For more on DENSITY BONUS

291 Housing Program #14 and 15 identifies evaluating a single-family impact fee and

292 establishing a dedicated affordable housing fund for deposit of in-lieu and impact fees

293 revenues.

294

295 Since the Palmer decision, many California jurisdictions have adopted or are considering

296 adopting an affordable housing impact fee, consistent with the requirements of the

297 Mitigation Fee Act. Fee revenues would be used to assist construction of new affordable

298 units as mitigation for increased affordable housing needs linked to new market rate

299 residential construction. The link between new market rate units and increased demand

300 for affordable units is quantified and documented by a nexus study. Advantages of

301 housing impact fees compared to inclusionary housing in-lieu fee programs include the

302 ability to apply fees to rental projects, one-unit single family homes, and residential

303 additions. Many Bay Area jurisdictions with new and/or revised affordable housing

304 programs have included impact fees for single units.

305

307 Housing Impact Fee levels based on a quantification of the impact that new market rate

308 residential development has on the need for affordable housing. Keyser Marston

309 Associates, Inc. has prepared a draft nexus analysis for the City that will help illustrate

310 how development of new market rate residential projects create an increased demand for

311 affordable housing and what level of fee( s) would be appropriate and proportional to that

312 anticipated impact. The nexus analysis does not set the fee amount nor does it provide a

314 For many reasons, cities typically select fee levels significantly below the maximum

315 allowable levels. Impact fees can be assessed on single family, multi-family and non-

316 residential development. Keyser Marston's analysis is currently only related to new

317 residential development. However, fees can also be assessed on new commercial square

318 footage and/or renovations. Staff is interested in determining if this is of interest to the

319 City Council and Planning Commission. A separate nexus analysis would be required,

320 although there is significant overlap between the two analyses, allowing some cost-

321 saving.

322 Establishing the level of the impact fee is a policy decision for the City. Typical

323 considerations include the City's onsite inclusionary requirements, the strength of the real

324 estate market, and fees charged in comparable jurisdictions within the region. In

325 addition, if the developer has a choice between providing units onsite and paying a fee, it

326 is important to understand the incentives created by different fee levels in relation to the

327 cost of providing onsite units. For instance, impact fees that are created based on square

328 footage usually provide a financial incentive for creating small units, as opposed to a per

329 unit fee. Fees can also be set at different rates for rental or ownership projects to

330 incentivize one type of project over another, as an alternative to a mandatory inclusionary

331 unit requirement.

332

333 Should Mill Valley wish to incentivize smaller sized, rental units, the City Council and

334 Planning Commission may wish to consider fees on a square foot basis and/or lower fees

335 for rental units.

336

337 Review of Fees. Currently, the City of Mill Valley's affordable housing fees are not

338 comparable to the actual cost associated with building a unit on site, as required by the

339 inclusionary regulations established in the Zoning Code. The most recent project being 3

340 townhome project on Laurelwood, each of which sold for approximately $1.2 million.

341 The construction cost was identified as $351 per square foot, which equated to an in-lieu

342 fee of $62,786.13.

343

344 Below is a table providing an estimate of approximate costs and fees associated with the

346 ATIACHMENT 4 for details on other Bay Area jurisdictions' affordable housing fees.

347

Testing per unit Impact Fee Amounts for Various Types and Size Units

Single Family New Single New Single New Multi·

Additional Lot Over Lot 6,00G- (Attached or Condo Apartments

1 unit 1 unit 1 unit 5·_,.- unlts 5'., units 5·. units

Average Unit Size

(SF) 3,600 2500 1500 850 850

Estimated Market

Sates Price $2,500,000.00 $1,700,000.00 $1,200,000.00 $800,000.00 $3,000.00

price per sq foot $690.00 $680.00 $800.00 $941.00 $3.53

Affordable Housing Impact Fees

Marin County $10,000 $36,000 $12,500 20% inctusionary on a five unit project equates to 1

unit. Fee only permitted for fractional inctusionary

units tess than .50. Nexus fee to revise multi-family

fee in progress. Fee currently $232,020/unit.

San Rafael $0 $0 $0 $25,400

larkspur $0 $0 $0 $50,719 $31,990

Tiburon $0 $0 $0 $71,175

Petaluma $0 $0 $0 $6,347 $3,287 $3,287

Napa County $18,400 $44,100 $26,875 $13,500 $0 $4,675

Napa City $4,400 $7,920 $5,500 $3,300 $1,870 $3,187

Sonoma County $13,676 $26,837 $18,894 $7,364 $2,104 $2,104

Pleasanton $10,880 $10,880 $10,880 $2,696 $2,696 $2,696

Note: Fees may be higher/lower based on the 1nctus1onary percentage associated w1th each proJect. For Instance, San

Rafael requires 10% inclusionary with a $254,000 per unit fee while Larkspur has a 15% inclusionary requirement with a fee

for rental projects set at $213,267/unit and a fee of $338,126/unit for ownership projects.

348

349 Most jurisdictions exempt certain residential development from affordable housing

350 impact fees, such as:

351 • New square footage associated with new second units

352 • Single-family development under a certain size threshold (Marin County = less

353 than 2,000 square feet; Sonoma and Napa Counties= less than 1,200 square feet)

354 • Owner-Builder (Santa Rosa)

355 • Special needs housing (such as homeless shelter, community care facilities,

356 transitional or supportive housing)

357 • Unit built to replace an existing unit of comparable size on the same site

358

360 affordable housing by leveraging other local, State and Federal funds (e.g., low income

361 housing tax credits, etc.). Currently the City has a balance of $106,357 in its affordable

363 2013, Shelter Hill was given a bond in the amount of $11,425 as part of refinancing,

365 fund as part of expansion master planning work.

