STAFF REPORT
Meeting Date: March 7, 2023
To: Honorable Mayor & City Council
From: Timothea Tway, AICP, Director of Community Development Cindy Gordon, AICP, Principal Planner
Subject: Discussion on the City's Current Practice Relating to the Implementation of Senate Bill (SB) 330 for Multi-Family Residential Development Projects and Required Replacement Units, and Potential Policy Changes that Could be Implemented Attachments: None
INTRODUCTION
Senate Bill (SB) 330, also referred to as the Housing Crisis Act of 2019, includes provisions that regulate the replacement of housing units that are demolished for new multi-family residential projects. Some of these provisions require that certain demolished units (such as rent stabilized units with lower income tenants) be replaced as deed restricted affordable units in a new project. Under SB 330, the City has the ability to impose optional additional protections that would apply to new multi-family projects. These additional protections could require that additional units in a new project be deed restricted affordable units, or require that a portion of units in a new multi-family project be subject to the rent stabilization ordinance (i.e., subject to the City’s rent control protections), even if the previous tenants were not lower income.
This report provides detailed information about the requirements of SB 330, and potential policy changes as to certain optional replacement requirements for rent stabilized units that could be implemented based on direction from the City Council. At this time, staff is seeking City Council direction regarding the optional additional protections that can be implemented by the City for new multi-family projects.
DISCUSSION
General Requirements of SB 330
As stated above, SB 330 includes several provisions that pertain to the replacement of housing units that are proposed to be demolished as part of a new multi-family residential project. The Meeting Date: March 7, 2023
various replacement provisions are outlined below, many of which come from State density bonus law, to which SB 330 refers for unit replacement criteria.
SB 330 General Replacement Requirement
Per SB 330, a new development must include at least as many residential units as exist on site and which would be demolished to enable the new development. This means that a project cannot be approved if it would result in fewer units than previously existed on the site within the five year period preceding the development application (e.g., a 10-unit multi-family residential building could not be replaced with a five-unit multi-family residential building). These units are generally referred to as replacement units.
SB 330 Replacement of Protected Units
SB 330 also includes provisions that require a portion of certain types of units (“protected units”) to be replaced as deed restricted affordable units. State law defines “protected units” as including units that were subject to any form of rent or price control within the last five years, such as units that fall under rent control. Units in a new development that replace demolished protected units are subject to certain affordability requirements.1 A developer must replace, depending on the scenario, some or all “protected units” that are proposed to be demolished with units that would be available at affordable levels, and deed restricted for occupancy by income qualified households, based on the nature of the demolished protected units. These affordability restrictions would remain in place for at least 55 years for rental units. For-sale units must be initially sold to an income qualified household and thereafter are subject to an equity sharing agreement upon resale.
The vast majority of multi-family units demolished in the city for redevelopment are rent stabilized units, and are therefore considered protected units that are subject to these replacement provisions. The number and affordability level required for the replacement units is dependent upon a number of factors, including:
• Whether the existing units are occupied or vacant/demolished within the five years prior to the date of project application;
• Whether the income levels of existing or former tenants is known or unknown; and • What the income levels of existing or former tenants are or were, if known.
Replacing Occupied Protected Units When Tenant Incomes are Known If any dwelling units in an existing building are occupied on the date of the housing development application, and if the income levels of every protected unit’s most recent occupant is known, then the replacement units must be made available at a rent amount that is affordable to households in the same or lower income category as the unit’s current occupants for a period of at least 55 years. Practically speaking, this means that if 10 rent controlled units were proposed to be demolished on a site, and it was known that four of the units were occupied by households that were low income, with the remaining occupied by above moderate income households, then four of the replacement units in the new project would be required to be deed-restricted low income units with the remaining six units replaced without income restrictions.
1 As background information, very-low income households have incomes of less than 50% of the area median income (AMI) adjusted for household size, low income households have incomes of 50% to 80% the AMI adjusted for household size, and moderate income households have incomes between 80% and 120% of AMI adjusted for household size.
