and yet they’re pollution [Wicks nods in agreement]. That’s how far CEQA has fallen from what it was intended to do, which was to protect the environment. We’re doing some work on that [another nod from Wicks], and CEQA has to be fixed. 

What the First District Court of Appeal actually said was that, contrary to the university’s claim, the evidence presented by the plaintiff “amply supported a fair argument that noise impacts from the increased student population associated with the [school’s] plan and Housing Project no. 2”—a projected 9,008 increase in undergraduate beds, of which 1,110 would be in the project proposed for People’s Park—“might be substantial.” The court cited “an expert report on student generated noise prepared by Derek Watry, an engineer with almost 30 years of experience with an acoustical consulting firm that had prepared hundreds of noise studies for EIRs.” The university called his findings “speculative.” The court disagreed.

The record…establishes that UC Berkeley students have a long and well-documented history of disturbing Berkeley residents with loud noise. It is reasonable to assume that it will continue….What is speculative is the Regents’ notion that thousands of additional students placed in the same environment will behave differently.

The court also held that

without citing pertinent authority, the Regents suggest environmental impacts from social noise are not subject to CEQA. That is incorrect. Noise impacts are expressly included among the environmental effects subject to CEQA….Nothing in the statutes or Guidelines carves out noise from human socialization as an exception to this, and the case law suggests the contrary is true….Until the Legislature says otherwise, noise is noise.

It’s true that CEQA can be used to oppose worthy projects, such as the Livermore development, but that doesn’t make CEQA action per se objectionable—and certainly not undemocratic. As Natural Resources Defense Council attorney David Pettit wrote in 2013, no bureaucracy administers CEQA. Instead, the law is “typically enforced only by citizens going to court.” That said, government agencies, including cities, also can and do file CEQA challenges. If anything, it’s the law’s inherently democratic character that Wiener, Wicks, and Skinner find offensive.

The lawsuit against UC Berkeley is far more complex than the Livermore case, involving among other things the university’s failure to follow CEQA and to justify its decision not to specify alternative sites for the housing it wants to build on People’s Park.

Wiener berates cities for skirting their RHNA obligations; UC’s violation of CEQA doesn’t appear to bother him. This likely explains why: As neither he nor Wicks mentioned, on February 16, the assemblymember had introduced AB 1307, which would “fix” CEQA by specifying that under certain circumstances, “institutions of public education in an EIR for a residential or mixed-use housing project, are not required to consider alternatives to the location of the proposed project if certain requirements are met.” The proposed requirements would exempt UC’s plan to build student housing at People’s Park from CEQA review.

When introduced, AB 1307 also declared that “noise generated by the unamplified voices of residents is not a significant effect on the environment for residential projects.” According to the staff analyses, Wicks says that if the measure becomes law, “no longer could CEQA consider ‘people as pollution’”—as if that taunt came from the law rather than from Wiener and herself.

On March 16, she strengthened the measure, replacing “unamplified voices of residents” with “occupants.” On June 26, she strengthened it again. From the Legislative Counsel’s Digest: “This bill would specify that the effects of noise generated by project occupants and their guests on human beings is not a significant effect on the environment for residential projects for purposes of CEQA.”

In a nice irony, AB 1307 designates itself as 

an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect.

The facts constituting the necessity:

Currently in California there is a substantial housing crisis. To ensure housing projects are not subject to further uncertainty, delay, or risk of lawsuit, it is necessary for this act to take effect immediately.

AB 1307 may be a timely legislative intervention: The California Supreme Court is poised to review the appeal court’s decision. The bill sailed through the Assembly—not a single No vote—and is now advancing through the Senate.

