Walking the Tightrope of SB 35

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Developers in California know that getting approval to build new housing projects can be extremely difficult, time-consuming, and expensive. But a new policy is finally coming into full effect which could help developers cut through those barriers. SB 35, enacted in 2017, streamlines the approval process for housing developments in areas with inadequate housing supply, so long as the developments meet certain criteria.

We have written elsewhere about the initial impacts of SB 35. SB 35 has successfully allowed some developers to obtain their entitlements quickly and easily through a streamlined process, but some local governments have resisted the use of SB 35. For example, the City of Los Altos denied an application that attempted to obtain streamlining through SB 35, prompting a nonprofit housing organization to sue. In Cupertino, the Planning Commission Chairman advocated in April 2019 for rescinding the SB 35 approval of the redevelopment of the Vallco Mall, which would include over 2,400 units of housing, while some residents have sued to block the development. As a result, it is crucial for developers to understand the details of SB 35 and make sure to meet all of its requirements. Any misstep may allow a recalcitrant local government to deny that a development project qualifies for SB 35 treatment and attempt to block it.

In November 2018, the state Department of Housing and Community Development (HCD) released Guidelines to clarify the criteria for SB 35 and assist cities in determining whether projects qualify for streamlining.

SB 35 Applies to Most California Cities and Counties
Any California city or county can be subject to SB 35 streamlining for either failing to permit sufficient housing units to meet its share of regional housing needs, as determined by the Regional Housing Need Allocation (RHNA), or failing to submit annual housing reports to HCD. SB 35 currently applies to nearly all California cities and counties. As of December 2018, only 24 cities and counties are meeting their RHNA goals, and are thus entirely exempt from SB 35 streamlining. These jurisdictions combined represent less than 4% of California’s population.

Where it applies, SB 35 streamlining can take two different forms. First, a city or county that has not met its RHNA goal for “lower income” housing must provide a streamlined process when any proposed development includes at least 50% affordability. “Lower income” housing means housing affordable to people making up to 80% of area median income. Most of California’s largest cities—including San Francisco, Los Angeles, San Jose, San Diego, Oakland, Fresno, Anaheim, and Irvine—are not meeting their goals for lower income housing, and are subject to the SB 35 streamlining requirement for 50% affordable developments.

Second, a city or county that has not met its RHNA goal for “above-moderate income” housing—housing affordable to people making above 120% of area median income—must provide a streamlined process when any proposed development includes at least 10% affordability. This 10% streamlining process is available in several cities on the San Francisco peninsula, including Los Gatos, Millbrae, San Bruno, and Pacifica, where much new development is occurring. SB 35 could be a useful tool for developers hoping to advance projects quickly in these active markets.

HCD provides a complete list of cities and counties that currently qualify for either type of streamlining. For a map of the cities in the San Francisco Bay Area affected by SB 35, click here.

A Project Must Check All the SB 35 Boxes
SB 35 specifically exempts certain projects from the conditional use permit process and instead requires cities to provide an expedited, non-discretionary (i.e., “ministerial”) approval process. To be eligible for SB 35 streamlining, the project must satisfy the following requirements:

