California Housing Bill Has Some Tough Requirements

Since then-Gov. Jerry Brown signed it in 2017, SB 35 has been one of California’s most impactful housing laws. It forces local governments that are failing to meet state housing planning goals to streamline affordable apartment projects; between 2018 and 2021 it helped kickstart over 18,000 affordable units, according to a recent UC Berkeley report.

Now, with SB 35 set to sunset in a couple years, state legislators have signed off on a high-profile extension bill, called SB 423, that aims to both prolong and expand the existing law’s sizable impact.

But one of the new bill’s key aims — expanding the existing law’s reach to include mixed-income projects — could end up mostly being a dud.

“We love the sentiment of the state coming in and saying, ‘Let’s do streamlining to get housing built,’” said Sean Burton, the CEO of Cityview, the major L.A.-based development firm. “I think sometimes what happens is that in order to get something passed [legislators] have to agree to everyone’s demands, and you end up with very, very complex bills … that kind of collapse under their own weight.”

Assuming Calif. Gov. Gavin Newsom signs it, SB 423 will extend SB 35 for another 10 years, until 2036. After a fierce debate, it will also expand SB 35’s reach into coastal zones, except for some areas deemed as environmentally sensitive — a major addition to what’s become a signature new bill that’s being championed by housing advocates and politicians across the state.

“If you are looking for an opportunity to support housing in your community, I can assure you this is the most consequential vote you will have this year,” Assemblymember Buffy Wicks, an Oakland Democrat who chairs the chamber’s Housing and Community Development Committee, recently told her colleagues. “This is the most important housing bill that we are going to put on the governor’s desk.”

Yet another major component of the new bill, an effort to extend the streamlining to mixed-income projects, may end up not being used by developers all that much, Burton predicted, because of additional provisions legislators added.

The most significant is a requirement that all projects with at least 10 units pay prevailing wage to laborers. On projects of at least 50 units, developers also must provide healthcare benefits. Mixed-income projects over 85 feet must use a “skilled and trained” workforce if the project receives at least three qualified bids.

Those requirements, which were not included in SB 35, were introduced into SB 423 by its author Sen Scott Wiener, who argued the wage requirements would give a critical boost for construction workers, a group that’s majority Latino and often relies on state healthcare.

“SB 423 extends labor protections to the hundreds of thousands residential construction workers in California who currently work in the shadows with no protections at all,” Wiener’s office wrote earlier this year.

Yet the requirements also make projects much more expensive for developers. While large market-rate projects, over 300 or units or so, typically do use union workers or pay prevailing wage, medium and smaller market-rate projects typically don’t, Burton said. Especially given the state’s current extremely difficult development climate, the added prevailing wage fee, which can tack on 20 percent or more to a developer’s costs, means that a lot of mixed-income projects that otherwise might have benefited from the streamlining law simply won’t pencil.

Some large mixed-income projects in high-density areas — in cities that also happen to be delinquent on their housing planning — could still end using the provision, and Cityview’s legal team is still analyzing the bill, Burton said. But at first glance he doesn’t anticipate his firm using it.

“I think the intention is good,” he emphasized. “I just don’t know how practical it’s going to be for mixed-income projects.”

Earlier this year SB 423, and its labor requirements, was the subject of a fierce debate, with some labor groups arguing it should drop the prevailing wage requirement in favor of a union designation.