In California, a contentious new law makes way for more residential construction

While some have hailed it as the “worst bill of the year,” others have welcomed it as a long overdue move toward resolving California’s persistent housing shortage.

However, the Affordable Housing and High-Road Jobs Act of 2022 is anticipated to have a significant impact for multifamily developers in the state when it becomes law next summer, regardless of popular sentiment.

The Middle-Class Housing Act and Assembly Bill 2011 were both signed on September 28 by Governor Gavin Newsom. Together, the two new laws will permit the construction of housing on land that local governments presently zone for parking, offices, or retail. In many circumstances, the legislation will also permit the development of homes without California Environmental Quality Act, or CEQA approval. Additionally, prevailing pay, which are union wages, and health benefits must be provided to the employees who construct these new homes.

Charles “C.J.” Higley, a lawyer with the Northern California legal firm Farella Braun + Martel LLP, stated that this may potentially release a great number of properties for residential construction that have historically been reserved, by virtue of zoning, for retail or office development.

The United Brotherhood of Carpenters’ general president, Doug McCarron, stated during the signing ceremony that the law “will help generate millions of urgently needed new homes and protect the workers who will build them.”

According to McCarron, the opportunity to afford the housing they are constructing will be important for workers.

According to Higley, the legislation might also have a significant influence on developers.

In the 20 years that he has been a developer’s representative, he said, this might result in much shorter deadlines and better confidence surrounding project planning, both of which have been recognized as two of the major impediments to building.

It is still unclear if paying prevailing salaries to the construction workers on these sites will be financially feasible. Although there is disagreement among the state’s construction unions about the legislation’s merits, Higley claimed that everyone agrees that the current situation is ineffective.

According to Higley, “The economics of housing development are generally challenging at the moment due to high construction costs, rising interest rates, and diminished rents.” However, if the new CEQA-streamlining benefits and upzoning prove to be enough of an incentive, we believe it could have the potential to spark a major shift in how California approaches housing development.

Whether municipal governments will challenge the bill in court is another unknown. The fact that the new law gives the state government more influence over municipal zoning issues is a big sticking point for many of them. AB 2011 has been dubbed “the worst bill of 2022 for taking away local control” by a group that represents municipal leaders.

Home rule, which Higley referred to as a “sacrosanct principle” in the state of California and grants local governments the final say in what is constructed inside their borders, is at issue.

He stated that our governance style is deeply rooted in the decentralization of decision-making to those closest to the consequences of those decisions. for good reasons. For good reasons. We tend to distrust centralized control for good reasons.

However, the outdated approach permitted other communities to turn down projects for much-needed multifamily housing. The state has reached a “tipping point” as a result of pervasive NIMBYism, even when it is driven by justifiable concerns, according to Higley.

Higley said we now find ourselves in the midst of a serious crisis. Local jurisdictions have so frequently failed to keep pace with California’s expansion over the years. Although it has taken years for the legislature to recognize the severity of the situation, AB 2011 is the clearest sign yet that the state is prepared to disregard the long-standing division of power between the federal government and local governments on matters of land use.

According to one study, the bill might permit multifamily building on more than 100,000 acres in the state’s commercial corridors, which could lead to the construction of up to 2.4 million new homes. Losses in retail sales tax revenues would be offset by gains in tax revenues from residential and mixed-use developments, according to the California web-based platform UrbanFootprint, which sells tools for urban planners. This would result in a net rise in local and state tax revenues.

However, not all local governments will agree with that upbeat analysis. As legal challenges to the new law are brought forth, Higley stated that he anticipates a time of considerable uncertainty.

According to Higley, there is still some doubt regarding the utility of AB 2011 until the courts have spoken. In the interim, we anticipate having numerous discussions with clients about whether their sites meet the requirements and, even if they do, whether the particulars of their projects make AB 2011 a compelling alternative.