SB 35: no help for Alameda

SB 35, one of the slew of housing bills recently signed by Governor Brown, has been touted as making it easier for private developers to get approval for projects that include affordable housing.

Maybe so.  But is it likely that the bill actually will lead to the construction of more affordable housing in Alameda?

The Merry-Go-Round doesn’t think so.

Under the “streamlined” process created by SB 35, review of a qualifying multi-family residential development project must be completed within 90 or 180 days, depending on the size of the project, and it must be “objective” and “strictly focused” on whether the project meets the criteria specified by the statute and on whether it satisfies “reasonably objective design standards.”   If the project passes these perfunctory tests, it is entitled to approval “by right.”  All that’s left for a planning board to do is to haul out the rubber stamp.

Not surprisingly, both the League of California Cities and the Sierra Club objected to this emasculation of the normal review process.  “Eliminating opportunities for public review of major multifamily developments goes against the principles of local democracy and public engagement,” the LCC wrote to the Legislature in a letter opposing SB 35.  For its part, the local chapter of the Sierra Club opined that “legislation that lets housing projects bypass the CEQA process is not fair to our communities, to our environment, nor to the very people for whom it claims to be providing housing.”

The “streamlined” process leading to approval “by right” is not available for every multi-family residential development project – or in every city.  Instead, according to SB 35’s author, freshman State Senator Scott Wiener of San Francisco, the bill was targeted at those cities that were not “producing” enough new housing to meet their share of the regional housing needs assessment (aka “RHNA”).  “Too many communities,” the Senator wrote in a fact sheet explaining the bill, “either ignore their housing goals or set up processes designed to impede housing creation.”

SB 35 makes RHNA the key – but in a different way than existing law.

The RHNA quotas are determined by state and regional agencies based on estimates of how much new housing is needed, in four income categories, to accommodate projected job and population growth over an eight-year period.  Under the housing-element law, a city is obligated to zone sufficient sites to meet its RHNA quotas in each income category.  This obligation hasn’t changed (and so the next time Assistant Community Development Director Andrew Thomas assures the public that the City of Alameda is complying with the state housing-element law, he’s still telling the truth).  But SB 35 doesn’t condition the availability of the “streamlined” process on whether a city has zoned for enough units to satisfy its RHNA goals.  Instead, eligibility is determined based on whether a city has approved, or issued building permits for, the targeted number of units.

This facet of the bill, too, drew an unfavorable reaction, especially from city planners.  A city can control how it zones property.  But the scope of a planning board’s or council’s discretion about whether to approve a particular development proposal is limited.  (More about this in a future column.)  And the appointed and elected officials have no power at all over whether, or when, a developer will move forward with an approved project.  Indeed, recent experience in Alameda shows that years may pass after a project has been approved without any permits for vertical construction being pulled.  Nevertheless, approvals and building permits are the triggers under the new law.

So now to SB 35 and Alameda.

We’ll start with the city-specific test:  To qualify for the “streamlined” process leading to approval “by right,” a multi-family residential development project must be located in a city in which the number of units for which building permits have been issued is less than its RHNA quotas by income category.

Alameda is one of those cities.  So, we’d suspect, are many others, but the disparity between RHNA requirements and building permits issued locally is dramatic.  Here are the numbers:


Income
category

RHNA requirement (no. of units)
Units issued building permits  2014-2016
Approved units
2014-2017 
Very low     444       33       108
Low     248       29       135
Moderate     283       19       133
Above moderate     748     192     1440

(The third column – units issued building permits – is derived from the City’s annual housing element report for the period ended December 31, 2016; the fourth column – approved units – is derived from the staff reports for projects approved from 2014 to 2017.)

Next, the project-specific tests.

Under SB 35, a development project proposed for a qualifying city can become eligible for the “streamlined” process leading to approval “by right” in two ways.  First, if the number of “above-moderate income” units that previously have been approved by a city is lower than its RHNA quota for that category, a project containing a minimum of 10 percent “low-income” units (i.e., units affordable to households earning less than 80 percent of the area median income) will qualify for “by-right” approval.  Alternatively, if the number of “low-income” units for which building permits have been issued by the city is lower than its RHNA quota for that category, a project dedicating 50 percent of its total units to “low-income” housing will qualify.

Whether a developer will be able or willing to employ either option in Alameda is problematic.