Skinner’s “good RHNAs” charade

The legislators’ CEQA hatefest was punctuated by a rambling, cryptic commentary from Sen. Nancy Skinner about funding the housing envisioned by the RHNAs:

I’m appreciative of the fact that both the cities’ responses but also of the HCD’s taking the RHNA enforcement process very seriously and you know holding our cities accountable. It’s very important that we do this. However, having good RHNAs is still not necessarily going to result in achieving the actual construction of the housing….We are of course facing problems of you know higher interest rates. We’re seeing a kind of drop in market housing—you know we’ve got projects that are permitted but haven’t broke ground and indications by developers that they might not. Anyway, I feel like we have to work together with our state agencies to kind of understand that landscape and see whether in the near term is there space for either more investments in the very affordable or low-income housing, and is there more ability to get that broken ground right now than some of these market-rate projects? Again, the financing on this side is not an expertise I have. One of our panelists talked about the loss of redevelopment. We do have in two areas the regional housing finance authorities, both in the Bay Area now and in LA. It seems to me that more of those would obviously help. I don’t know if any our city panelists spoke at all about whether they had efforts to put things on the ballot that might help them fund housing and that then failed due to the threshold,…the voter threshold that’s required to get those passed.

Failing to get a response from any of the city reps, Skinner repeated her question.

Finally, Gluckstein said that in 2019 San Francisco voters had approved a $600 million affordable housing bond “that passed at the current threshold.” She added that her city was “looking at BAHFA [Bay Area Housing Finance Authority] as an opportunity to get funding across the region. We understand in San Francisco that to succeed, we need all the jurisdictions to also be part of the solution. We’re very supportive of looking at the regional level for measures that would be helpful in building more affordable housing.”

Translation: After having authored some of California’s most aggressive preemptive housing legislation purportedly designed to make cities “accountable”—for starters, see SB 330SB 167, and SB 168—Skinner suddenly appears to have discovered the influence of market forces. In fact, cities don’t build housing; developers do; and developers are not going to build housing unless doing so guarantees their profit margins. California’s new housing policy regime holds cities accountable for something—housing production—that they don’t control and thus shouldn’t be held responsible for.

Having stripped local jurisdictions of their land use authority, the lawmakers now confront the challenge of funding the preposterous, or as Skinner has it, “good” RHNAs. Despite her disclaimer about lacking expertise in housing finance, on February 13 the senator had introduced a bill, SB 440, that she and her colleagues see as one solution to the funding impasse: regional housing finance authorities. SB 440 would authorize the creation of such agencies throughout California, except in the Bay Area and Los Angeles, where they already exist. According to the Legislative Counsel’s Digest, SB 440

would authorize two or more local governments, as defined, to restablish a reigonal housing finance authority to raise, administer, and allocate funding for affordable housing in the jurisdiction of the authority, as defined, and provide technical assistance at a regional level of affordable housing development, including new construction and the preservation of existing housing to serve a range of incomes and housing types.

SB 440 would also “authorize an authority to, among other things, raise and allocate new revenue and allocate funds to the various cities, counties, and other public agencies and affordable housing projects within its jurisdiction to finance affordable housing project and preserve and enhance existing affordable housing, as specified, in accordance with applicable constitutional requirements.”

Like BAHFA and LACAHSA [L.A. County Affordable Housing Solutions Agency], these new regional housing finance authorities would be authorized “to impose various special taxes, including parcel taxes, certain business taxes, a special tax on real property, and a documentary transfer tax within its jurisdiction and to issue general obligation bonds secured by the levey of ad valorem property taxes.”

SB 440 extends the preemptive thrust of the state’s new housing regime. Legislative staffer Hank Brady’s analysis of the bill notes:

While this bill is modeled on BAHFA and LACAHSA, [SB 440] would grant newly formed Authorities additional powers not bestowed on those existing entities. These authorities, in addition to the ability to manage existing buildings, could hold and acquire existing buildings for purposes of attaching affordability requirements. For any property acquired, these Authorities, unlike BAHFA and LACHASA, will have the power to set the land use and development parameters for such property, including setting the request for proposal criteria and selection process for a developer partner.

In a subtler blow at municipal prerogatives, SB 440 provides that:

[a]n authority shall be governed by a board of directors consisting of a minimum of three directors. All directors shall be elected officials representing the cities, special districts, or counties that are members of the authority. The authority shall consist of members appointed by each of the cities, special districts, or counties that are a member of the authority in proportion to the population served by the member city, special district, or county. [emphasis added]

In other words, the new authorities will be governed along the same lines as BAHFA, whose Executive Board is the Metropolitan Transportation Commission, a body weighted toward the Bay Area’s big cities. Small jurisdictions: beware of teaming up with much bigger ones.

