How new laws are changing Silicon Valley real estate

There is not enough housing in California—a fact that contributes to this area’s high prices and price stability- even in a bad economy.  Understandably, many are pushing to increase the amount of housing, especially affordable housing, throughout the state. While this goal is certainly laudable, the implementation of certain measures that seek to increase housing density have met with a great deal of resistance. Although some argue that opponents to these measures are merely resorting to “Not-In-My-Backyard” thinking, others admit that there are legitimate issues related to traffic congestion, parking, and safety that must be considered.

The three most often discussed, and controversial topics related to housing density are Proposition 9, Proposition 10, and the “Builder’s Remedy.”

California Senate Bill (“SB 9”)

On September 16, 2021, Governor Gavin Newsom signed SB 9 into law in an effort to increase housing production, streamline the permitting process for new construction, and increase housing density. This law took effect January 1, 2022.

Under this new law, local jurisdictions must ministerially approve two types of projects if certain basic and objective criteria are met. These types of projects are:

• Splitting a single-family residential lot (RD-1 to RD-10) into two lots (a.k.a., an Urban Lot Split); and
• Adding a second dwelling unit in areas zoned only for single family residences.

Taken together, local jurisdictions are generally required to allow owners of land that currently contain a single-family house to split the lot and build a duplex on each half. Thus, there would be four housing units where one had previously stood.

To prevent developers and speculators from taking advantage of these new rules, there are specific provisions that include, among others:

• The property cannot have been rented within the past 3 years;
• The owner must confirm that they have the intention of living in one of the properties for the next 3 years;

If an application fits within the contemplated criteria, then the local jurisdiction would not have the power to deny the permit even if it would otherwise violate the town or county’s zoning rules.

California Senate Bill (“SB 10”)

SB 10, which was passed and enacted concurrently with SB 9, takes the concept of increased housing density to an entirely new level if the parcel is in a “transit-rich area” or an “urban infill site.”

Under SB 10, local governments are given a streamlined process to rezone certain areas to allow for up to 10 units where there may have only been one before. This is intended to eliminate, or greatly reduce, the amount of delay that the city and developers would face from expensive legal appeals that would take several years or even a decade to resolve.

For example, this rezoning could take effect without the delay and cost often associated with  the California Environmental Quality Act (“CEQA”) compliance. While SB 10 does exempt towns and other governmental units from CEQA litigation, it does not relieve the project developer of CEQA compliance, so the overall benefit may be limited.

The “Builder’s Remedy” 

Perhaps the most controversial and feared legislation is Government Code section 65589.5(d)(5), more commonly referred to as the “Builder’s Remedy.” The Builder’s Remedy is a provision of California’s Housing Accountability Act that prohibits jurisdictions that are not in compliance with California’s Housing Element Law from denying building applications based on a finding that the project is inconsistent with that jurisdiction’s zoning ordinances or general plan.

Put another way, the State of California is usurping local jurisdiction’s ability to reject projects based on local zoning rules if the jurisdiction is out of compliance with the State Housing Element Law. Thus, a builder may be able to propose the construction of a multi-family building in a neighborhood filled with high-end residential single-family homes if:

• The project will consist of residential units only or it will be a mixed-use building with at least two-thirds of the square footage being designated for residential use or it will be for transitional or supportive housing; and
• The project meets specific affordability thresholds:
• 20% of the total units are sold or rented to lower-income households;
• 100% of the units are sold or rented to moderate-income households; or
• The project is an emergency shelter.

Naturally, many may wonder whether the town in which they live is compliant with the State Housing Element Law such that the Builder’s Remedy provisions would not apply. Here is a summary of the various towns and cities that receive this publication (based on information found here.)

Taken together, SB 9, SB 10 and the “Builder’s Remedy” could result in substantially more housing units being built on lots that used to contain only one single family home. The end result of this is that the value of buildable lots, and large lots with dilapidated homes, will likely increase whereas the overall property values in those areas may decline. This is particularly true in very affluent areas.

By Michael Repka