California Courts of Appeal Strengthen Density Bonus Law
Two Published Opinions Give Housing Applicants Strong Tools to Waive Local Standards That Limit Housing Development
Highlights
- California's Density Bonus Law gives housing developments with below market rate homes the right to additional density, to waivers of local standards that preclude development, to incentives that reduce affordable housing costs and to reduced parking requirements. The law also creates strong presumptions that housing applicants are entitled to the waivers and incentives they seek – but these provisions had not been interpreted in published case law until now.
- Schreiber v. City of Los Angeles holds that density bonus applicants need not prove that incentives such as increased floor area and height will result in actual cost reductions. Requested incentives are presumed to result in cost reductions, and local governments may either accept this presumption or make a showing with substantial evidence to the contrary.
- Bankers Hill 150 v. City of San Diego affirms that density bonus projects are entitled to waive development standards that would prevent the project as designed from being built – even if the project could be redesigned to comply with the relevant standards.
Recent decisions from two court cases – Schreiber v. City of Los Angeles1 and Bankers Hill 150 v. City of San Diego2 – make California's Density Bonus Law a powerful tool not just for accessing increased density, but also for obtaining relief from zoning limitations that restrict feasible housing development. Housing and mixed-used development applicants should strongly consider the benefits of designing their developments to take maximum advantage of the Density Bonus Law.
Density Bonus Law Background
Originally enacted in 1979, California's Density Bonus Law3 gives housing and mixed-use developments with five or more homes the right to increased density beyond applicable local limits in exchange for providing homes at below market rate (BMR) rents or costs. The law's protections apply if the "base" project (i.e., the project as considered before the additional density) provides at least 10 percent BMR homes for low-income households, 5 percent BMR homes for very-low-income households or, if the homes in the development are for sale, 10 percent BMR homes for moderate-income households.4 Even greater benefits are available for projects that reach higher percentages of affordability (with even unlimited density available for certain transit-adjacent, 100-percent BMR projects).
Probably even more important than the additional density that gives the law its name are three provisions of the law that require local governments to grant qualifying projects: 1) incentives that provide cost reductions, 2) waivers of development standards that would physically preclude the development of a project at the density permitted and with the incentives granted and 3) reductions in parking requirements.
In recent years, the California legislature has adopted several amendments to the Density Bonus Law, including a series of reforms creating a strong rebuttable presumption that a housing applicant is entitled to the waivers and incentives for which it has applied. Although these amendments have been part of the law for several years, they have yet to be interpreted or applied in published case law, which has not pertinently addressed the Density Bonus Law since 2013.5 That silence ended in September 2021, when the California Court of Appeal for the Second District issued its decision in Schreiber v. City of Los Angeles, followed by the California Court of Appeal for the Fourth District's decision in Bankers Hill 150 v. City of San Diego in January 2022. In May 2022, the California Supreme Court denied the last in a series of requests to de-publish Bankers Hills 150, leaving both decisions standing as the most significant published case law on the Density Bonus Law in nearly a decade.
Incentives: The Schreiber Decision
One of the most important portions of the Density Bonus Law is the option to request a certain number of incentives – between one and four, depending upon the number of BMR homes in the project – to reduce affordable housing costs.6 Incentives include "[a] reduction in site development standards or a modification of zoning code requirements or architectural design requirements … that result in identifiable and actual cost reductions, to provide for affordable housing costs."7
In Schreiber, a Density Bonus Law housing applicant requested that the Los Angeles City Planning Commission grant two incentives for increased floor area and height beyond applicable limits. Housing opponents challenged the city's approval of the project, arguing that the Density Bonus Law required applicants to submit information demonstrating that requested incentives would actually result in cost reductions. The developer did not provide such information, and the commission didn't request it prior to approving the requested incentives.
The Schreiber court held that such a showing was not required and affirmed the trial court's decision to deny the housing opponents' challenge to the project. The court held that the Density Bonus Law places the burden of proof for denying requested incentives on the local government.8 Specifically, the law allows – but does not require – local governments to deny requested incentives "upon making a written finding, based on substantial evidence," that "[t]he concession or incentive does not result in identifiable and actual cost reductions[.]"9
The court determined, however, that the commission was not required to undertake such an analysis prior to granting the requested incentive. As the court explained, "[b]y requiring the city to grant incentives unless it makes particular findings, the statute places the burden of proof on the city to overcome the presumption that incentives will result in cost reductions."10 Thus, incentives are presumed to result in cost reductions, and local governments may either accept this presumption and grant the incentives or overcome this presumption with a showing of substantial evidence to the contrary.11 A developer is not required to demonstrate on the front end that any requested incentive will result in actual cost reductions.12
Waivers: The Bankers Hill 150 Decision
Waivers, unlike incentives, are not limited in number, and they are not tied to any implied showing that they reduce affordable housing costs. Instead, a Density Bonus Law project is entitled to a waiver of any and all development standards that would physically preclude the development at the density permitted and with the incentive(s) granted.
In Bankers Hill 150, the City of San Diego approved a 20-story mixed-use building that qualified for the Density Bonus Law, granted several incentives (to avoid a setback, eliminate two on-site loading spaces for trucks and reduce the number of private storage areas for residents) and waived various development standards related to height and setback requirements that, if applied, would have physically precluded the project as proposed from being built.13 Housing opponents challenged these determinations as inconsistent with the City's General Plan.14
The opponents' argument hinged on the fact that the project included a large courtyard for community use. Had the design been altered to remove the courtyard, the opponents argued, the project could have complied with some of the development standards at issue, and the city would not have needed to waive those standards.15 Thus, in the opponents' view, density bonus projects are only entitled to waivers of development standards if the project cannot be redesigned to comply with those standards.