  • Be a multifamily development. “Multifamily” means the project will build at least two attached residential units. ADUs count if they are attached to a new single-family home, and in a zone allowing for multifamily developments.
  • Be consistent with the city’s objective zoning, subdivision and design review requirements, effective at the time the application is submitted. The guidelines define “objective” standards as “standards that involve no personal or subjective judgment by a public official and are uniformly verifiable by reference to an external source available and knowable by both the development applicant or proponent and the public official prior to submittal” (HCD Guidelines at Art. III (b) (8)). The Guidelines also suggest that this requirement should be interpreted to maximize the housing supply; provisions in local codes which “inhibit, chill, or preclude the development of housing” under SB 35 are “inconsistent with the application of state law.”
  • Be in an area that is zoned for residential use or residential mixed-use (or has a general plan designation that allows for such uses).
  • Designate at least 2/3 of the overall square footage for residential use. The 2/3 calculation is based on gross square footage ratio, which includes density bonus units and related facilities (e.g., building manager’s units and residential common areas). The non-residential component of a mixed-use project also qualifies for SB 35—in other words, the entire project is streamlined.
  • Qualify as “urban infill.” “Urban” areas are designated by the U.S. Census Bureau, and “infill” requires that at least 75% of the project site’s perimeter adjoin (including across a street) parcels that are developed with urban uses. Such uses include current or former residential, commercial, retail, public institutional, or transit uses.
  • Certify that all workers will be paid the local Prevailing Wage (i.e., union level wages), as determined by the California Director of Industrial Relations.
  • Certify that the all workers on larger projects (75 units or more until the end of 2019, then stepping down to 26 or more units by 2022) are Skilled and Trained (i.e., graduates of an approved apprenticeship program or have commensurate experience). Smaller projects may still need to meet this Skilled and Trained requirement, depending on the location and population of the area they’re located in. See Guidelines Section 403(b) for more detail.
  • Not result in removal of current rental housing (i.e., the project cannot displace existing tenants through demolition, evictions or sale of rented units), nor require demolition of an historic structure that is listed on a national, state, or local historic register.
  • Not be located in certain sensitive or hazardous areas, such as wetland areas, hazardous waste sites, or flood zones (see Guidelines 401(b) for the complete list).

In addition to these project and site-specific requirements, SB 35 projects must meet the minimum affordability requirements spelled out in the statute, depending on how well its locality is meeting its RHNA goals:

  • For developments in areas without enough “lower income” housing, 50% of the units must be affordable for households making below 80% of the area median income.
  • For developments in areas without enough “above-moderate income” housing, 10% of the units must be affordable for households making below 80% of the area median income. But if a development in one of these areas is for ten or fewer units, it is exempt from the requirement to create affordable units.
  • The number of affordable units required must be counted before any density bonus units are added in; density bonus units do not count towards the affordability percentage.
  • Affordable units must be built on-site.
  • If both SB 35 and a local inclusionary zoning ordinance apply, whichever requirement results in more affordable units governs.

Projects that elect to take advantage of streamlining must submit a site or building permit application and an SB 35 streamlined development application demonstrating the project’s eligibility to the local planning department. Each locality can decide on the specific form of its SB 35 streamlined development application.

SB 35 Expedites Review for Qualified Projects
Once a developer applies, a city or county has either 60 or 90 days (depending on whether the project will create more than 150 residential units) to determine whether the developer has complied with all SB 35 requirements. If the local government fails to either certify or reject the application in this timeframe, the project is automatically deemed approved.

For SB 35-compliant projects, final approval (including any design review or public oversight) must be completed within either 90 or 180 days (again depending on if the project will produce over 150 units) from when the initial application was submitted. A city’s failure to obtain design review approval cannot prevent overall approval of the project.

Perhaps most importantly for developers, the California Environmental Quality Act (CEQA) does not apply to projects qualifying for SB 35. CEQA only applies when a project needs discretionary approval from a local government, and under SB 35, cities and counties have no discretion to approve or reject qualifying projects. Avoiding CEQA review can dramatically reduce the cost and shorten the time to completion of a project.

Moving Forward
SB 35 sets out a number of hoops for developers to jump through, but once those requirements are met, it offers a powerful way to cut through the red tape which often dooms projects. Whether this tradeoff is workable for enough developers to meaningfully increase housing production remains to be seen. Every local government sends a yearly progress report to the state, detailing the number of SB 35 streamlining applications they received, whether those applications were approved, and how much progress the locality has made in reaching its RHNA goals. As these data come in, we will learn just how powerful a tool SB 35 can be.

(Special thanks to summer intern Allan Van Vliet for his assistance with this post.)