Governor Brown signed into law on September 27, 2014, AB2222, which amends the State's Density Bonus Law ("DBL"), Gov't Code §§ 65915, et seq. to establish significant constraints upon the use of the incentives provided by DBL in connection with certain real estate developments. The main purpose of AB2222 is to eliminate density bonuses and other incentives previously available unless the developer agrees to replace pre-existing affordable units on a one-for-one basis. The impact of the bill will be significant because it will remove the economic incentive to undertake density bonus projects where existing units are subject to rent control ordinances or similar restrictions.
Density Bonus Law
DBL was first enacted in 1979 to address the State's shortfall of affordable housing. It does so by offering incentives to developers to include low income housing in new construction projects. "Although application of the statute can be complicated, its aim is fairly simple: When a developer agrees to construct a certain percentage of the units in a housing development for low or very low income households, or to construct a senior citizen housing development, the city or county must grant the developer one or more itemized concessions and a 'density bonus,' which allows the developer to increase the density of the development by a certain percentage above the maximum allowable limit under local zoning law." Friends of Lagoon Valley v. City of Vacaville, 154 Cal. App. 4th 807, 825 (2007). Thus, DBL "reward[s] a developer who agrees to build a certain percentage of low-income housing with the opportunity to build more residences than would otherwise be permitted by the applicable local regulations." Shea Homes Limited Partnership v. County of Alameda, 110 Cal. App. 4th 1246, 1263 (2003).
Key Provisions of AB2222
The key component of AB2222 is its prohibition upon a developer receiving a density bonus and related incentives unless the proposed development maintains the same number and proportion of pre-existing affordable housing units. Pre-existing affordable units that would render a project ineligible for a density bonus include units that "have been subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income; subject to any other form of rent or price control through a public entity's valid exercise of its police power; or occupied by lower or very low income households . . . ." AB2222 also increases the required affordability period from 30 years to 55 years for all density bonus units. AB2222 applies to all density bonus projects proposed on or after January 1, 2015.
Impact of New Law
The implications of AB2222 are substantial. The concern animating supporters of AB2222 was the observation that DBL incentivized developments that sometimes resulted in a net reduction of affordable housing units. That critique of DBL is a valid one; however, the change wrought by AB2222 is counterproductive. Given the stringent, one-for-one, replacement requirement, existing buildings with potential for development will most certainly not be viable for development after AB2222. However, solving the State's affordable housing shortfall requires not only the preservation of existing affordable housing but also the creation of new units. DBL offers a subsidy to developers in the form of bonus units to create affordable housing. Rather than eliminate the subsidy, where AB2222 applies, the Legislature should have increased the subsidy formula under DBL to ensure that the original purpose of DBL is not undermined.