Two New Laws Authorize Multifamily Residential on Commercial Property
Earlier this year, Governor Newsom signed Assembly Bill (AB) 2011 (Wicks) and Senate Bill (SB) 6 (Caballero) into law to increase housing production in the state by allowing residential construction on commercially-zoned property. The two bills balance the State’s interest in new housing with local control and provide for increased wages, benefits and standards for construction workers on the projects. The bills take effect on July 1, 2023.
Basics of AB 2011
AB 2011, the Affordable Housing and High Road Jobs Act of 2022, provides for streamlined ministerial approval for certain multifamily housing development projects in commercial zones. This statute creates two processes for streamlined, ministerial review of housing projects on commercially zoned property. Under the first process, 100% of the proposed units within the housing development project must be dedicated to lower income households at an affordable cost or at an affordable rent set in an amount consistent with the rent limits established by the California Tax Credit Allocation Committee. The second process in AB 2011 provides for certain ministerial approvals where a development abuts a commercial corridor (defined as a public street, other than a freeway, that has a right-of-way of at least 70 feet and not greater than 150 feet) and has a frontage along the commercial corridor of a minimum of 50 feet. To qualify for ministerial approval under the Commercial Corridor option, these developments must:
- if the development will be owner-occupied, have at least 30% of the units offered at an affordable housing cost to moderate income households or 15% of the units offered at an affordable housing cost to lower income households; or
- if rental units, meet the higher of (a) the minimum inclusionary housing requirement of the city or county in which the property is located or (b) either i) 15% of the units reserved for lower income households or ii) 8% of units reserved for very low income households and 5% of units for extremely low income households.
In addition, AB 2011 projects must also meet a number of threshold site-specific and project-specific criteria, as defined in the statute. This additional qualifying criteria, include, among other things, that the property is located within a zone where office, retail, or parking are principally permitted use; the property is in an urbanized area; and the property is located no closer than 500 feet from a freeway. The law establishes the minimum and maximum densities, height limits, and setback requirements for such projects, which differ depending on the size of the project site, the amount of commercial corridor frontage, and whether the site is within ½ mile of a “major transit stop.” Projects in commercial corridors are also subject to the applicable objective standards for the “closest zone” in the jurisdiction that allows multifamily residential use at the residential density permitted by AB 2011. 100% affordable projects are only subject to the applicable objective standards for the “closest parcel” meeting that density requirement.
Under AB 2011, a ministerial application for qualifying projects is exempt from the California Environmental Quality Act (CEQA), and a decision on the project must be made within 90 days for projects with less than 150 homes or within 180 days for projects with more than 150 homes. Any design review must occur in this limited timeframe and be based solely on objective standards. If a local government determines that a project does not comply with objective planning standards, it must provide a written explanation to the proponent within a 60-90 day period from filing of the application, depending on the number of the units in the project. Projects using the streamlined approval process would also be eligible for density bonuses, incentives and concessions, waivers and reductions in development standards, and potentially reduced parking ratios under California’s Density Bonus Law (Gov. Code § 65915.).
Finally, in terms of workforce requirements, AB 2011 mandates payment of prevailing wages to all construction workers on an eligible project. Developers building 50 or more units of housing must also submit monthly compliance reports to the local government and make family healthcare benefit contributions for projects with qualified construction craft workers on projects with more than 50 units. These expenditures may be credited toward compliance with the prevailing wage requirements.
Basics of SB 6
SB 6, the Middle Class Housing Act of 2022, allows for residential development on property zoned for retail, parking and office space without the requirement for a rezoning of the property. In comparison to AB 2011, SB 6 does not offer a ministerial approval pathway unless the project otherwise qualifies under SB 35. However, SB 6 projects offer lower minimum density requirements and no affordability requirement, except that the project must satisfy any applicable inclusionary housing requirement of the city or county in which the property is located. Nonetheless, SB 6 projects must be housing development projects that are either entirely for residential units or mixed use projects with at least 50% of the square footage dedicated to residential use. These projects should be located on sites 20 acres or less in an urban area and should not be adjoined to any site where more than a third of the square footage is dedicated to industrial use. SB 6 projects must satisfy the height, setback, parking requirements of the jurisdiction’s closest parcel that allows the authorized density.
Prevailing wages for labor are required under SB 6. Unlike AB 2011, labor organizations must be notified in advance to work towards an agreement for a skilled and trained workforce. If two skilled and trained bids are not received, however, a developer can rebid without the requirement. This process would ensure union labor for SB 6 projects if two qualified bids are received from contractors.
Implementation of New Laws
Despite its many pre-approval conditions for compliance, developers may prefer AB 2011 due to its ministerial project approval in a streamlined, CEQA-exempt process, which significantly shortens the time for project approval. Moreover, AB 2011 lacks strict skilled and trained workforce requirements which may enable more flexibility for workforce selection. Although prevailing wages are required, the additional cost of requiring prevailing wages may be off-set by the time and dollar savings provided by the streamlined approval. However, because non-100% affordable housing AB 2011 projects must be located on sites in a qualifying commercial corridor, developers with projects on commercial sites located outside of a qualifying commercial corridor will need to rely on SB 6. SB 6 lacks the approval streamlining and CEQA-exemption of AB 2011 and requires both prevailing wages and a skilled and trained workforce. However, the allowed density for SB 6 projects could be at least 30 dwelling units per acre (if the project is located in a metropolitan jurisdiction), not including any potential density bonus, and SB 6 projects may qualify as development projects under the Housing Accountability Act, which significantly limits the discretion of the local agency to deny compliant projects.
Cities and counties should review their current zoning and development regulations to determine what standards would apply for projects in the jurisdiction’s major commercial areas based on the “closest zone” or “closest site”, as appropriate. Cities and counties may wish to modify objective standards in anticipation of projects utilizing SB 6 and AB 2011 to ensure that the standards in the “closest zones” are appropriate.
Whether looking at these housing laws from a local agency or a private development perspective, the real-world implementation of AB 2011 and SB 6 to proposed development sites and development projects is quite complicated and site-specific. To determine whether your property or project qualifies, you can use Meyers Nave’s AB 2011/SB 6 matrix, linked here, or contact the authors listed above for a more in-depth analysis.