California’s housing shortage is decades old and getting worse. Housing supply is limited and increasingly less affordable in the Golden State due to pressures such as population growth, high land costs, NIMBYism and significant regulation applicable to new development. California ranks among the three states with the highest rate of renters compared to owners, and over the past decade, housing development in California grew by only 5.2%, according to census data. By comparison, housing development grew by over 15% in Utah and Texas and nearly 10% in Florida, Nevada and Arizona.

Gov. Gavin Newsom signed 31 housing bills in this year’s legislative cycle, evidence of not only the extent of the crisis but also the multipronged approach that decisionmakers in Sacramento believe is critical to expand housing production, streamline permitting and increase housing density. The bills generally fall into one of the following categories: holding local governments accountable for producing housing, creating incentives for the production of new homes, breaking down barriers to build more affordable housing and addressing systemic bias in housing. This client alert outlines two of the bills that received the most attention, Senate Bill (SB) 9 and SB 10, and provides a summary table of all 31 housing bills. While SB 9 and SB 10 generated more headlines, many of these other bills create important requirements for local agencies, restrictions on discriminatory housing covenants, and financial and streamlining incentives for housing developers.

Senate Bill 9

Summary

SB 9, signed by Gov. Newsom on Sept. 16, allows lot splits and/or the development of duplexes on single-family-zoned parcels to be approved ministerially (i.e., without discretionary approval or hearings) if certain requirements are met. Consequently, such projects would bypass the California Environmental Quality Act (CEQA) process. Theoretically, this could allow for up to four residences where there was historically only one (if an applicant receives ministerial approval for both a lot split and the development of duplexes on each parcel). However, the impact of SB 9 in practice will vary significantly by region. In addition to permitting the development of new housing, this bill could create new homeownership opportunities in California, setting it apart from previous legislation that authorized the development of accessory dwelling units (ADUs) in single-family residential zones.

Requirements

To be eligible for a ministerially approved lot split under SB 9, a parcel or lot must:

  • not be located in a historic district, high fire zone area or rural area,
  • be a minimum of 2,400 square feet,
  • not result in a parcel that is smaller than 40% of the original parcel, and
  • not be subjected to demolition or alteration of affordable housing, rent-controlled housing, housing that was withdrawn from rent within the last 15 years or housing occupied by a tenant (market rate or affordable) in the past three years.

To be eligible for a ministerially approved duplex construction under SB 9, the project must not involve:

  • a property located in a historic district or urbanized area or urban cluster,
  • demolition of more than 25% of the existing exterior walls of an existing dwelling unless (a) the local agency chooses to allow otherwise, or (b) the site has not been occupied by a tenant in the last three years, and
  • demolition or alteration of affordable housing, rent-controlled housing, housing that was withdrawn from rent within the last 15 years or housing occupied by a tenant (market-rate or affordable) in the past three years.

Limitations

SB 9 includes measures to prevent displacement, including:

  • A lot split cannot require the demolition or alteration of a housing unit currently serving moderate-, low- or very low-income households or rent-controlled units.
  • A lot split cannot result in the demolition or alteration of housing that has been occupied by a tenant in the last three years or where an owner has used the Ellis Act to remove a rental from the market within the last 15 years.
  • For lot splits, local agencies must require owner-occupancy of one of the housing units for a minimum of three years.
  • Local agencies must require that any rental units created as a result of SB 9 must be for a term of 30 days or more (i.e., no vacation rentals).

The bill also ensures that lots created as a result of SB 9 cannot be further split and the same person cannot perform a lot split on adjacent lots.

Local Control Implications

As with many state housing laws, there is a tension with jurisdictions wishing to maintain local control. SB 9 allows local jurisdictions to impose objective zoning, subdivision and design review standards and require a setback of up to four feet. However, local jurisdictions may not impose standards that would preclude the construction of up to two units, or physically preclude either of the two units from being at least 800 square feet in floor area. Local jurisdictions may require up to one off-street parking space in certain scenarios. Finally, local agencies maintain the authority to prohibit ADUs on parcels that have been split and developed with two-unit development under SB 9.

Potential Impacts

An analysis of SB 9 conducted by the Terner Center at University of California, Berkeley found that the bill “could enable the creation of over 700,000 new homes that would otherwise not be market feasible” on 410,000 single-family parcels. The analysis found that only 110,000 of these parcels would be “newly feasible,” meaning that SB 9 would change the development feasibility of a relatively small number of parcels. The analysis also found that SB 9 is unlikely to lead to significant demolition of existing single-family homes and that duplexes would be the most dominant form of financially feasible development (i.e., it is unlikely that three- and four-units will come to dominate single-family-zoned neighborhoods). The impact of SB 9 and the development feasibility also varies widely by region. For example, while Santa Barbara County has 75,399 eligible lots under SB 9, this bill is only estimated to result in 10,000 new feasible units. Based on the Terner Center analysis, in the case of Santa Barbara, this discrepancy would be due largely to the challenge of recouping the investments with market-rate rentals or sales.

Senate Bill 10

Summary

SB 10, also signed by the governor on Sept. 16, allows but does not require jurisdictions to develop and adopt an ordinance that increases the density of parcels in transit-rich areas or on urban infill sites to up to 10 residential units per parcel. Such an ordinance would be exempt from CEQA and must be adopted between Jan. 1, 2021, and Jan. 1, 2029.

Requirements

SB 10 requires that any ordinance adopted under its authority:

  • clearly identify the areas that are subject to the ordinance,
  • be consistent with the jurisdiction’s obligation to further fair housing,
  • be adopted by a two-thirds vote if the ordinance supersedes any zoning restrictions established through a local initiative, and
  • not reduce the currently zoned density of any parcel subject to the ordinance.

Limitations

While the rezoning of parcels under SB 10 is not subject to CEQA, any projects that result from the ordinance may still be subject to CEQA unless the local ordinance provides for ministerial processing or the project is exempted by another law or local ordinance. This may limit the impact of SB 10 and its ability to streamline the permitting of projects. Moreover, if an applicant seeks to build more than 10 units on a parcel after an SB 10 rezoning, the bill prohibits the project from qualifying for any other CEQA exemption, ministerial or by-right process. Finally, parcels in very high fire severity zones or on open space/recreational lands approved by the voters are not eligible for increased density under SB 10.

The below table provides a brief summary of all 31 new housing laws aimed at further boosting housing production in California. They are organized based on four key focus areas: local government accountability, incentives for housing production, incentives for affordable housing production and addressing systematic bias in housing.