Meeting Date: March 7, 2023
Replacing Occupied Protected Units When Tenant Incomes are Unknown If the income levels for any protected unit’s current or most recent occupant is unknown, then state law dictates how to determine the number of lower income replacement units required. In that case, the City must presume that the protected units for which incomes are unknown are occupied by the same proportion of lower income renter households as exist in the city as a whole, according to the most recently available Comprehensive Housing Affordability Strategy (“CHAS”) data from the U.S. Department of Housing and Urban Development. Currently, in Beverly Hills, this would require that approximately 45.6% of the units for which incomes are unknown to be deed restricted for lower income households in a new project.
2 For example, if a developer proposed to demolish a 10-unit multi-family residential building and income levels are not known for any of the units, the proposed project would need to include at least five units restricted to lower income affordable levels (10 x 45.6% = 4.56 units, rounded up to 5). This is the scenario that occurs most frequently for the City when new housing development projects are proposed, as oftentimes the developer does not know the incomes of the tenants in a building.
However, if information is available to the City that indicates that a protected unit is or was occupied by persons of families with income levels above lower income (i.e., moderate or above), at any time in the five years immediately preceding an application for a new housing development, the City may elect to impose additional alternate affordability protections on those replacement units. The additional options available to the City are outlined in the “Additional protections that may be imposed by a city” section of this report.
Replacing Vacant/Demolished Protected Units When Tenant Incomes are Known Different replacement requirements apply if all of the protected units are fully vacant, or were demolished within the five years preceding the date of the housing development project application.
If the City knows the incomes of the households that occupied the vacant/demolished units, the replacement units must be deed restricted and occupied by households in the same or lower income category as the last household in occupancy. However, without some strategic City effort to develop this information, it is unlikely that the City would have this information for any particular site, and thus this scenario is unlikely to occur at this time.
Replacing Vacant/Demolished Protected Units When Tenant Incomes are Unknown If the City does not know some or all of the former occupants’ incomes, it is required to apply a similar but distinct presumption than the one previously described for protected units that are still occupied by tenants with unknown incomes. Essentially, the City presumes that low income and very low income renter households occupied the units in the same proportion of low income and very low income renter households in the city as a whole, in accordance with CHAS data. Using current CHAS statistics, 29.92% of the replacement units would be deed restricted to very-low income households for at least 55 years, and 15.68% of the replacement units would be deed restricted to low income households for at least 55 years.
The replacement statutes are unclear as to any affordability requirements for the remaining
54.4% of the required replacement units when incomes are unknown. 2 Current CHAS data for the period from 2015 - 2019 show 29.92% of units are very-low income, 15.68% are lowincome, and 54.4% are moderate income and above. Lower income households include low and very-low income households, or 45.6%. (https://www.huduser.gov/portal/datasets/cp.html) Meeting Date: March 7, 2023
Additional Protections That May Be Imposed By A City
The City is required to apply the replacement requirements outlined above for all protected units that are proposed to be demolished as part of a housing development project. As explained above, the level of affordability for the replacement units is dependent upon whether the protected units are existing or vacant/demolished and whether income information is available for current and/or former occupants. In summary, the City generally must require the replacement of protected units that were, or were presumed to be occupied by lower income tenants with deed restricted lower income units.
However, pursuant to State law, the City has the authority to elect to require the units replacing protected units that are or were inhabited by above lower income households (meaning moderate and above) as either (i) units affordable to low income households or (ii) units subject to the City’s rent stabilization program.
Specifically, State law allows cities to elect from the following options for protected units that were occupied by above lower income households:
(i) Require that the replacement units be deed restricted low-income units. If the replacement units will be rental dwelling units, these units shall be subject to a recorded affordability restriction for at least 55 years; or if for sale, require sale to qualifying households with an equity sharing agreement applicable upon resale. (ii) Require that the units be replaced in compliance with the jurisdiction’s rent or price control ordinance, provided that each unit is replaced. Unless otherwise required by the affected city or affected county’s rent or price control ordinance, these units shall not be subject to a recorded affordability restriction.3
The City could, as discussed below, also opt to impose a combination of these two options and require that a certain number or percentage of these replacement units be deed restricted for low income households and that the balance these replacement units be subject to rent stabilization.
The statute is unclear as to whether the units replacing existing or demolished units for which there is no income information, and which are therefore presumed to be occupied by households with above lower incomes when applying the CHAS ratios, are subject to the optional provisions (i) and/or (ii) above. If these optional provisions were not imposed on units replacing the units that are presumed to have been occupied by households in above lower income categories, cities with rent control and similar protections would see a loss of protected units and replacement with units with no affordability restrictions and no rent control. This outcome is arguably inconsistent with the intent of the replacement requirements to avoid the loss of these protected units.