As journalist Michael Barnes observed to me, “the Legislature is just gutting local governments and turning them into cash cows for regressive taxes for their pro-growth agendas.”

SB 440 also belies Skinner’s professed solicitude for “very affordable or low-income” housing. As Bob Silvestri recently pointed out in The Marin Post, California’s definition of affordable housing is notable for its plasticity. Thus, citing Section 50093 of the California Health and Safety Code, SB 400 authorizes “an authority board” to

make a finding that market rate rents or housing costs are unaffordable to households at 120 percent of the area median income [AMI] in a particular geographic area of the district. An authority that makes this finding may utilize a higher income limitation for housing developed and preserved within that particular geographic area of the district, provided that the income limitation does not exceed 150 percent of the area median income.

The current AMI in Sacramento County is $102,400 for a household of four. In San Diego County it’s $116,800. In other words, SB 440 authorizes regional housing finance agencies to promote market-rate housing.

Just as Wicks omitted to say that she had just introduced AB 1307, Skinner never disclosed that she had just introduced SB 440. The senator’s reference to “voter thresholds” for “things on the ballot that might help [cities] fund housing and that then failed due to the threshold” was similarly devious.

“Things on the ballot” means revenue measures. Thanks to Prop. 13, the voter threshold for passing such measures in California is 67 percent. BAHFA, in concert with Enterprise Community Partners, is leading a campaign for a 2024 statewide ballot measure that would amend the California Constitution by lowering the threshold to 55 percent. (In 2017, ECP got $500K from the Chan Zuckerberg Initiative, i.e. Facebook money, to draft and then lobby for David Chiu’s AB 1487, the 2019 legislation that authorized the BAHFA’s creation.) BAHFA and ECP are also pursuing a regional bond measure to go on the 2024 ballot that would raise $10 or $20B for “affordable” housing in the Bay Area. If the lower voter threshold measure passes, it would apply to the bond measure as well.

When Skinner asked for examples of housing revenue measures that failed because they didn’t meet the voter threshold for approval, she was looking for evidence to support BAHFA-ECP’s twofold campaign. Gluckstein piped up, presumably to spare the senator the embarrassment of getting no response at all. But the example she gave, San Francisco’s passage of a huge housing bond (by 71%), was exactly the opposite of what Skinner sought. Gluckstein then got with the program, lauding BAHFA and “measures that would be helpful in building more affordable housing.” But like Skinner, she said nothing about the big measures that are in the offing.

SB 440 has passed the Senate and is moving through the Assembly.

The developers 1: Ann Silverberg on the dire lack of affordable housing money

The final set of witnesses comprised three developers, Mark MacDonald, Ann Silverberg, and Steve Eggert. Only MacDonald appeared on the hearing agenda. He appeared to have invited the other two, whom he called “my panelists.” Unsurprisingly, each member of the trio lauded the state’s housing agenda, albeit from varied perspectives and in distinctive voices.

Of the three, Silverberg, was the only affordable housing developer proper. She described herself as “the CEO for Related’s Northern California and Northwest Affordable Division,” a role in which she’s currently overseeing the development of more than 5,000 units of affordable housing. She said that in its 30-year history, Related California has been “one of the larger developers of affordable and mixed income housing in the state,” where it has built more than 18,000 units.

But Silverberg is more than a developer; she’s also a political activist who advocates the preemptive, supply side position in a wide range of private and public contexts. Her profile on the Related website states that she chairs the Board of Directors of the California Housing Consortium, described on that organization’s website as a coalition that advocates “the production and preservation of housing affordable to low- and moderate-income Californians”; co-chairs California State Treasurer Fiona Ma’s California Debt Limit Allocation Committee/Tax Credit Allocation Committee Working Group; serves on SPUR’s Housing Policy Committee; sits on the board of the San Francisco Housing Action Coalition; belongs to the ULI San Francisco Local Product Council; and is past president of the Board of Directors of the Non-Profit Housing Association of Northern California.