The court rejected this argument, specifically noting that "amendments to the [Density Bonus Law] in 2008 had the effect of deleting the requirement that an applicant for a waiver of development standards must show that the waiver was necessary to render the project economically feasible."16 While the Density Bonus Law sets forth certain limited exceptions under which local governments are not required to waive development standards,17 the court explained that the existence of alternative compliant project designs is not among them: "Thus, unless one of the statutory exceptions applies, so long as a proposed housing development project meets the criteria of the Density Bonus Law by including the necessary affordable units, a city may not apply any development standard that would physically preclude construction of that project as designed, even if the building includes 'amenities' beyond the bare minimum of building components."18
Conclusions and Takeaways
With respect to incentives, it remains good practice for housing applicants to reasonably document the reasons the requested incentives will reduce affordable housing costs. But as a matter of law, Schreiber makes clear that no such showing is mandatory. Neither a locality nor a housing opponent is likely to succeed in challenging an applicant's right to an incentive unless the locality makes its own affirmative evidentiary findings to rebut the presumption in the statute.
With respect to waivers, Bankers Hill 150 emphasizes that waivers are a powerful tool for housing applicants to avoid restrictive zoning limitations that would preclude the project as it has been designed. Importantly, the Bankers Hill 150 court did not merely affirm that the city was permitted to grant the requested waivers. Instead, the court held specifically that the opponents' challenge failed because the city "could not demand" that the project "move the courtyard or redesign its building."19 The Density Bonus Law is not merely an option for localities; instead, the "Density Bonus Law shapes the City's discretion in reviewing the Project."20
The legislature has instructed that the Density Bonus Law "shall be interpreted liberally in favor of producing the maximum number of total housing units."21 With the Schreiber and Bankers Hill 150 decisions, the California Courts of Appeal continue to follow this mandate. In concert with the legislature's recent efforts to strengthen the Density Bonus Law and extend its reach, these decisions reflect a broad and deepening commitment to enforce state housing law.
For more information about how to design your project to take maximum advantage of the many benefits provided by the Density Bonus Law, contact the authors or your Holland & Knight attorney.
Notes
1 Schreiber v. City of Los Angeles, 69 Cal. App. 5th 549 (2021).
2 Bankers Hill 150 v. City of San Diego (2022) 74 Cal. App. 5th 755, review denied (May 11, 2022).
3 Gov. Code § 65915 et seq.
4 In addition to these options, housing for senior citizens, transitional foster youth, disabled veterans, homeless persons and students can also qualify for the Density Bonus Law. See Gov. Code § 65915(b)(1). The applicable income limits for each income category vary by county and by household size. The applicable limits are published annually by the California Department of Housing and Community Development. The maximum rent or cost that can be charged for such units is set by Health & Safety Code §§ 50052.5 & 50053.
5 With the exception of Kalnel Gardens LLC v. City of Los Angeles (2016) 3 Cal.App.5th 927, 944, which the California legislature immediately superseded by statute by enacting Stats. 2018, Ch. 904, the most recent significant published opinion regarding the Density Bonus Law is Latinos Unidos Del Valle De Napa y Solano v. Cty. of Napa (2013) 217 Cal. App. 4th 1160, 1169, which held that local governments may not enforce their own density bonus ordinances that conflict with the state's Density Bonus Law.
6 The statute also uses the term "concession" as well as "incentive," but since the terms are coterminous, this alert uses the term "incentive" only.
7 Gov. Code § 65915, subd. (k)(1).
8 Gov. Code § 65915, subd. (d)(4) ([t]he city … shall bear the burden of proof for the denial of a requested concession or incentive.").
9 Gov. Code § 65915, subd. (d)(1)(A).
10 Schreiber, 69 Cal. App. 5th at 556.
11 Schreiber, 69 Cal. App. 5th at 556. A local government's other options to deny an incentive are to find on the basis of substantial evidence that the incentive would be contrary to state or federal law, or would have a specific, adverse and unavoidable impact on public health, safety or on a listed historic property. Gov. Code § 65589.5(d)(1).
12 Schreiber, 69 Cal. App. 5th at 556.
13 Bankers Hill 150, 74 Cal. App. 5th at 766.
14 Bankers Hill 150, 74 Cal. App. 5th at 767.
15 Bankers Hill 150, 74 Cal. App. 5th at 774.
16 Bankers Hill 150, 74 Cal. App. 5th at 775 (internal citations and quotations omitted).
17 Gov. Code § 65915, subd. (e)(1) ("This subdivision shall not be interpreted to require a local government to waive or reduce development standards if the waiver or reduction would have a specific, adverse impact … upon health or safety, and for which there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact[, or] would have an adverse impact on any real property that is listed in the California Register of Historical Resources, or … would be contrary to state or federal law.").
18 Bankers Hill 150, 74 Cal. App. 5th at 775.
19 Bankers Hill 150, 74 Cal. App. 5th at 775 (emphasis added).
20 Bankers Hill 150, 74 Cal. App. 5th at 769.
21 Gov. Code § 65915, subd. (r).
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.