It seems that every day there is a new story on the news or in the newspaper about the housing shortages facing California. Experts estimate that in order to just keep up with demand, the state needs to add 180,000 new homes every year for the foreseeable future. However, there are two new laws coming down the pike – with strong support from the Governor’s office – that will drastically affect the housing shortage, and also, potentially, home prices in the new year.
Senate Bill 330 (which Governor Newsom titled the Housing Crisis Act of 2019) and Assembly Bill 1482 both appear likely to pass through the legislature (with AB1482 the less likely of the two to pass), and Newsom has already publicly announced his support for both bills. As the saying goes, though, the devil is in the details.
The less controversial of the two bills is SB330, which will cause city- and county-level building departments to become streamlined in their approval of projects that create new housing. Most notably, while experts (as stated above) believe that California needs to build 180,000 homes annually, SB330 calls for 3.5 million homes to be built in the next seven years (meaning 500,000 annually). Of note, Orange County is likely to be deemed an “affected county,” meaning that additional restrictions are placed on our county by the bill.
The goal of SB330 is to force local governments to make decisions on housing projects faster in order to build homes faster. What this means practically is that the state is going to require all communities to use a standard preliminary application form for new projects developed by the California Department of Housing and Community Development. The bill will also require cities and counties to reduce the time it takes to process housing applications to no more than 90 days for most market-rate housing developments and 60 days for affordable developments, after a project application is deemed complete. It would prohibit communities from conducting more than five public hearings on any housing project and would require communities to either approve or disapprove the application at one of those five allowed hearings.
Further, because of Orange County’s “affected county” status, SB330 would prohibit changes to the general plan, land use designations, or zoning restrictions to a less intensive use (such as reductions to maximum height restrictions, maximum density restrictions, new or increased setback requirements, etc.) or reducing the intensity of land use within an existing general plan below what was allowed under the land use designation and zoning ordinances of the affected city or county. Moreover, any such amendment that took effect after January 1, 2018 would be null and void as a matter of law.
You may recall that one of the ballot proposals last year, Proposition 10, dealt with state-wide rent control. Prop. 10 was voted down by 59% of voters in a midterm election with record turnout in California (here in Orange County it was 66% voting “No”). However, AB1482 actually does a lot of what Prop. 10, rejected by the voters of California, would have done by imposing new statewide rent-control regulations.
Governor Newsom and legislative leaders approved a cap of 5 percent plus inflation per year on rent increases statewide for the next 10 years. The bill will not apply a cap to vacant units, and owners can continue to reset rents to market rate at vacancy. The deal also includes a provision that prevents landlords from evicting tenants for reasons other than lease violations, otherwise requiring the landlord to provide relocation assistance. These protections would kick in after a tenant has lived in an apartment for a year.
In an effort to try to prevent the typical result of rent control (deterred construction of rental housing, which may backfire and actually exacerbate the housing shortage), the bill will not apply to properties built in the last 15 years, nor will it apply to single-family home rentals (unless owned by large corporations) or to projects already under construction or under current rent control schemes. The bill also defers to more stringent local measures, including existing local rent control with lower limits and local “just cause” eviction laws.
If, as expected, these bills are passed through the legislature and signed by Governor Newsom this term, they would go into effect on January 1, 2020. The takeaway, as always, is that as property owners and investors, we need to always keep a watchful eye on what is happening both in Washington and in Sacramento, as even when the voters prevent a ballot proposition from going into effect, it doesn’t necessarily close the book on a given subject.
A version of this article was originally published in Bay Window Magazine, Oct. 2019.