Policy Alternatives For Consideration
Staff is seeking City Council direction on the following questions:
1) Although not mandated to do so, does the City Council wish to impose the optional alternate restrictions on units that replace rent stabilized units occupied by households with incomes above lower income?
3 This would not likely be a viable option for for-sale projects, because most units would likely be owner-occupied and not rented.
Meeting Date: March 7, 2023
2) If the answer is yes to question (1), which of the options should be implemented? Potential options for replacement of those rent stabilized units occupied by households with incomes above lower income include, but are not limited to:
(i) Require those replacement units to be replaced as deed restricted units affordable to low income households; or,
(ii) Require those replacement units to be subject to the City’s Rent Stabilization Ordinance, without further restriction on income levels for future occupants; or, (iii) Require some percentage or number of those replacement units to be affordable per (i) above, and the remainder subject to rent stabilization per (ii) above. (iv) Establish a preliminary policy, and direct staff to conduct further study. (3) If the answer to question (1) is yes, should the optional replacement requirements as determined in response to question (2) to be imposed:
(i) on protected units that the City knows are or were occupied by households above lower income AND those that are presumed to have been occupied by households with above lower incomes when applying the CHAS ratios; or
(ii) only on protected units that the City knows are or were occupied by households above lower income.
Policy Considerations
A significant majority of new multi-family residential development that has been submitted to the City for review within the last two to three years has utilized the State Density Bonus Law, which provides developers the opportunity to build additional market rate units above and beyond densities otherwise permitted by local jurisdictions, in exchange for providing affordable residential units within the development. Most projects propose enough affordable units in order to qualify for a 50% density bonus; in other words, they are eligible to increase the density of the project by 50% above the City’s existing density standards outlined in the General Plan.
Imposing the low income affordability replacement requirement for all existing rent stabilized units occupied by above lower income households (discussed in Policy Alternative 2(i) above) may discourage new multi-family residential development as it could result in projects where a large percentage of the proposed units are required to be deed restricted. However, it is difficult to ascertain just how many projects where this would be the case as a number of factors influence density calculations for proposed projects, including General Plan land use designations (five distinct designations exist for multi-family residential areas, each with a different permitted density), the number of parcels a developer may have acquired for a project, and the number of existing units. Such a policy may result in developers seeking out smallerscaled multi-family buildings to acquire, such as duplexes with a lower existing unit counts in established neighborhoods, in order to limit the number of units they would be required to replace at affordable levels. In some scenarios, it is also possible that the additional replacement units could entitle a developer to a higher density bonus than might otherwise be available.
Currently, most projects that are submitted to the City have approximately 10-20% of the total units as affordable units, which is inclusive of the existing units that need to be replaced Meeting Date: March 7, 2023
pursuant to current practices in implementing the requirements of SB 330. It is possible that a requirement to replace all existing units as deed restricted affordable units would significantly disincentivize housing projects in the City’s multi-family residential areas unless there was a proportional increase in the maximum densities permitted under the General Plan.
Alternatively, such a requirement could lead to more significant deviations from the City’s development standards, such as height and setbacks, as part of the incentives/concessions and waivers a developer is entitled to request pursuant to State Density Bonus Law in order to offset the cost of providing the affordable units, or if the development standards would physically preclude the housing development from being built at the permitted density and with the requested incentives/concessions. Under current state law, a city is required to grant the incentives/concessions and/or waivers proposed by a developer unless the city determines that such a request:
• Would have a specific, adverse impact on public health and safety or any property listed on the California Register of Historical Resources and for which there is no feasible method to satisfactorily mitigated or avoid the specific, adverse impact without rendering the development unaffordable to low-income and moderate-income households; • Would be contrary to state or federal law;
• For incentives/concessions, does not result in an identifiable and actual cost burden.
FISCAL IMPACT
No fiscal impact is anticipated, since no legislation or policy changes are recommended at this time.
RECOMMENDATION
Staff recommends that the City Council conduct a study session to discuss the information provided in this report, and to provide direction to staff on any ordinance or policy changes as to the implementation of SB 330 and the replacement of protected units as outlined above.
Timothea Tway, AICP
Director of Community Development
Approved By