After expressing her “deep, heart-felt gratitude” to the lawmakers, “most particularly the housing committees,” and to the Newsom administration for their “clear commitment to combating this severe housing shortage that we’re in,” Silverberg marked “what’s working:” the “recent suite of land use reform and land use laws, starting with SB 35 but now also including SB 330 [Skinner’s Housing Crisis Act of 2019], AB 1763 [David Chiu’s 2019 bill drastically expanding the state’s Density Bonus law for 100% affordable housing projects], AB 2923 [Chiu’s  2018 bill giving BART land use authority], and soon-to-be-implemented AB 2011 [Wicks’ 2022 bill authorizing by right approval of 100 percent affordable housing in commercial zones and mixed-income housing projects along commercial corridors].”

Citing her “30 years in the industry,” Silverberg enthused that these statutes “have literally revolutionized how we’re proceeding with entitlement of affordable housing. Instead of spending years and years of time and millions of dollars to defend and process and often fight for affordable housing, affordable developers now can choose from a menu of laws in streamlining entitlements and CEQA clearance in ways that we didn’t dream of even decade ago.”

She singled out SB 35 for extra praise. Under Wiener’s 2017 bill, “Related has entitled 818 units in seven projects since SB 35, with another 1,176 units in process—just months away.” (I emailed Silverberg asking for a list of those projects; she didn’t reply.)

She went on to urge the passage of SB 423: “I know there’s more to be done with CEQA and streamlining, to expand applicability and make permanent the sunsetting legislation of SB 35,” which is due to expire in January 2026; SB 423 extends that date to January 2036. “So SB 423, if I have my number correct—it’s really, really important to see those changes,” which would bring “time savings, providing certainty to the process, and housing dollars.”

Silverberg didn’t mention that the California Housing Consortium is one of the four co-sponsors of SB 423. (The other three are California Yimby, the Nor Cal Carpenters Union, and the Southwest Mountain States Regional Council of Carpenters.) CHC has also endorsed Wicks’ AB 1307.

Then she turned to what’s not working: “Our greatest challenge today is funding.” Affordable housing is “getting bottlenecked at the financing stage.” The state’s “LIHTC program and tax-exempt bond program” are the “main engine” for 100 percent affordable housing,” funding about 20,000 units a year. “Not nearly enough, but at least it’s something. We’re worried about falling short of that.”

At the very least, the state should “at least support the production levels we’ve had over the last couple of years.” The “critically needed soft debt to complete the capital stack for affordable housing…is running dry….The recent HCD Super NOFA [Notice of Funding Availabilities] round for state-level financing was oversubscribed by five to one….The MHP [Multifamily Housing] program was oversubscribed by ten to one—3.5 billion in requests for 650 million in resources. Those are projects that are ready to go.….The CDLAC process was “seriously oversubscribed in the last round.” Silverberg implored the state to follow up its “groundbreaking and legacy-producing” streamlining legislation and to “stabilize affordable housing production longterm with a reliable, ongoing, dedicated source” of money for affordable housing.

The developers 2: Mark MacDonald and 300 De Haro

The first of the two market-rate developers to speak was Mark MacDonald, CEO and founder of the San Francisco-based firm DM Development. DM, said MacDonald, “focuses on market-rate, ground-up, multi-family developments, both for-sale condominium properties, as well as programmed communities.” He added, “I’m proud to say that in almost all our market-rate developments, we also build on-site below-market units to create mixed-income communities.”

MacDonald said he’d been asked to give an overview of the development process. He proceeded to list the steps in that process and how long it typically takes to accomplish each in San Francisco: site selection (one year), site acquisition (one year), design and entitlements (two years), permits and financing (one year), construction (two years), and leasing (one year)—six to eight years in all. He said that DM considers 100 deals for every one it actually does. Detailing the complex work involved in each action, MacDonald emphasized that the entitlement process “is very lengthy, time-consuming, and extremely risky.” In San Francisco, he said, it usually takes 18-24 months, “or in many cases much longer, depending on neighborhood opposition.”

And today there’s a bigger challenge: financing. “We as market-developers,” MacDonald said, “work at the behest of our investors, who need our development projects to meet certain return thresholds,” and who have “a lot of options where they can place their capital to achieve the best-risk-adjusted returns….If the capital markets turn against you, as they have in the current environment, as a result of rising interest rates, it could take considerably longer to lock in financing to get a project off the ground.” He said that in his view, “the primary issue” now

is that many housing developments don’t pencil, given the high costs to build, and that rents in San Francisco have not recovered their pre-Covid levels. The returns to develop projects ground-up now are simply not there for may investors to deploy capital….So to jump-start housing, we really need to focus on creative ways to make housing less costly to build in California.