366

367 Impact fees deposited in an Affordable Housing Trust are used for the purposes of

368 developing affordable housing within the City of Mill Valley, including, but not limited

369 to, the acquisition of property, cost of construction, including costs associated with

370 planning, administration and design, as well as actual building or installation costs, and

371 program administration. Since impact fees are directly related to jobs and housing, the

372 trust fund must address workforce housing in addition to disable and/or senior housing.

373 The Mitigation Fee Act does include some requirements for expenditure of fee revenues

374 (time limits, administration, etc.).

375

376 DISCUSSION ITEM 3: Density Bmius.

377 State density-bonus law (found in Government Code Sections 65915-65918) was fust

380 increases above that permitted under zoning, along with other incentives, to developers of

381 residential projects with five or more units who commit to providing a certain

382 percentage of affordable units within their projects.

383

384 The following affordable housing projects can qualify for a density bonus:

385 • Housing projects (5 or more units) that provide at least 5% of the units for very

386 low income households

388 households

389 • Housing projects that are for ownership (5 or more units) that provide at least

390 10% for moderate income households

391 • Senior citizen housing developments of at least 35 units

392 • Land donations for affordable housing or onsite childcare also qualify

393 See ATTACHMENT 5 for additional details on the State Density bonus law.

394

395 Currently, the Mill Valley Municipal Code does not reflect the State Density Bonus Law.

396 Under State law, a local jurisdiction is required to adopt an ordinance specifying how it

397 complies with this law. A jurisdiction must provide a density bonus, and between 1-3

398 concessions/incentives granted at the applicant's request, based on the following criteria:

399

400

Target Group•

Density Bonus Bonus Incentives !Incentives

Attachment 2: Support information for "scorecard" table 7

401

402

403

404

405

406

407

408

409

410

.411

412

. 413

414

415

416

417

418

419

420

421

422

423

424

income)

• California Civil Code Section 65915 applies only to proposed developments of five (5) or more units.

Under state law, the City generally has no discretion regarding the approval of density

bonus units and has limited discretion in granting concessions. Jurisdictions, however,

can indicate preferences in those concession(s) offered.

To qualify for concession(s), an applicant must first demonstrate that they need the

exceptions from the City in order to make the project financially feasible (in terms of

providing the affordable units). The local jurisdiction "shall grant the concession or

incentive requested by the applicant," unless it makes a written finding that:

to be affordable, or

(2) the concession or incentives would have a "specific adverse impact" on

health, safety or the physical environment or an adverse impact on an

historic resource listed in the California Register of Historic Resources.

Findings are included in the Draft Ordinance.

While several projects constructed in Mill Valley have qualified for the state density

bonus program (due to the City's inclusionary requirements), no projects have chosen to

apply for a density bonus, parking reductions and/or concession(s) under the state's

that have actually applied for Density Bonuses. The table which follows presents the

results of a May 2014 survey conducted by the City of Sausalito, and identifies a total of

~2~

427

428

Belvdere 0 n/a

corte Madera

Note: Development application was submitted last month for 16 for-sale townhouse units (4 of the units by Stare Density Bonus).

Fairfax 0 na

Larkspur 0 n/a

MIIIVaUey 0 n/a

San Anselmo 0 n/a

Sausalito 0 n a

Tiburon 0 n/a

Marin county

Toussln Senior Housins project

In Kentfll!ld, 13·unlt project with

1 2 densltv bonus units.

Virstnla Grove, an eight unit

project, with two units for the Warner Creek, a 61 unit

density bonus (an ownership apartment building for seniors

reduced lot sizes, reducing throush the bonus density

2 setback. was the Citv's concession.

33 San Pablo - 82 residential

condominium units (81 base

1867 Uncoln -16 total units indudingl6.2 affordable to low 1203 Uncoln-36 total units (30 524 Mission -15 townhornes

units, plus 4 additional marlcet households, plus 1 additional units. plus 6 additional market marlcet rate units, plus 2

4 rates.) state parking rate<.l rates.) of state parking rates.)

i:\COD\PROJECTS • NON-ADDRESS\GPA\2013\HE Update\lnformatlon to the Public\Marln Density Bonus Research.xlsx

Source: City of Sausalito Staff Analysis, May 2014.

