Summary:
The California Legislature has passed laws that significantly alter the development approval process, shifting it from local municipal jurisdiction to the state level. This has led to the establishment of a new bureaucratic infrastructure to oversee the process. As a result, local municipalities now have limited administrative approvals, subject to state-level mandates, significantly reducing their control over regional development. This shift in power dynamics is critical in transforming the housing landscape and should cause concern for local communities, as it drastically changes their role in the development process.
In many cases, the government agencies compete and act as counterforces against getting results, thereby delaying approvals.
These competing forces cause continuous delays because there is no motivation to adhere to the law but rather to maintain power and authority over the development process.
Municipalities have not realized that they have lost their oversight and can only respond within the framework of state mandates.
In many cases, developers must hire lawyers and force municipalities to comply. The laws are clear that if the city does not comply and limitation is required, they will be required to pay the applicant's attorney fees.
The insecurity introduced by these changes has led to unprecedented uncertainty in financial projections. The added complexity of the planning process, strategic analysis, market assessments, demand vs. supply, absorption, and the involvement of multiple government entities and departments tasked with the oversight has made financial projections challenging and unpredictable. This uncertainty should be a cause for serious consideration in the real estate industry.
The second problem is the unreliability of data from our institutions. However, by aggressively navigating bureaucracies and ensuring the reliability of our data sources, we can significantly improve the accuracy of our financial projections and provide reassurance in these uncertain times. The need for reliable data sources is crucial in shaping our economic future, and the audience should be acutely aware of this.
Article:
Amidst data reliability challenges, localized data collection is crucial and integral. This involves the developer getting 'boots on the ground,' collecting local data, dealing with local municipalities, and requiring them to conform to the transition to state approval mandates.
Database tools and participant interviews can further enhance the accuracy of our forecasts, giving us the power to shape our financial future. What are the local demand, vacancies, capitalization rates, and availability of financing? What are the rents, absorption, and absorption rates? Notably, data from profit-motivated companies can be more reliable than that from government entities like the Department of Labor Statistics.
Affirmatively Furthering Fair Housing: Federal Level
Former President Obama issued a regulation known as AFFH (Affirmatively Furthering Fair Housing).
https://www.hud.gov/sites/dfiles/FHEO/documents/AFFH%20Fact%20Sheet.pdf
https://www.hudexchange.info/programs/fair-housing-planning/
The AFFH regulation, initiated by President Obama, profoundly impacted the suburban landscape. Its objective was to foster the development of progressive urban mini-cities and shift them into the suburbs. This entails suburbs absorbed by larger cities, subject to federal zoning and development control mandates.
The AFFH regulation focused on eliminating single-family zoning and promoting the construction of medium to high-density low-income housing, reshaping suburban areas into mini urban-styled downtowns. This effort shifted low-income people and the less desirable to the suburbs.
AFFH works through the U.S. Department of Housing and Urban Development (HUD) Community Development, holding hostage the issuance of Block Grants. Suburbs are prohibited from receiving millions of dollars in HUD grants unless they eliminate single-family zoning, install low- and moderate-cost housing, and agree to consolidate and densify commercial and residential districts like stack-and-pack neighborhoods in urban areas.
Non-compliance will lead to Highway funds being withheld. Any objections by local municipalities could get municipal leaders of the suburbs sued for discrimination by civil rights groups or the federal government.
Then, with President Trump in 2016, the process was put on hold, but when President Biden took over, it was reactivated and accelerated on steroids.
State level: California.
The restructuring of land use and development control is a pivotal issue. It necessitates passing laws that redefine who is responsible for the zoning and development processes. This shift in power dynamics is a critical factor in transforming the housing landscape.
Forcing local municipal control to be replaced with state-level bureaucracies is the key to destroying the historic suburban lifestyle, and it appears to be the legislative objective patterned after AFFH.
The California Legislature's actions have significantly altered the landscape for local municipalities. The passage of multiple bills has effectively stripped these municipalities of their rights to approve land use and housing development projects. Instead, these rights are transferred to a state-level bureaucracy, leaving local municipalities only ministerial approval rights. This shift profoundly impacts the housing landscape, marking a significant change in the traditional approval process and underlining the gravity of the situation.