By “creative ways,” MacDonald presumably meant more policies like the state’s recent housing laws. He thanked the California Legislature for having done “an excellent job over the last number of years passing legislation to help make more attractive land available for housing development and to streamline the development process through bills such as SB 35 and AB 2011.” MacDonald said DM had availed itself of many of these bills, such as SB 35, but didn’t give any details. Indeed, a striking aspect of the entire hearing was that nobody explained how any specific project had been facilitated by the new state’s recent housing policy regime.

BAR Architects rendering of 300 DeHaro, from SF Planning Department

As it happens, one of DM’s current developments, the project at 300 De Haro, was facilitated by SB 35 and the state’s Density Bonus laws. Its history was recounted in August 2021 by San Francisco Chronicle reporter J.K Dineen. Under the headline “How one S.F. housing project is using state law to circumvent neighborhood protest,” Dineen told how early in 2020, DM had approached the site’s neighbors with a plan to build a seven-story tower at 300 De Haro.

Residents said they would support a slightly shorter six-story project — abuilding consistent with zoning — and asked for more retail and tweaks to the exterior design…. But instead of bending to the neighbors’ wishes and dropping the height of the project, DM Development went in the opposite direction, increasing the proposed 80-foot building to 120 feet [eleven-stories], and raising the original 290 units to 450 units.

Dineen commented: “[W]hile conflict between neighborhood groups and developers is the bread and butter of San Francisco’s land use politics,” the fight at 300 De Haro is “different.” Thanks to SB 35 and the State Density bonus program, “DM Development doesn’t need the support of residents”—including residents who sit on the city’s Planning Commission or its Board of Supervisors. 300 De Haro is “by right.”

I asked Dan Sider, chief of staff at the San Francisco Department of Planning, exactly how SB 35 and the State Density bonus program authorized MacDonald to expand 300 De Haro from 290 to 450 units and from six to eleven stories.

SB 35 mandates that when a city—in this case, San Francisco—has not permitted its RHNA share of low-income units, a project with 50% affordable units is subject to ministerial approval. 300 De Haro will have 450 units, of which 181, fewer than 50%, are affordable. What is the base number of units on which the affordable units were calculated? How did the applicant avail himself of the Density Bonus Law in arriving at these numbers?

Sider replied:

It’s a good question. State Law over laid upon local law makes for a complex analysis. An SB 35 project must construct at least 50% of units as affordable units (to 80% AMI or below).

An SDB [State Density Bonus] project is eligible for up to a 35% floor area bonus when no fewer than 20 % of the units are restricted as affordable units (to 80% AMI or below).

When we combine those two programs, as was the case for 300 De Haro, the 50% SB35 figure (the greater of the two) is applied to the “base” density of the SDB project.

Of the 450 units in this project, 337 are base units, so 169 of them must be restricted to 80% AMI or below.

Note that, in another ploy that belies the state’s professed dedication to affordable housing, the state Density Bonus applies the inclusionary requirement stipulating the amount of affordable housing to the original number of units, not to that number plus the bonus.

I replied: “You’ve explained the effects of SB 35 on 300 De Haro, and how the project qualified for Density Bonus. But DM Development came in with 181, not 169, affordable units. So did they go beyond what the law required?”

Sider’s reply further illustrates the state’s cynicism about affordable housing:

The short answer is that at the time the project was approved, the affordability tiers required under out local inclusionary affordable housing program essentially required that additional affordable units be provided in order to satisfy both local and state law. Since then, the state has changed its position such that our local affordability tiers can be “collapsed.” This has the effect of lowering the total number of affordable units required in cases like this. As for overall unit count in a bonus project like this, we look at floor area rather than unit count. A developer can slice the floor area into however many units they choose.