Target

Proportion of Total

Affordable Maximum Density Example Project with 10 Base Units

Group

Dwelling Units

Bonus (Except Senior Citizen Housing Development)

Base Bonus

Market Minimum

Units Affordable

Units

Very-Low

(Common

interest

)

Senior Citizen

35 units

(1) For each 1% increase over 5% of the Target Units, the Density Bonus shall be increased by 2.5% up

to a maximum of 35%

Maximum

Number of

Units

11

14

14

12

14

11

12

14

42

(2) For each 1% increase over 10% of the Target Units, the Density Bonus shall be increased by 1.5% up

to a maximum of 35%

(3) For each 1% increase over 1 0% of the Target Units, the Density Bonus shall be increased by 1% up

to a maximum of 35%

(4) Rounded up to the next whole number

431

434 San Rafael has 38 residential apartment

435 units and 4,740 square feet of retail on the

436 ground floor. The former Pacific

437 Telephone building, circa 1920s, was

438 rehabilitated in 1994 to become a key

439 project in the area known as the "West

440 End" of downtown San Rafael. A 45%

441 density bonus was granted to the project

442 for affordable housing based on 20 units

443 being affordable to low income (50-80%

444 of median income) households for 40

446 parking requirements to help make the

44 7 project possible

448

449

450

451

453 following_altemative parking standards specified in the State statutes: 1 onsite parking

454 space for studio or one bedroom units; 2 spaces for two and three bedroom units; and 2.5

455 spaces for units with four or more bedrooms. Requesting these parking standards do not

456 count as an incentive of concession, and do not require a pro forma.

457

459 the density bonus may request one or more concessions or other incentives based on the

460 chart on page 14. Pursuant to Government Code Section 65915(k), a concession or

461 incentive is defined as:

462 • A reduction in site development standards or a modification of zoning code or

463 architectural requirements, such as reduction in setback or minimum square

464 footage requirements, which result in identifiable, financially sufficient, and

465 actual cost reductions.

466 • Approval of mixed use zoning in conjunction with the housing project if the

467 inclusion of non-residential uses in the project will reduce the cost of the housing

468 development and such non-residential uses are compatible with the housing

469 project and surrounding area.

470 • Other regulatory incentives or concessions which result in identifiable,

471 financially sufficient, and actual cost reductions.

4 72 The draft language related to Density Bonus for Mill Valley will require applicants

473 requesting an incentive or concession to submit a pro forma demonstrating financial

474 need (excluding the parking incentive).

475

476 Within the context of State density bonus law, incentives and concessions are ·

478 consider offering incentives and concessions to all inclusionary housing projects as a

479 means of offsetting the cost of providing the affordable units. The extension of

480 incentives and concessions to projects with 2-4 units may also serve as a way to

481 encourage applicants to provide affordable units on-site rather than paying the

482 affordable housing impact fee.

483

485 allowing a density bonus or concessions if a qualifying applicant requests them.

486 However, the City does have some discretion regarding the process for reviewing

487 density bonus requests. Some cities have identified concessions/incentives in their

488 Density Bonus Ordinances that they would prefer to see as part of a project that is

489 submitting under the state density bonus program.

490

491 Local example: The City of Sausalito has recently adopted a "tiered approach"

492 highlighting the City's preferences for incentives/concessions. Applicants are

493 encouraged to select incentives identified in Tier 1 before selecting incentives in Tier

494 2 as incentives with an anticipated greater level of impact are identified as Tier 2 and

495 are less preferred, and thus require a higher level of review and approval by the City.

496

497

498

499

Attachment 2: Support information for "scorecard" table 11

500

501

502

503

504

506

507

508

509

510

511

512

513

514

515

516

517

518

519

520

521

522

523

524

Tier 1 requires review/decision by the Planning Commission:

• reduced minimum lot setbacks

• reduced minimum lot sizes and/or dimensions

• increased maximum building coverage

• increased maximum floor area ratio (FAR)

• reduced common or private open space

• approval of mixed use zoning in conjunction with the residential

development if non-residentialland uses will reduce the cost of residential

development

Tier 2 requires review/recommendation by the Planning Commission and review/

decision by the City Council:

• reduced parking (beyond the State Alternative Parking Standards in the

State Density Bonus)

• building heights that do not comply with Sausalito Municipal Code

Section 10.40.060

• other regulatory incentives or concessions (such as impacts to primary

views that do not comply with Sausalito Municipal Code Section

10.54.050.0.4) proposed by the applicant or City which result in

identifiable, financially sufficient, and actual cost reductions.

Staff can modify the density bonus language based on the "tiered" approach

reflecting incentives and concession preferences for each tier, based on feedback

received at the joint study session meeting.

525 ATTACHMENT 3:

526 Overview of Affordable Housing - Qualifying Incomes and Households

527

528 Mfordable Housing Income Levels. Mfordable housing income levels are determined

529 periodically by the US Department of Housing and Urban Development (HUD). Marin

530 County is part of the San Francisco, CA HUD Metro Fair Market Rent Area, which

531 includes Marin, San Francisco and San Mateo Counties. See the tables below for

532 description of levels of affordability and examples based on household size.

533

4020 Civic Center onve

1 23,250 38,750 62,050 67,950 81 ,600

2 26,600 44,300 70,900 77,700 93,200

3 29,900 49,850 79,750 87,400 104,850

5 35,900 59,800 95,700 104,850 125,850

7 41 ,200 68,650 109,900 120,400 144,500

8 43,850 73,100 117,000 128,150 153,800

9 46,500 77,500 124,000 135,950 163,150

shown above is based on the FY2014 median family income for the San Francisco HMFA of $97,100 for a

four-person household, issued by HUD effective 12118/13, with adjustments for smaller and larger household

HUD Income Limits FY2014 12/1812013

536 Establishing Affordable Ownership/Rental Prices. Affordable rental and sales prices are

537 calculated by Marin Housing based on household size and a ratio of annual income that is

538 spent on housing (30% for rental. units, 33% for ownership units. For a rental unit, total

539 housing costs include the monthly rent payment and utilities. For an ownership unit, total

540 housing costs include the mortgage payment (principal and interest), homeowner's

541 association dues, mortgage insurance, property taxes, and any other related assessments.