From the first three columns in the table above, it might seem that a project containing only 10 percent “low-income” housing could qualify for approval “by right” because construction of “above-moderate income” housing in Alameda has not exceeded the City’s RHNA quota for that category.  But for this option SB 35 looks at approvals, not building permits, and, as the fourth column in the table shows, far more “above-moderate income” units were approved in Alameda from 2014 through 2017 than the 192 units for which building permits were issued.  Indeed, when the “above-moderate income” units in the Alameda Point Site A, Boatworks, Del Monte warehouse, 1435 Webster Street, and 2100 Clement Avenue projects are added to those at Alameda Landing and Marina Shores, the result is a total of 1,440 approved units of “above-moderate income” housing – about twice the RHNA quota.

It thus appears extremely unlikely that a developer could qualify for approval “by right” with an Alameda project containing only 10 percent “low-income” units.

At first blush, the alternative route to approval “by right” would seem available, since the third column in the table above shows that the number of units for which building permits have been issued in Alameda in both of the “low-income” categories is lower than the RHNA quotas for these categories.  But for a developer to pursue this option, fully half of the proposed project must consist of “low-income” units.  This is far greater than the percentage of low-income units required under the City’s inclusionary housing ordinance (eight percent, split evenly between “low” and “very low”) or under the Renewed Hope settlement for Alameda Point (10 percent “low” and six percent “very low”).

In fact, we’re not aware of any project ever proposed for Alameda by a private developer that contains anywhere near the percentage of low-income units necessary to qualify for approval “by right” under SB 35’s second option.  And we doubt that any developer is likely to propose one in the future.  Indeed, the primary argument against requiring a developer to include a specific percentage of so-called “workforce” housing in a project was that it would reduce the rate of return to an economically unacceptable level.  If that’s true, imagine what a 50 percent low-income requirement would do.

We’ve saved for last the biggest drawback to invoking the SB 35 process.

Under SB 35, the developer of a project that includes affordable housing must do more to obtain approval “by right” than propose a project with a qualifying percentage of low-income housing located in a qualifying city.  She must also agree to pay – and require all of her contractors and subcontractors to pay – “prevailing wages” to construction workers.  “Prevailing wages,” of course, usually means union wages.  And she must agree to use – and require all of her contractors and subcontractors to use – a “skilled and trained workforce” on the job.  Unions, of course, ordinarily provide the necessary training.  Absent these agreements, an otherwise qualifying project won’t be able to skip the line.

(How did these union-friendly requirements make it into SB 35?  According to the Los Angeles Times, Senator Wiener, the bill’s author, called the head of the state building trades union before he took office to ask what the unions wanted in the housing bill he planned to introduce.)

We don’t know much about the economic impact of requiring a “skilled and trained workforce,” but, outside of organized labor, it appears undisputed that a prevailing-wage requirement adds substantially to the cost of building a project.  A recently published study by an economic consulting firm concluded that “hourly labor costs for residential construction statewide would be on average 89% higher if builders were required to pay prevailing wage rates for all residential construction projects,” and that this estimated 89% increase “would result in a 37% increase in total construction costs.”  Similarly, the Los Angeles Times recently surveyed the economic literature and reported that the range of estimates for construction cost increases resulting from prevailing-wage requirements was between nine and 46 percent (with one outlier).

Don’t trust consultants or reporters?  Well, maybe you’ll take the word of former City Manager John Russo, who wrote in the staff report recommending adoption of a prevailing-wage ordinance for public-works projects in Alameda that, “Typically, prevailing wage requirements increase construction costs by approximately 15 percent.”

Regardless of the exact numbers, the prospective developer of a project in Alameda that includes a qualifying percentage of affordable housing thus will need to ask herself:  Are the benefits of using the “streamlined” process to obtain approval “by right” worth the millions of dollars in additional costs imposed by the prevailing-wage mandate?  We suspect that, if we asked this question in a room full of developers, not a lot of hands would be raised in assent.  And, if not, SB 35 will have little, if any, impact on the supply of affordable housing in Alameda.

Sources:

SB 35:  SB 35 (redline); sb35_fact_sheet (Wiener’s office); LCC letter of opposition; Sierra Club, Smart housing policy includes taking care of the environment

Housing Element: 2015-2023 Final Housing Element Background Report; 2017-05-02 Ex. 1 to staff report – Annual Report

Prevailing-wage requirement: Blue Sky Consulting, Impacts of a Prevailing Wage Requirement for Market Rate Housing; LA Times – Here’s how construction worker pay is dominating California’s housing debate – LA Times; 2012-06-19 staff report re prevailing wage ordinance

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Development, Housing and tagged , , , , , . Bookmark the permalink.

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