Passed in California’s State Assembly last month, Assembly Bill (AB) 1229 was written to expressly authorize any county or city in California to include inclusionary housing requirements (a.k.a. Below Market Rate units) as a condition of approval for the development of new housing, a requirement which was successfully challenged in the case of Palmer versus the City of Los Angeles.

In 2009, in the case of Palmer v. City of Los Angeles, the Second District California Court of Appeal opined that the city’s affordable housing requirements associated with a particular specific plan (akin to an inclusionary zoning ordinance), as it applied to rental housing, conflicted with and was preempted by a state statute known as the Costa-Hawkins Rental Housing Act. The Costa-Hawkins Act limits the permissible scope of local rent control ordinances. Among its various provisions is the right for a rental housing owner generally to set the initial rent level at the commencement of a tenancy, even if the local rent control ordinance would otherwise limit rent levels across tenancies. This provision is known as vacancy decontrol because the rent level is temporarily decontrolled after a voluntary vacancy. The act also gives rental housing owners the right to set the initial and all subsequent rental rates for a unit built after February 1, 1995. The court opined that “forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

This past Sunday, Governor Jerry Brown vetoed the bill. From the Governor:

This bill would supersede the holding of Palmer v. City of Los Angeles and allow local governments to require inclusionary housing in new residential development projects.

As Mayor of Oakland, I saw how difficult it can be to attract development to low and middle income communities. Requiring developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community.

The California Supreme Court is currently considering when a city may insist on inclusionary housing in new developments. I would like the benefit of the Supreme Court’s thinking before we make legislative adjustments in this area.

AB-1229 Land use: zoning regulations []

Comments from Plugged-In Readers

  1. Posted by katdip

    I think this is a terrible decision. The headline in the Chron (“Brown vetoes bill requiring affordable-rental units”) was completely wrong. The legislation didn’t require anything – it simply allowed local governments to choose to use inclusionary zoning if they wanted to. This is a local issue, so the decision regarding the costs/benefits of inclusionary zoning should be made locally. Low income housing is hard enough to build, and Brown has only made it harder by getting rid of inclusionary zoning and the money from redevelopment authorities.

  2. Posted by Skirunman

    I think this is a wonderful decision. Glad to see Moonbeam had the guts to make the right call, well done Sir.

  3. Posted by lyqwyd

    Yes, definitely a good call. Brown is the best thing that’s happened to CA in a long time, hopefully he will run for a second term, it’s rare to get good leadership like this these days.

  4. Posted by Futurist

    Excellent decision.

  5. Posted by qq

    What will this mean for SF’s affordable housing requirements for new developments? Will they go away or will that be influenced more by the outcome of the supreme court decision?

  6. Posted by Frank C.

    I don’t think Brown is against all laws that compel affordable housing – he’s just against this particular law.
    I think we absolutely need some law to compel non-luxury-price-level housing in the Bay Area, or we need to get real regional-wide transit to the Bay Area from places like Tracy and Vallejo, etc, where lower income people live.
    One thing is certain – the free market is not working on this one. Hasn’t helped NYC, and NYC greatly weakened rent control and built a lot of units. Please, nobody should think elimination of rent control is anywhere near a major part of this problem.
    Or, we can just do nothing for affordability and let freeways from far off, affordable areas into the Bay Area get clogged to LA levels. We’re nowhere near that right now, but it’s inevitable in the long run.

  7. Posted by mission

    SF, like most cities, already changed its affordable housing program in response to the Palmer decision. The default option for developers is now in lieu fees or they can apply to build affordable units. Palmer had some interesting ramifications such as certain older BMR rental units could be rented at full market rate once they became vacant (a rarity for sure) because the inclusionary housing law that required the units in the first place was no longer valid.

  8. Posted by sfresident

    Brown knows that this bill would have been challenged in court. He is wise to wait until the issue is heard by the California Supreme Court. On the issue of affordable housing, rent control is a problem as is the lack of new units. SF needs at least 5000 new units a year for probably a decade to get prices down. To fund affordable housing, SF can just tax the numerous dot-coms which are popping up all over SF and causing rental rates to rise.

  9. Posted by anon

    On another note, why is the “Affordable Housing Bill 1229” owned by the Governor Brown’s veto?
    (Incorrect use of apostrophes chaps my hide)

  10. Posted by Brahma (incensed renter)

    On the issue of affordable housing…SF needs at least 5000 new units a year for probably a decade to get prices down. To fund affordable housing, SF can just tax the numerous dot-coms which are popping up all over SF and causing rental rates to rise.

    I think both of these ideas need some work.
    First, supply-side “solutions” to affordability are highly vulnerable to the infamous S.F. market removal attack. That is, if the market clearing price gets too low, owners and landlords take units off the market until the price rises to a level they desire. There’s all kinds of techniques to do this.
    As of the 2010 census, San Francisco, one of the most in-demand places in the country to live in, has more than 30,000 empty homes sitting there, vacant. I’m sure that number has only gone up since then. Of course Prop. 13 perpetuates this phenomenon.
    Lastly, SF is probably not going to “just tax the numerous dot-coms” after granting them tax breaks and other concessions to set up shop in the area. Plus the Mayor’s practically in the hip pocket of Ron Conway, so this idea is a political non-starter.
    An improvement of this idea would be to implement a new municipal real estate transfer tax that would be highly progressive so as to hit the Überluxury housing units that developers are overly fixated on, and use the proceeds to fund housing projects that target the ill-served-by-the-market middle and working class.

  11. Posted by $AN FRANCI$CO

    That man should run for Governor.

  12. Posted by Thinker

    Its absurd developers have any say at all for their classist ideas about who needs affordable husing and in light of the country’s failure in the last 10 years to develop income for more than the 1% doesn’t mean we should replicate this absurdity in housing.
    We have Terrible Negotiators for our Public and Tax Dollars. I see cities bending over backwards like they have to ‘attract’ developers. For the $250,000 an apartment box they build – and all the PERKS the cities throw at them – its Absurd to think we have to convince developers.
    For $250,000 we can build sustainable local housing with local labor and I frankly for one am sick and tired of the scheme called development that has made a mockery of a housing market. This activist economy assumes what? That the rest of the 99% of this lopsided economy are going to just die?
    Its like health care. What sort of market leaves out millions of customers without offering a product priced to their ability.
    This sort of punishing activist economy that hides the Grand Theft of public and taxpayer money should stop.
    I need affordable housing after an injury at a local hospital which took no responsibility. I am a good person, I still try as much as physically possible to work and I am sick and tired of being described as a leech bc I need affordable housing. I’m certainly not going to stand by while outside developers make $250,000 for a boring box of construction that shows no craftsmanship or long term vision.
    Don’t sign this bill fine, but sign something and change the way our money is given away for free. Stop promoting this absurd notion that anyone who isn’t in the 99% can eat crow.

  13. Posted by Jimmy The 2%-er

    Go to India, take a walk in a major city… then you’ll see what the 1% have in mind for the rest of us in the 99%.
    My plan, of course, is to be in the 1%. I’m only 1% away!

  14. Posted by Brahma (incensed renter)

    I think the best example of what “Jimmy The 2%-er” is referring to is the structure called Antilia, which at the time it was built was the most expensive private residence in the world at a cost of around US$ 1 billion, but to add insult to injury, it was built among the slums of downtown Mumbai.

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