542 The applicable household size is calculated as the number of bedrooms in the dwelling

543 unit plus one (e.g., a studio unit has a household size of 1; a one-bedroom unit has a

544 household size of 2 and so on). See the example of a moderate income, for-sale

545 inclusionary housing unit provided below.

546

Attachment 3: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees

547

Number of bedrooms of inclusionary unit 2 bedrooms 1 bedroom

Household size 3 persons 2 persons

Target income (90% AMI) $78,650 $69,900

Monthly Income $6,550 $5,830

33% housing/expense ratio $2,160 $1,920

Financing (30 year fixed) 4.75% 4.75%

Loan amount $247,300 $216,200

Closing Costs (4%) $10,400 $9,100

549 Qualifications. Affordable Housing Unit must be owner occupied.

550

551 Maintaining Affordability. Mfordable Housing Units are usually deed restricted and based

552 on a given term. The length of term has varied based on legal parameters and fmancial

553 requirements associated with obtaining loans. Currently the Marin Housing has established

556

Attachment 3: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees

557

558

559

560

561

562

"

Jurisdiction

San Anselmo

San Rafael

Larkspur

Tiburon

Mill Valley- Existing

Marin County

ATTACHMENT 4:

Summary of Other Jurisdictions' lnclusionary Housing and

Affordable Housing Impact Fees

10 or more 10% low to moderate

sliding scale:

2-10 units 10%

5 or more 11-20 units 15% Half low

2-4 units units 21 or more 20% Half moderate

15%5-14 units Half low

5-14 units 15 or more 20% 15 or more units Half moderate

5% very low or low

If only one affordable unit is

required, moderate allowed

in code but usually

2-12 units= 15% negotiated at low-very low

3-6 units or new lots 7 or more 13+ units= 20% throught design review.

10% for projects with

less than 7 units or

lots/acre and 15% for

10 or more projects 7 units or

units lots/acre or more All moderate income

units are required to

be built unless

waiver is granted to

pay in-lieu fee

instead 3 or more 20% All low (60% AMI)

Attachment 4: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees

Level of Affordablity of

lnclusionary Units

Half very low

Half low income

Half very low

Half low

5% low/very low and 1 0-

15% moderate

depending on project

size

All moderate income

Rental Housing Impact

Fee required; however

applicant can request to

provide very low

affordable rental units

instead (at 50% AMI)

1

sliding scale, with max

Novato set at 20% for project Half moderate (90% AMI) Half low (60% AMI)

3-6 units 7 or more with 20 or more Half Low (65% AMI) Half Very low (50% AMI)

5% very low 5%very low

10 or more 10% low 10% low

1-9 units units 25% 1 0% moderate 1 0% moderate

5 or more

units for condo

conversion

(;!rejects onl)l

Proposed:

new

ownerhsip

units in mixed

use and

commercial

areas projects

1-6 units must

provide 1 unit

and over 6

units must

build 20% 15% of units, and not

Sausalito affordable less than one low to moderate low to moderate

Belvedere None None N/A N/A N/A

Fairfax None None N/A N/A N/A

Ross None None N/A N/A N/A

563

Attachment 4: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees 2

Daly City 10% 1 0% low income 1 0% very low income

San Mateo no projects all projects 10% 1 0% Moderate 1 0% low income

prove construction of

Brisbane no projects all projects 15%

Pacifica projects not in

and projects in

Portola Valley Not specified Not specified 15% Not specified Not specified

7% very low

San Carlos 7%1ow

2-6 units 7+ units 15% 1% moderate

6% low and moderate, plus

San Bruno 10+ units 15% 9% moderate

East Palo Alto 15% Not specified Not specified

San Mateo County 10% low income 1 0% very low income

5-9 units 20% 1 0% moderate income 1 0% low income

only if developer can

prove construction 6% very low

of affordable units is 7%1ow

Half Moon Bay infeasible all projects 20% 7% moderate

Bo/olow

South San Francisco 2-4 units 5+ units 20% 12% Moderate

Foster City 10+ units 20% Not specified Not specified

Source: Analysis based on 2008 San Mateo County Workbook.

lnclusionary Requirements: Jurisdictions within Sonoma County (sorted by % inclusonary required)

Jurisdiction fees Project Size affordable lnclusionary units

Rohnert Park Data not provided 5+ units 15% low and moderate

Healsburg Data not provided 7+ units 15% Ve!'f_ low, low and moderate

Petaluma Data not provided 3-5+ units 15-30% low and moderate

low and moderate (10+

City of Sonoma units must have 1 0% low

Data not provided 5+ units 20% income)

Calistoga Data not provided 5+ 20% low and moderate

Windsor Data. not provided 5+ 20% 15% low and 1 0% very low

Cotati

1/3 Very low, 1/3 low and

Data not provided None listed 20% moderate

Cloverdale Data not provided 5+ 15% moderate

Jurisdiction fees Project Size affordable lnclusionary units

Davis Data not pJovided 5+ units 25-35% Very low, low and moderate

Montclair Data not provided 10+ units 15% Very low, low and moderate

Monterey Data not provided 5+ units 10-25% low and moderate

Los Gatos Data not provided 5+ units 10-20% moderate

Berkeley Data not provided 5+ units 20% Moderate, low and veJY low

Source: Analys1s based on data prov1ded on the followmg webs1te: www.calruralhousmg.org/?page_ld=11 0, accessed July

2014.