The competition between two different bureaucracies (state and local) for approvals has created chaos for buildings attempting to get their projects approved. Both state and local governments are filled with public employee labor union members who have monopoly powers and do not want to give them up, no matter how costly and disruptive to the real estate development community. This competition underscores the significant challenges real estate developers face in navigating the approval process, evoking empathy from the audience.
California planned the control and reformulation of neighborhoods by elected and unelected state-level bureaucrats: Targeted elimination of Single-family is to be replaced by High-Density stack and pack housing:
https://www.hcd.ca.gov/planning-and-community-development/affirmatively-furthering-fair-housing
https://www.allianceforhousingjustice.org/post/understanding-affh
The American dream of homeownership was replaced with the chant of a housing affordability crisis, all designed for giant corporations to purchase the housing stock and rent to the middle class. The dream of middle-class homeownership for most families is dead. Examples:
California has eliminated single-family zoning in favor of high-density stack and pack multi-story dwellings, both apartments and condominiums.
S.B. 330
Approved by the Governor. Chaptered by the Secretary of State, became effective January 1, 2020
This only applies to affected jurisdictions with populations above 5,000 and not within an urbanized area. The Department of Housing and Community Development (HCD) has a list of affected cities, and this law significantly impacts their development processes. The impact of S.B. 330 on these 'affected jurisdictions' is substantial, as it significantly alters their development processes, thereby addressing California's housing crisis.
The objective is to streamline the development process while addressing California's housing crisis.
https://cayimby.org/legislation/sb-330/
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB330
S.B. 4 Planning and zoning: housing development: higher education and religious institutions.
Senate Bill 4, the Affordable Housing on Faith Lands Act, is a new law allowing religious institutions and nonprofit colleges to build affordable housing on their properties.
Key features include:
Allows rezoning without most local permitting and environmental review laws.
Ends the misuse of the California Environmental Quality Act, often used to block affordable housing.
Incentivizes religious institutions to repurpose their land for affordable housing.
https://cayimby.org/legislation/sb-4/
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB4
SB 6- Residential development: available land in commercial zones
Approved by the Governor. Chaptered by Secretary of State. Chapter 667, Statutes of 2019.
Major provisions:
- Enacts, until January 1, 2029, the Neighborhood Homes Act, which establishes a housing development project as an allowable use on a neighborhood lot, defined as a parcel within a commercial zone where office and retail uses are permitted, so long as the parcel is not adjacent to an industrial use. This act is designed to encourage residential development in commercial zones, potentially changing the landscape of these areas.
- Requires a housing development project on a neighborhood lot to comply with all of the following:
- Under the housing element law, the density of residential housing development must meet or exceed the appropriate density to accommodate housing for lower-income households.
- The development project must comply with all local zoning, parking, design, public notice or hearing requirements, local code requirements, ordinances, and permitting procedures that apply in a zone that allows housing at the density required by this bill. Suppose more than one zoning designation in the city or county meets this requirement. In that case, the zoning standards that apply to a neighborhood lot are the same ones that apply to the closest parcel that allows for residential use at that density. If the existing zoning on the parcel allows denser residential use, the existing zoning applies.
- All other local requirements for a neighborhood lot are different than those that prohibit residential use or allow residential use at a lower density than provided by this bill.
- The development must record a deed restriction that at least an unspecified percentage of the units have an affordable housing cost or affordable rent for lower-income households.
- The developer certifies that the project is either public work or will pay prevailing wage and use a skilled and trained workforce for all levels of contractors. This is designed to promote unions and require union workers.
- The project consists of entirely residential units or a mix of retail commercial, office, or residential uses, except that it cannot include a hotel or other transient lodging and must devote at least 50% of its square footage to residential uses.
- The local agency requires renting any unit for more than 30 days. This is primarily to discourage term rentals such as Airbnb.
Allows local agencies to exempt a lot zoned for commercial retail or office use from the bill if the local agency concurrently reallocates the lost residential density to other lots so that there is no net loss in residential density, but only if the lots are
- Suitable for residential development, using an existing definition in housing element law and
- Subject to an ordinance that allows for development by right.
