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09.22.21

First thoughts: California SB 8, SB 9, and SB 10

BY Bryan C. LeRoy

Governor Newsom signed a suite of bills last week (SB 8, SB 9, and SB 10) designed to override NIMBYism and produce a lot more housing in California. Understanding how (and whether) these bills will work requires a Magic-8-Ball. Figuring out how these bills work together will be like solving a Rubik’s Cube. I wanted to share some of my initial thoughts on the land use policy changes and how they’ll potentially impact cities and counties moving forward.

Is SB 9 the end of single-family zoning?

No, but it does authorize additional residential units despite single-family zoning. Single-family zoning hasn’t been limited to one dwelling unit per lot for quite some time. Existing ADU (accessory dwelling unit) laws allow homeowners to add second units and rent them out. SB 9 ramps this up to a possible six units on an existing single-family lot (if the lot is subdivided). Nevertheless, single-family zoning will continue to be a zoning classification in most, if not all, cities. SB 9 only applies to “urban lots,” does not apply if a house has been occupied by a renter within the last three years, and allows all cities and counties to limit multiple units if the proposed units would be larger than 800-square-feet.

Market forces, lot size, construction costs, and access will continue to make multi-unit development infeasible in many single-family locations. To be sure, developers and real estate brokers will be incentivized by SB 9, and we will likely see a mix of duplexes and triplexes scattered among some single-family neighborhoods; but that’s not the same as the end of single-family zoning.

Forget NIMBYism. These bills circumvent community planning

We can all agree that California needs more housing at all levels, and I absolutely share the frustration that NIMBYs often have out-sized power to sacrifice the greater good. But, I still wonder what these bills do to the concept of community planning.

Cities are just now finishing up the lengthy process of updating the Housing Element of their General Plans—a process required by state law to solicit public input. Now the legislature has thrown a huge wrench into that process by mandating changes for single-family zones, upending the concept of residential capacity, and providing a whole new option for cities to up-zone transportation corridors and urban infill sites—all while ignoring local input, community planning, and, in many ways, the principle of representative government.

Take Los Angeles, for example, where the City has spent years updating its 35 community plans, holding countless community workshops, collaborating with 99 neighborhood councils, and incorporating local input into draft after draft. Now, these state bills, in a way, ignore that public and transparent process, impose a one-size-fits-all standard, and essentially disenfranchise the local community from decisions about how to arrange the mix of uses and development in their own neighborhood. Is this the future of land use planning?

Will these bills reduce housing costs?

Again, we need to provide more housing at all levels, and the housing shortage is clearly a contributing factor to the high cost of housing. But, neither SB 9 nor SB 10 include any affordable housing requirement. More importantly, SB 9 could actually cause property values to increase. That’s because, to some degree, the potential of new construction is baked into the cost of a lot. SB 9 requires cities to allow up to six units on a single-family lot. The entitlement is not discretionary or speculative; as long as a developer follows the rules, the city has to approve the application.

So in areas where it’s feasible to market multi-family developments, it will be a relatively simple math problem for developers—how much will it cost to build (including demolition) and how much will the units sell for (restricted only by the market)? After a reasonable rate of return, that determines how much the developer is willing to pay for the land. So unlike SB 10, which provides an option for the city and may still involve some entitlement risk, SB 9 will automatically infuse more value in single-family dirt, and that value will be reflected in unit costs. SB 9 is banking on increased supply to reduce the cost of housing, but it will be a long time before that equilibrium is reached. In the meantime, single-family lots may cost even more.

These measures may not be necessary if we still had redevelopment agencies.

From the end of WWII to 2012, more than 400 redevelopment agencies in California operated under the mandate to assemble property and provide development for affordable housing and local economic development. The redevelopment system wasn’t perfect, but there were many success stories. Part of that process was to require inclusionary affordable housing and set aside a portion of the tax increment for affordable housing developments. In many ways, we can draw a direct line between the huge deficit in housing that we are now experiencing—especially housing for extremely low-, low-, and moderate-income residents—and the abolition of redevelopment agencies.

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Bryan C. LeRoy

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