Attachment 4: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees

Level of Affordablity of

lnclusionary Units

very low and low

Very low, low and

moderate

very low and low

low and moderate (1 0+

units must have 1 0% low

income)

low and moderate

low

Level of Affordablity of

lnclusionary Units

very low and low

Very low, low and

moderate

low and moderate

moderate

Moderate, low and very

low

4

564

,,,,

~

lmQact fee applicable to individual single-family homes. <2,000 sf: exempt

In-lieu fee applicable to any fractional unit requirements 2,000-3,000 sf: $5/sf ($0 if 2nd unit/agric worker unit)

under Co 20% inclusionary housing program. 3,000 sf+: $10 /sf ($5/sf if 2nd unit/agric worker unit)

$232,020

(in-lieu fee)

In-Lieu Fees converted to impact fees in 2012, adding fee

option for rental Rental: $3.75/s.f.

Fee applicable to 1 or more units < 1,200 sf: exempt

Exempt units include: 1 ,200 - 2000 sf: $9 /sf

- Farmworker units < 1,200 sf 2,001-3,000 sf: $10.75/sf

- Deed restricted affordable units 3,001 and up: $12.25/ sf

(in-lieu fee)

1,000 sf: $3,951

2,000 sf: $9,022

3,000 sf: $15,213

Attachment 4: Examples of Affordable Housing lnclusionary Housing Requirements and Impact Fees

,,

'

5

566

567

568

4,000 sf: $22,500

"Lower Income Housing Fee" applicable to 15 or 1,500 sf or less: $2,696/unit

more units >1 ,500 sf: $10,880/unit

$2,696/unit

Fee applicable to 1 or more units For sale: 2.5% of unit sales price

Exempt units include:

- replacement unit on same lot Rental: graduated fee based on unit size, ranges from:

- 2nd units <910 sf: $1/sf

- deed restricted homeless shelters, community care/health 910 sf: $1,008

care facilities 1,500 sf: $7,666

- unit constructed by owner/builder 1,990 sf or more: $12,712

Exempt units include: <1,000 sf: exempt

- SROs 3,000 sf: $22,427

- Special needs housing (transitional, supportive, group 4,500 sf: $32,543

homes, care facilities) > 4,500 sf: $7.25/sf

1-4 unit projects eligible to pay fee in-lieu of inclusionary For sale and rental:

by in-lieu fee payment.

Currently applicable only to ownership projects with 2 or 2 $2/sf

more units 4 $4/sf

6 $6/sf

8 $8/sf

10 and up $15/sf

Prepared by Vince Bertoni, AICP, Bertoni Civic Consulting & CCAPA Vice President for

Policy and Legislation; Barbara Kautz, Esq., FAICP, Goldfarb & Lipman, LLP; Vivian

The State of California enacted significant changes to the state's density bonus law,

which went into effect on January 1, 2005. The legislation, SB 1818 introduced by

Senator Hollingsworth (chaptered as Government Code Section 65915-65918), requires

cities and counties to overhaul their ordinances to bring them into conformance with new

state mandates. The previous law allowed for a 25% density bonus when housing

projects provided between 1 0- 20% of the units affordable (depending upon the level of

affordability). In addition, cities and counties needed to provide at least one

"concession" such as financial assistance or a reduction in development standards. The

new law significantly reduces the amount of units that a developer must provide in order

to receive a density bonus and requires cities and counties to provide between one to

three concessions, depending upon the percentage of affordable units that the developer

provides. It also imposes a .new-land donation rule, and statewide parking standards.

Given the sweeping changes that the state has put in effect, CCAPA received numerous

questions from its members regarding the new law and the following are answers to the

most frequently asked questions.

Please note that the information provided is the opinion of experts in State housing law,

but are not intended as legal advice. Please seek the guidance of your city attorney or

county counsel on implementing the provisions of the new law in your jurisdiction.

to receive a density bonus is significantly reduced from prior law.

If at least 5% of the units are affordable to Very Low income households or 10% of the

units are affordable to Low income households, then the project is eligible for a 20%

density bonus.

If 1 0% of condominium or planned development units are affordable to Moderate income

households, then the project is eligible to receive a 5% density bonus.

In addition, there is a sliding scale that requires:

income units above the initialS% threshold;

above the initial10% threshold; and

initial 1 0% threshold.

These bonuses reach a maximum density bonus of 35% when a project provides either

11% Very Low income units, 20% Low income units, or 40% Moderate income units.

Continued Affordability. The continued affordability requirements for Very Low and

Low income units have not changed. However, the requirements for Moderate income

condominium units have changed significantly. The new law specifies that the city or

county must insure that the initial occupants of Moderate income units meet the income

qualifications. However, upon resale of the units the seller retains the down payment,

the value of any improvements, and the seller's proportionate share of appreciation. The

city or county recaptures its proportionate share of appreciation and those funds must be

used within three years to promote Lower or Moderate income home ownership. It is

appreciation (see Question 7 below).