- Provides that its provisions do not alter or lessen the applicability of any housing, environmental, or labor law applicable to a housing development authorized by the bill, including, but not limited to, the California Coastal Act of 1976, the California Environmental Quality Act (CEQA), the California Housing Accountability Act (HAA), density bonus laws, obligations to affirmatively further fair housing laws, and state or local housing and tenant protection laws.
SB-7 Regional housing need: determination
The Planning and Zoning Law requires each county and city to adopt a comprehensive, long-term general plan for the physical development of the county or city, which includes, among other mandatory elements, a housing element.
https://digitaldemocracy.calmatters.org/bills/ca_202320240sb7
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB7
S.B. 8 extends the Housing Crisis Act 2019 to jumpstart more housing production.
https://www.yimbylaw.org/unit-replacement
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB8
S.B. 9 gives homeowners additional tools to add critically needed new housing and help ease California's housing shortage.
S.B. 10 establishes a voluntary, streamlined process for cities to zone for multi-unit housing, making it easier and faster to construct housing.
Single-Family Zoning: Can History be Reversed? | Joint Center for Housing Studies (harvard.edu)
The City of Minneapolis and the state of Oregon have passed similar measures, just as many other planners are doing across the country.
High-Density Urban vs. Suburban Housing:
Are California and the Federal Government intending to torpedo our suburban lifestyle and attempt to transplant high-density housing into our communities? This is not just a possibility but a reality we are facing. They are well in the process, and we must be concerned and engaged in this issue.
How will we feel when we wake up one day and the federal or state government mandates force us to relocate our living quarters into a stack and pack high-density cluster dwellings against our will? This is not just a hypothetical scenario but a real threat to our freedom. Our property is too valuable for us to keep for ourselves. It would be best if we sold for the benefit of others. Pressure is building because this type of housing unit is all that will be available since state and federal governments have outlawed single-family zoning and housing. This should alarm us and motivate us to act. Hopefully, the newly elected Trump administration will push back on the momentum gained.
How would we like to be forced to relocate into a quasi-independent living unit within a Section 8 federally sponsored housing project where we are one of the few paying our way? Our taxation subsidizes all our neighbors. How would we like to live among neighbors/members of society in the inner-city where compulsory tax redistributions from our support 80% plus of their housing and family living expenses to enhance their lifestyles? Your obvious response would be, How could that ever happen here in the USA?
Hopefully, the newly elected Trump administration will push back on the momentum gained.
Many developers prefer high-density or cluster zoning and housing to maximize density, play, and profits. In cluster housing, homeowner associations take over responsibility for management and maintenance.
Vertical high-density housing, sometimes called stack-and-pack, refers to neighborhoods formed by building tightly packed multi-storied residential units. This allows for more efficient control and expense factors and much higher population density. Population density can increase even more as the buildings become taller, allowing for more units in smaller ground space (footprint). Four to ten stories for high-density residential occupancy will be the norm.
Suburban areas, on the other hand, consist primarily of low-density residential, commercial, and industrial communities located away from urban areas but within commuting distance for employment. Suburban communities usually have their own political and governmental service jurisdictions. Populations grow in suburbs when people want autonomy from the tightly controlled rules and the hectic and congested lifestyles of densely populated urban settings.
Freedom of movement allows families who can afford to move into suburbia to eliminate and avoid traffic congestion, congested commercial corridors, clustered shopping, substandard schooling, environmental issues, and crime.
Freedoms that allow more land and open space make it worth the cost for people to commute into a city for work. Suburbs usually provide a higher standard of living for a comparable income than a metro or urban lifestyle.
The difficulty of financial projections with continuous intrusive government overreach will continue to be a barrier. Complexity is ever-present, but the clever mouse will always be able to find its way through the maze.
Even with a completed projection model, our work is not done. We must actively review our forecasts' strengths and weaknesses and make necessary adjustments. This ongoing process of fine-tuning is where our expertise and judgment come into play, leading to more accurate and reliable financial forecasts.