Qualified housing projects in commercial zones would no longer require rezoning

Senate Bill (SB) 6, the Middle Class Housing Act of 2022 (the Act), was signed into law by Governor Gavin Newsom last fall and goes into effect five months from today. The Act goes significantly further than existing state law to deem qualifying, multifamily and mixed-use housing projects a principally permitted use in commercial zones, without requiring a local rezone. Additionally, provided the proposed project meets certain state criteria, it will also be deemed consistent with a city’s objective design, development and subdivision standards (“planning standards”) under the Housing Accountability Act (HAA). By deeming qualifying projects consistent with local planning standards under the HAA, even in zones where housing is not a principally permitted use, the Act provides significant protections to the developer at the expense of local discretion over the project.

Irrespective of what a local agency’s adopted planning standards allow, a qualifying housing or mixed-use project will be an allowable use within any zone where office, retail or parking are principally permitted uses, so long as the proposed project meets certain statutory criteria. This will significantly expand where multifamily and mixed-use housing must be permitted within a local jurisdiction. To be eligible, the project must be either all housing or a mixed-use development where at least 50% of the new construction is dedicated to housing, and none of the square footage is dedicated to transient uses, except for a residential hotel as defined^[1]. The project need not have an affordable housing component in order to qualify.

The project must still meet a series of local requirements to be eligible, however, including noticing and hearing requirements applicable to comparable housing projects, any local demolition law, and all local objective planning standards, with the notable exception that housing does not need to be a permitted use. When the proposed housing or mixed-use project qualifies under the Act, but existing zoning does not allow housing on the site, the local agency must determine the allowable residential density by applying the zoning standards at the closest parcel that meets or exceeds a density sufficient to meet the agency’s lower income Regional Housing Needs Allocation (RHNA).

Similar to Assembly Bill (AB) 2011, which goes into effect the same day as the Act, the qualifying project must be within an urbanized area or urban cluster, as designated by the U.S. Census Bureau, with less than one-third of the site (or its immediate neighbors) dedicated to industrial uses. The proposed site must be 20 acres or fewer. To be eligible under the Act, the project cannot have been previously developed using the ministerial approval process under SB 35, when 10 or fewer residential units were developed on the proposed site or on an adjacent site, by the developer or anyone acting in concert with the developer. SB 6 also amends SB 35 where it was codified at Government Code section 65913.4, to make clear that ministerial streamlined review could apply to a qualifying project under the Act for sites zoned for office or retail commercial uses, and would still be deemed consistent with local planning standards. The qualifying project must also be consistent with any approved Sustainable Communities Strategy or alternative plan.

If the qualifying housing or mixed-use developer intends to construct on a site with existing commercial tenants, the developer has certain relocation obligations once the existing commercial lease expires. To qualify, the commercial tenant must be independently owned with its principal office within the county where the lease is located, must have 20 or fewer employees, and must have annual gross receipts under $1 million. The amount due in relocation is based on the rent of the existing lease, and how long the lease was in effect.

A qualifying housing or mixed-use project developer must meet certain labor obligations. Specifically, the developer must certify the project either qualifies in full as a public work under the Labor Code (subjecting the project to prevailing wages), or if the entire project is not a public work, that prevailing wages will still be paid to construction workers, with limited exceptions. The developer must also ensure that all construction work will be completed by a “skilled and trained workforce,” as defined under state law, or otherwise meet certain public bidding requirements on the work. Specifically, the skilled and trained workforce requirement may be waived if a bid for the work is issued to enumerated entities, and fewer than two bids are received.

The Act becomes operative on July 1, 2023 and is repealed on January 1, 2033. The Act requires the local agency to report to the state’s Housing and Community Development Department on the number of project applications submitted under the Act as part of the agency’s Annual Progress Report.

SB 6, in concert with AB 2011, reduces local control by requiring approval of certain housing and mixed use projects in commercial zones. Local agencies should review their zoning codes to understand what areas of their community these state law changes will impact and what local objective standards may still be applicable to these housing and mixed use projects.

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