Concessions and Incentives. Cities and counties must grant more "concessions or

incentives" reducing development standards, depending on the percentage of affordable

units provided. "Concessions and incentives" include reductions in zoning standards,

other development standards, design requirements, mixed use zoning, and any other

incentive that would reduce costs for the developer. Any project that meets the

minimum criteria for a density bonus is entitled to one concession from the local

government agency, increasing up to a maximum of three concessions depending upon

the amount of affordable housing provided. For example:

households, 1 0% of the units affordable to Lower Income households, or 25%

Moderate Income condominiums, then the developer is entitled to one

concession.

20% Lower income units, or 20% Moderate income units, then the developer is

entitled to two concessions.

Lower income, or 30% Moderate income units, then the number of concessions

is increased to three.

Waivers and Modifications of "Development Standards." A city or county may not

impose a "development standard" that makes it infeasible to construct the housing

development with the proposed density bonus. In addition to requesting "incentives and

concessions," applicants may request the waiver of an unlimited number of

"development standards" by showing that the waivers are needed to make the project

economically feasible. The bill defines "development standards" as "site or construction

conditions."

Land Donation. Additional density is available to projects that donate land for residential

use. The land must satisfy all of the following requirements:

a) have the appropriate general plan designation and zoning to permit construction

of units affordable to Very Low income households in an amount not less than

1 0% of the units in the residential development;

b) be at least one acre in size or of sufficient size to permit development of at least

c) be served by adequate public facilities and infrastructure.

The base density bonus is 15%, with increases in 1% increments for each percentage

increase in the units that can be accommodated above the minimum 10% of the units

described in (a), up to a maximum of 35%. The maximum combined density bonus is

35% under all rules. When the land is transferred, it must have all of the permits and

approvals necessary for the development of the Very Low income housing units. The

land and affordable units must be subject to deed restrictions ensuring continued

affordability. The city or county may require that the land be transferred to a developer

instead of the city.

Parking Standards. If a project qualifies for a density bonus, the developer may

request (and the City and County must grant) new parking standards for the entire

development project. The new standards are:

These numbers are inck.Jsive of guest parking and handicapped parking and may be

requested even if no density bonus is requested.

Questions

Yes.

Most experts agree that inclusionary requirements cannot be imposed on the

density bonus units themselves. The reasoning is that the Legislature intended to

give developers market-rate units in exchange for affordable units. For instance,

if a 1 00-unit project becomes a 120-unit project after receiving a density bonus,

the inclusionary requirements may be imposed only on the original 100 units, not

the 20 bonus units. If a city has a 20% inclusionary requirement, normally the

city would require 24 inclusionary units in a 120-unit project (20% of 120 units).

However, if 20 units are density bonus units, then the 20% inclusionary

requirement can only be imposed on 100 units, requiring only 20 inclusionary

units (20% of 100 units). The net impact is that only 16.7% (20/120) of the total

units will be affordable inclusionary units, rather than 20% (24/120) as intended

by the inclusionary ordinance.

The density bonus law applies when an applicant "seeks a density bonus" and

"agrees to construct" the required percentages of affordable units. There have

been two interpretations of this section.

Many localities interpret the bill to mean that if the inclusionary units meet the

requirements of the density bonus law, then the inclusionary units will qualify the

development for a density bonus. For instance, in these jurisdictions, if an

inclusionary ordinance requires that ten percent of the units be affordable to Low

income households, a project complying with the ordinance will be eligible for a

20% density bonus.

Other localities interpret this to mean that when a local jurisdiction imposes its

inclusionary housing requirement, the applicant is not "agreeing· to construct" the

units and so is not eligible for a density bonus. The legislative history of the

amendments to SB 1818 confirms that the changes in the law were not intended

to affect an inclusionary zoning ordinance.

You may want to discuss this issue with your city or county attorney.

Note that no density bonus need be given in any case unless an applicant

actually "seeks"--applies for--the bonus, even if the project would otherwise be

eligible for a density bonus. ·

·No. Developers can only request a waiver of "development standards" that make

a project infeasible. "Development standards" are defined as "site or construction

conditions." The proponents of the bill included this definition specifically so that

an inclusionary ordinance would not be considered a development standard. An

inclusionary ordinance doesn't regulate site or construction conditions; it only

affects the economics of the project. Consequently, a developer cannot request a

waiver by arguing that the inclusionary ordinance makes the project infeasible.

Some inclusionary ordinances do have requirements that might be considered to

be site and construction conditions such as requiring dispersal of units, similarity

in design to market-rate units, etc. Presumably a developer could try to show that

these are site or construction conditions and request that they be waived,

following the procedures discussed in Question 9.

The short answer is "no"--if, indeed, design review will make the project

infeasible. As discussed in the previous question, no local agency can

apply any development standard that will preclude the development of a density

bonus project How would this work in the case of design review? The process

of design review is not a development standard, so no waiver could be

requested. Design review conditions. however, usually involve site or

construction requirements, so would probably be considered to be "development

standards." The issue would most likely arise if an applicant argued that design

review conditions made the project infeasible and presented evidence sho\Mng

that the project would not be economically feasible with the conditions. Cities

and counties should consider including in their local ordinances a process for

evaluating requests for waivers including the type of economic information which

must accompany the request and how the information will be evaluated.

If an applicant receives no public subsidy and agrees to impose the

equity-sharing required by SB 1818, the city or county cannot require additional

resale restrictions (see discussion in Question 7 below).