At 300 De Haro, DM sliced and sliced. Each of the project’s “group” units will be between 280 and 300 square feet, with access to lounges and communal kitchens on each floor. MacDonald described them as “‘an attractive option for those who can’t afford a $3,000 studio.” Jeff Alexander, president of the homeowners association at Showplace Lofts at 370 De Haro had a different take: “’It’s a glorified Airbnb hotel.’”

Citing San Francisco Planning Director Rich Hillis, Dineen wrote that 300 De Haro was the first majority market-rate project in the city to take advantage of SB 35. Hillis told him that “DM Development’s approach to 300 De Haro is a harbinger of what’s to come—that developers will increasingly use state law to circumvent local codes.”

If SB 423 becomes law, Hillis will look prescient. It might seem that SB 35 should have generated more market-rate than affordable housing. After all, California developers are building many more market-rate than affordable homes. The HCD dashboard shows that the great majority of permits issued in the current, Sixth RHNA cycle have been for above-moderate homes., p. 11

So why are these outcomes reversed under SB 35?

In his analysis of  SB 423, as amended on June 19, Assembly staffer Steve Wertheim suggested two reasons. First,

SB 35 only applies for market-development in jurisdictions that are not meeting their RHNA for above-moderate income households. Because more than half of the state’s jurisdictions met this target in the 5th RHNA cycle, SB does not apply for market-rate housing in these locations. The list of cities to which SB 35 currently does not apply for market-rate housing includes all of the state’s major coastal cities, including Los Angeles, San Diego, and San Francisco.

Let’s read between the lines. Currently SB 35 does apply for market-rate housing in the 251 jurisdictions that have not met their above-moderate RHNAs—more than half of the state’s 482 cities. But many of the 251 are in areas where market-rate housing has a limited market compared with the coast.

Wertheim commented that the RHNA targets in the 5th RHNA cycle were “very low…, particularly in wealthier coastal cities”; and that given the “substantially higher” targets in the 6th cycle, “it is anticipated that eventually SB 35’s market-rate provisions will apply to most of the state.” In other words, those provisions will be apply to the now-exempt, larger and wealthier coastal cities where most of the market-rate housing has been built to date—in many cases more than enough to satisfy the city’s market-rate RHNA. Not incidentally, SB 423 would extend the terms of SB 35 into the coastal zone.

The developers 3: Steve Eggert and labor standards in California’s new housing laws

Even if that happens, it might not generate many market-rate homes. Wertheim said that’s because SB 35’s labor standards “essentially require a union-only workforce for each of the crafts involved in building housing.” Developers have argued that there are not enough workers in the state to meet the bill’s “skilled and trained” standards; and thus that “it is not financially feasible to take the risk of investing the up-front costs to design and entitle a housing project given the substantial risk that there would be no eligible workers to build it.” Wertheim offered no example of a potential SB 35 project that never got off the ground because the developer could not find workers eligible to build it.

The legislative staff background paper for the hearing also identifies a shortage of construction workers as a major problem. To answer the question “why has insufficient housing been built in California?” the staff says that “the preponderance of costs” in housing “come from the construction of the project itself, including the materials and labor.” As to the latter:

A useful rule of thumb is that here is a 1:1 between residential construction workers and the number of housing units that can be built. As recently as 2006, when over 200,000 units were built in California, there were approximately 200,000 residential construction workers in the state. With the bursting of the housing bubble and the onset of the Great Recession, that number had decreased to 100,000 by 2018. Despite the massive economic growth that occurred in the subsequent decade, the construction labor force never rebounded – and neither did production. This is for a number of reasons, including that the work is typically poorly paid and thus make it difficult to attract new workers to the profession, high housing prices make it difficult to lure out-of-state construction workers, and changes to national immigration policy have decreased the number of undocumented workers that historically have made up a high percentage of the residential construction workforce.

SB 423 addresses the developers’ claims by removing the union-only “’skilled and trained’ workforce requirement from market-rate SB 35 projects…less than 85 feet in height. For projects over 85 feet in height, the bill…add[s] ‘off-ramps’ that enable [a] project to proceed should a general contractor not receive three bids from subcontractors that guarantee that they can provide a skilled and trained workforce.” Under those circumstances, “the prime contractor need not require that a skilled and trained workforce be used by the subcontractors for that scope of work.” On June 19, Wiener amended the bill, changing the 85-foot threshold for skilled and trained labor requirements so that they apply only to “floors used for human occupancy that are located more than 85 feet above the grade plane.”

