Controversial New Law Opens Door To More Residential Development In California

It has been praised as a long-overdue step to address California’s chronic housing shortage, while others have called it the “worst bill of the year.” 

But regardless of public opinion, the Affordable Housing and High Road Jobs Act of 2022 is expected to have a dramatic impact on multifamily development in the state when it takes effect next summer.

Gov. Gavin Newsom signed the act, also known as Assembly Bill 2011, on Sept. 28, along with Senate Bill 6, the Middle-Class Housing Act. Together, the two new laws will allow housing to be built on sites that local governments currently zone for retail, office or parking purposes, and in many cases the laws will allow housing developments to avoid review under the California Environmental Quality Act, or CEQA. In addition, workers who build these new homes must be paid prevailing — that is, union — wages and given health benefits.

“This could potentially unlock a tremendous number of sites for residential development that have previously been reserved, by virtue of zoning, for retail or office development,” said Charles “C.J.” Higley, a partner with Northern California law firm Farella Braun + Martel LLP.

Speaking at the signing ceremony, Doug McCarron, general president of the United Brotherhood of Carpenters, said the legislation “will help create millions of desperately needed new homes and protect the workers who will build it."

"Importantly, it will give the workers an opportunity to afford the housing they’re building,” McCarron said.

Higley said the legislation might have a dramatic impact on developers too.

“This could result in significantly shorter timelines and more certainty around project planning, both of which have been cited as two of the greatest barriers to construction in the 20 years I’ve been representing developers,” he said. 

Higley said it remains to be seen whether it will be economically feasible to pay prevailing wages to the construction workers on these jobs. Construction unions in the state have been divided on the merits of the legislation, but Higley said there is widespread consensus that the status quo isn’t working.

“The economics of housing development are generally challenging at the moment due to high construction costs, rising interest rates and diminished rents,” Higley said. “But if the new CEQA-streamlining benefits and upzoning prove to be sufficient incentive, we think it could have the potential to catalyze a sea change in the approach to housing development in California.”

Also uncertain is whether local governments will fight the law in the courts. A major sticking point for many of them is that the new law gives the state government more control over local zoning matters. One group representing local officials labeled AB 2011 “the worst bill of 2022 for taking away local control."

At issue is California’s concept of home rule, which Higley called a “sacrosanct principle” in the state that gives local governments the final say in what is built within their boundaries. 

“The decentralization of decision-making to those closest to the effects of those decisions is deeply ingrained in our form of government,” he said. “For good reasons, we tend to distrust centralized control.”

However, the old system has allowed local towns to reject much-needed multifamily housing projects. Even if motivated by legitimate concerns, widespread NIMBYism has brought the state to a “tipping point,” Higley said. 

“Because local jurisdictions have so routinely failed to keep pace with California’s growth over the years, we now find ourselves in the midst of a true crisis,” Higley said. “It has taken decades for the legislature to acknowledge the depth of this crisis, but AB 2011 is the strongest indication yet of the state’s willingness to overrule the traditional relationship between state and local government with respect to land use authority.”

An analysis found that the law could open up more than 100,000 acres in the state’s commercial corridors to multifamily development, potentially resulting in the construction of as many as 2.4 million new housing units. California web-based platform UrbanFootprint, which provides software for urban planners, also predicted a net increase in local and state tax revenues, with losses in retail sales tax revenues offset by boosted tax revenues from residential and mixed-use developments.  

Still, not all local governments will buy into that optimistic assessment. Higley said he expects a period of some uncertainty as legal challenges are filed against the new law. 

“Until the courts have weighed in, there remains some uncertainty about the extent of AB 2011’s usefulness,” Higley said. “In the meantime, we anticipate many conversations with clients around whether their sites qualify and, even if they do qualify, whether the unique circumstances of their projects make AB 2011 an attractive alternative.”

This article was produced in collaboration between Farella Braun + Martel LLP and Studio B. Bisnow news staff was not involved in the production of this content.

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