However, if a city or county has an inclusionary ordinance that requires Moderate

income units to have resale restrictions or longer periods of affordability, the city

is under no obligation to count as inclusionary units, those Moderate income

units that meet only density bonus standards. For instance, assume that a city

has a 15% Moderate income inclusionary requirement and requires a 55-year

resale restriction. A developer could propose 15% Moderate income units with

the equity-sharing required by SB 1818 and receive a density bonus. However,

since none of the units would meet the standards in the City's inclusionary

ordinance, the City would not be required to count any of the units as

inclusionary units. The developer would have to provide another 15% Moderate

income units meeting the City's standards for resale restrictions and 55 years of

affordability. In this case, most developers would choose to apply the city's

standards to their Moderate income units.

No, only the initial occupant must meet the affordable income criteria. After the

initial owner sells the unit, that person is entitled to receive the value of their

down payment, improvements to the property, and proportional share of the

appreciation of the unit. The City or County receives its proportional share of the

appreciation and must use that money within three years to promote affordable,

ownership housing.

The bill is not clear about how appreCiation is defined. Proponents of the bill state

that it was intended to work as follows: if a locality makes a unit available for

$200,000 to a moderate income purchaser but the unit has a value at the time of

purchase of $300,000, then the locality gets to recapture the $100,000 subsidy

upon resale. In addition, if the unit goes up in value another $30,000 between the

date or purchase and the date of resale, the locality and purchaser split the

appreciation per the formula in the bill. The bill does not specifically require that

resale controls limiting the amount of appreciation.

SB 1818 amended Government Code Section 65915 to delete the language in

subsection (1), which previously stipulated that an applicant who "agrees to

construct both 20 percent of the total units for Lower income households and 1 0

percent of the total units for Very Low income households is entitled to only one

density bonus and at least one additional concession or incentive". Localities

should assume, therefore, that if the proposed percentage of units by affordable

housing type meets or exceeds the thresholds stipulated in subsection (g) they

will have to grant the 20 percent density bonus to which the applicant is entitled

for each type of affordable housing that exceeds the threshold specified in

subsection (g) (1 ). Note, however, that this subsection now specifies that the

maximum density bonus to which an applicant is entitled is 35 percent, in

contrast to the previous requirement, which stated that the applicant was entitled

to a minimum bonus of 25 percent but did not specify a maximum. If the

applicant proposes a mixture of affordable housing types that meets or exceeds

the threshold for more than one housing type, he or she is, therefore, not entitled

to receive a bonus that exceeds 35 percent of the density that would otherwise

be allowed by applicable zoning and the land use element.

Neither the former version of Sec. 65915 nor the amendments in SB 1818

provide more guidance about how agencies should calculate the density bonus

for a project that includes a mixture of affordable housing types when the project

does not meet the specified thresholds for each affordable housing type. For

example, an applicant might propose to make 5 percent of the units affordable to

Very Low income households plus 5 percent affordable to Low income

households. In that case, one way to calculate the bonus would be to grant the

incremental density allowed ·in subsection (g) for the Low income units (1.5

percent multiplied by 5 or a total of 7.5 percent for the Low income units) in

addition to the 20 percent bonus to which the applicant is entitled for the 5

percent Very Low income units.

I

Another way to calculate a mixture of affordable housing types it to first evaluate

the Very Low income units only. If a project has 5% Very Low income units then

themselves. These don't qualify for any density bonus ( 10% Low income units

required). Then, consider all 10% of the units as Low income units. This again

permits a 20% bonus. Consequently, the project is only entitled to a 20% bonus.

(This has the effect of encouraging developers to have more Very Low income

units, since 8% Very Low income units would give the developer the 27.5%

density bonus.) Since the law is silent on which manner to calculate a density

bonus for a mixture of income levels, it is important for the city or county to

choose a method and be clear and consistent in the implementation.

Also, cities and counties should amend their density bonus provisions to delete

any reference to the "one density bonus" limit that Sec. 65915 previously

imposed. They may want to amend their ordinances to also specify how to

calculate both the minimum and the maximum number of additional units that

might be granted pursuant to this section and to specify the 35 percent maximum

stipulated as a result of SB 1818.

A city or county can request that a developer choose a concession or incentive

from a list that the city or county has prepared as acceptable concessions;

however, under certain circumstances, the developer may be entitled to other

incentives not on the city or county list.

development standards or a modification of zoning code requirements or

architectural design requirements that exceed the minimum building standards

approved by the California Building Standards Commission. Examples include a

reduction in setback and square footage requirements and reduction in parking

ratios. Approval of mixed use zoning is a "concession" if the non-residential use

is compatible with the housing project and the existing or planned development in

the area. In addition, the developer may propose other regulatory incentives or

concessions that result in "identifiable, financially sufficient, and actual cost

reductions"

Subsection (d)(1) does make clear that the city or county may refuse to grant a

concession or incentive if it makes certain findings based upon substantial

evidence. The type of evidence that would be required to support such findings

is spelled out in subsections (d)(1) (A) and (B) and includes a determination that

the concession or incentive is not required in order to provide the proposed

affordable housing units or "would have a specific adverse impact ... upon public

health and safety or the physical environment or on any real property that is

listed in the California Register of Historical Resources" so long as there is no

way to mitigate or avoid the specific impact without making the development

unaffordable to Low and Moderate income households. As noted in subsection

(d)(3), these are essentially the same findings that Government code Section

65589.5 requires in order to deny or impose certain conditions on an affordable

housing development.