SB 423 has widened the split in the building trades unions that opened up in 2022 during the bitter fight over Wicks’ AB 2011. Co-sponsored by the California Council of Carpenters (the other co-sponsor was the California Housing Consortium), AB 2011 was opposed by the State Building and Construction Trades Council of California. SB 2011 was also endorsed by several other building trades unions.

Like AB 2011, SB 423 has also been endorsed by the Nor Cal Carpenters Union, and other building trades unions, including the District Council of Plasterers and Cement Masons of Northern California and the Laborers and Operating Engineers Union, and is opposed by the State Building and Construction Trades Council. The split is significant, because the building trades unions have been one of the few political forces in the state with enough clout to block state legislation.

As a March 2023 article in the Sacramento Bee explained,  

*California law defines a “skilled and trained workforce” as one where all workers on a project must either be journey-level workers or apprentices enrolled in state-approved apprenticeship programs. At least 30% of journey-level workers in most trades must have graduated from state-approved apprenticeships. Some crafts, such as plumbers and electricians, must have at least 60% of journey-level workers graduate from state-approved apprenticeships. Many view “skilled and trained” requirements as mandating the use of union labor, since unions run the vast majority of apprenticeship programs.

The Bee cited California Labor Federation President Lorena Gonzalez, a former Assemblymember: “Prevailing wage is simply — it’s good. However, prevailing wage is a job-by-job issue,” she continued. “We want people to go into a career for construction — not just a job.” The State Building and Construction Trades Council, for its part, argues “that [SB 423] should not amend the labor provisions of SB 35, because the skilled and trained workforce provisions of existing law are better for workers. Paying workers fairly does not ensure that workers will be treated fairly, and this approach embraces only short-term benefits for workers with no pathway to the middle class.’”

Like the developers, the carpenters unions argue that given the shortage of unionized construction workers, requiring a skilled and trained workforce delays housing construction. They further contend that unions, not the state, should bear the responsibility of unionizing workers. Jay Bradshaw, executive secretary and treasurer of the Northern California Carpenters Union told the Bee: “It’s the job of the union to organize, not the government to organize for us. Our mandate is to help workers, and our best protection for our current workforce is to grow.”

At the hearing, the first speaker who mentioned labor standards was the final witness, developer Steve Eggert. Eggert is the president of AntonDevCo., the Sacramento-based firm that he founded about 30 years ago. He said AntonDevCo has built 12,000 units, about half of them affordable.

Like Silverberg and MacDonald, Eggert expressed gratitude to the state for the recent housing legislation—specifically, SB 330—“whoever wrote that law knows what we deal with with cities”—and for “trying to close all the loopholes” with the ADU law and the Density Bonus Law. “HCD has been enormously helpful.” And he cheered the “overall …focus on production—because that’s the way to make anything more affordable whether it’s housing or widgets or anything—more supply.”

In fact, increasing supply does not make everything more affordable. Houses are not like widgets. In a hot market, allowing more units to be built on a lot raises the amount of profit that can be squeezed of that space and thus the value of the property. Even supply side eminence Chris Elmendorf concedes that point.

 Having declared his support for the new housing laws, Eggert went to voice his reservations. “SB 35 and SB 330 are really just nibbling around the edges. I mean, if we’re gonna be just level with each other, if we really want to see housing built.” He unfavorably contrasted the Bay Area with Phoenix and Denver, where “they’re getting serious, serious production,” because “they don’t have CEQA or prevailing wage requirements. The laborers are protected, the environment is protected—and it’s working great—okay?” (In June, drought-ridden Arizona prohibited new housing development in the Phoenix area.) Eggert recommended exempting all infill housing from CEQA, “period.”

But Eggert’s biggest gripe was about the requirement to pay prevailing wages—typically union level wages. “SB 35,” he said, is so close to being such a great law. I just want to concur with Ann, how much it helps with the affordable housing, but for market-rate housing, it does not help, because we must pay prevailing wages” and maintain a “skilled and trained workplace,” meaning that workers must have proof that they graduated from an apprentice program.

He contrasted the wages for “rough framer” carpenters in Colorado, which he said are $40 an hour, or $85,000 to $95,000, a year to their counterpart in the South Bay at $86 an hour and $110,000 to $120,000 a year. “Prevailing wage carpentry” is “a no-go.” “If you rewrite SB 35 to eliminate the prevailing wage requirement, that brings market-rate housing into play.”

For the record, according to the California Department of Industrial Relations, as of February 22, 2023, the prevailing wage for “Carpenters”—nothing about “rough framers”—in Santa Cruz County was $83.71 an hour.

Like Terner’s report about SB 9’s meager results, Eggert’s tirade against prevailing wages was at odds with the official narrative, in this case the state’s support for construction workers, a story line in whose credibility Wicks has a large stake. In a move that paralleled Wiener’s reprimand of Terner, the assemblymember pushed back. “Respectfully,” she said,

I wanted to just disagree with the last panelist….If you look at a bill like AB 2011, yes there are prevailing wage components in it,…but this was also a bill that was supported by the affordable housing developers, as well as the carpenters union and others. We sought to strike a balance, to ensure that we can provide such wages,…it’s important to have the wage set protection, the health care component, the apprenticeship requirement, the  so we can build the workforce that we need to. And we believe that providing the CEQA streamlining and the ministerial approval, that streamlining process will then allow developers to  ensure that they are paying their workers what we believe they should be….As someone who’s a big supporter of prevailing wage and the labor movement, but also someone who’s a big housing production person, our goal is to ensure that we do both of those things.

Despite her avowed support for “the apprenticeship request,” Wicks didn’t note that AB 2011 has no requirement for housing developers to use a skilled and trained workforce.

SB 423 has advanced through the Senate and is now being heard in the Assembly.

Coercion as collaboration

The February 28 hearing was a highly orchestrated piece of political theater in which deviations from the state’s housing narrative were suppressed. But despite Wiener’s and Wick’s assiduous efforts at crowd control, the testimony of one witness exposed a major fault line in the official scenario.

HCD Deputy Director Megan Kirkeby displayed a slide stating that RHNA is “a contract with the state of housing commitments for eight years, and the Housing Accountability Unit will hold jurisdictions to those commitments.”

In law, parties cannot enter into a contract under duress. Kirkeby’s usage of “contract” implies that cities freely negotiated the terms of their RHNAs with the state. That implication is false. The state sets the RHNAs for each region in California, after which each regional agency divvies up its areas allocation among its cities.

Recent housing legislation has greatly increased HCD’s authority in the RHNA process, while leaving much to the agency’s discretion.

Timothy Grayson’s AB 879 (2017) required that a city’s preparation of its Housing Element has to meet “standards” adopted by HCD and eliminated the requirement that HCD formulate those standards pursuant to the state’s Administrative Procedure Act. AB 72 (2017), authored by David Chiu and Miguel Santiago, authorized HCD to refer to the state attorney general cities whose housing element the agency has deemed out of compliance with state housing law. Wiener’s SB 828 (2018) shifted the RHNA mandate from planning for housing to producing it and prohibited a city from arguing that underproduction in a previous RHNA cycle or a stable population justified a lower allocation. Alan Lowenthal’s AB 2158 (2004) eliminated the provision in California law that subjected HCD’s RHNA determinations to judicial review.

On July 27, the Second District Court of Appeals repeatedly referenced AB 2158 (by date, not name) as it affirmed the Superior Court of Los Angeles County’s denial of the Orange County Council of Government’s challenge to the RHNAs that HCD had assigned to the Southern California Association of Governments:

*To the extent that the RHNA statutes authorize the Department of Housing to act in multiple capacities, a single administrative agency may legally combine investigative, prosecutorial, and adjudicative functions.

There’s nothing collaborative about the RHNAs. Local governments must do what HCD tells them to do or invite prosecution by the state attorney general. Kirkeby’s attempt to pass off cities’ relationship with HCD as contractual was the clumsiest cover-up at the hearing. That it emanated from a high-ranking HCD official may explain why Wiener, Wicks, and their fellow legislators let it pass in silence.

More likely, it’s that they share her cynicism.

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