Local agencies are advised to pay close attention to these provisions because of

the penalties that subsection (e) imposes on localities that refuse to waive

standards and requirements in violation of the law. In addition to being ordered

to grant the requested waiver, the local agency may be liable for the plaintiff's

attorney's fees and litigation costs.

states that cities may not apply development standards that would preclude the

development of the density bonus units. The applicant may request a waiver and

"shall show that the waiver or modification is necessary to make the housing

units economically feasible." Local agencies should, therefore, require that

applicants provide financial data showing that the proposed waiver or

modification is necessary to make the affordable units economically feasible.

Pursuant to subsection (d) (3), agencies should also amend their ordinances to

establish procedures for accommodating qualified projects by ''waiving or

modifying development and zoning standards that would otherwise inhibit the

projects should not be subjected to a variance procedure but, instead, should be

able to apply for an exception or waiver based on specific findings, including

economic considerations, that are spelled out in the ordinance.

The new parking standards apply to the entire project, both affordable and

market rate units but only upon request of the developer.

· No. The new parking standards that apply upon request of the developer are

inclusive of guest parking and handicapped parking. It should be noted that state

law cannot preempt federal ADA requirements.

Yes. A change in zoning or other land use ordinance is a project subject to

CEQA (State CEQA Guidelines Section 15378(a)[1]; Bozung v. LAFCO [1975] 13

Cal. 3d 263). Under CEQA, the baseline for determining the significance of a

project is the existing environment. SB 1818 will require agencies to adopt

ordinances that may result in significant indirect effects on the environment by

reducing the effectiveness of existing protective standards. Adopting new, less

restrictive standards may result in a significant effect.

For example, in City of Redlands, eta/. v. County of San Bernardino (2002) 96

Cai.App.4th 398, Redlands and other cities sued San Bernardino County over a

general plan amendment which modified existing County general plan provisions

relating to development within City spheres of influence. Where previous County

policy had been to defer to City development standards within the spheres

(including more restrictive regulations and growth control measures), the general

plan amendment would have provided the County more leeway to approve

projects that did not conform to City standards. The County adopted a negative

declaration for the general plan amendment.

The court found that the County's initial study "does not provide evidence to

show how such a shift in policy would have little or no effect on the environment."

The court noted that "CEQA reaches beyond mere changes in the language in

the agency's policy to the ultimate consequences of such changes to the physical

environment." Although the CEQA analysis is not required to be as detailed as a

project-specific analysis, it is required to analyze the expected secondary effects

of the general plan amendment. The cities presented substantial evidence, in

the form of specific examples of city standards that were more restrictive than

County standards and that would no longer be required within unincorporated

spheres if the general plan amendment were approved, that the general plan

amendment may have a significant effect. The court ordered preparation of an

EIR.

SB 1818 does not establish an exemption from CEQA requirements. The

regulatory concessions that must be offered to a qualifying project do not and

cannot include non-compliance with CEQA. CEQA operates independently of

SB 1818 and is not limited by that statute. However, a project may qualify for a

categorical exemption under State CEQA Guidelines Section 15332 (lnfill

Development Projects) if it meets the criteria set out in that section and is not

subject to any of the exceptions established under Section 15300.2.

Separately, Public Resources Section 21159.24 provides a qualified, statutory

exemption for specified inclusionary infill housing projects. This exemption would

not apply if there is "a reasonable possibility that the project will have a projectspecific,

significant effect on the environment due to unusual circumstances."

An agency must prepare an initial study for any project (including an affordable

project) that is not exempt from CEQA. If there is substantial evidence (e.g.,

facts or expert opinion based on facts) that the project may result in a significant

effect on the environment, an EIR must be prepared. If there is no substantial

evidence to that effect, a negative declaration or mitigated negative declaration

can be prepared.

The baseline for determining the significance of a project impact is the existing

environment. The significance of a project's impacts depends upon the extent of

adverse change to the environment that would result from the project. Where a

project involves a density bonus, the "project" for purposes of CEQA is the

proposed activity including the bonus and any related concessions.

Government Code Section 65915 comprises the density bonus law. Subdivision

(d) authorizes a local agency to deny a proposed incentive/concession when

there is substantial evidence that the incentive/concession would have a "specific

adverse impact" on "public health and safety" (as defined in Government Code

Section 65589.5(d)[2]), or the physical environment, or on a property listed on the

California Register of Historical Resources and there is "no feasible method to

satisfactorily mitigate or avoid the specific adverse impact without rendering the

development unaffordable to low- and moderate-income households." This

would authorize an agency to deny a proposed incentive/concession when an

EIR has been prepared that identifies significant project impacts that either

cannot be avoided or that could be mitigated, but the mitigation would make the

project unaffordable. Because a mitigated negative declaration can only be

released when the applicant has agreed to the mitigation measures, a local

agency could also deny incentives/concessions on the basis of an initial study if

the applicant was unwilling to agree to the mitigation measures due to cost. The

EIR or the initial study would provide the "substantial evidence" necessary to

support denial under Section 65915(d).

It is important to note that the clear intent of the legislation is to facilitate the

construction of affordable housing through density bonuses and reductions in

local development standards. Therefore, the CEQA analysis conducted by the

city or county should focus on reasonable CEQA impacts, and not as a potential

loophole to make the process of building affordable housing more difficult.

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