California’s Density Bonus Law Continues to Provide Great Incentives to Developers for Inclusion of Affordable Housing Units in Their Projects

For over 40 years, developers choosing to include affordable housing have been able to design projects that do not necessarily conform with local development standards.  Such projects qualify for incentives such as density bonuses, and waivers and reductions of standards so long as they meet the requirements under California’s Density Bonus Law.  But how far can a project stray from those local standards?  This question was at the heart of the issue in Bankers Hill 150 v City of San Diego (Jan 7, 2022) Case No. D077963 when two local community groups, Bankers Hill 150 and Bankers Hill/Park West Community (collectively, the “Association”) challenged the approval of a mixed-use redevelopment project in San Diego’s Banker’s Hill neighborhood that had received certain concessions under the Density Bonus Law.  In its recent ruling on the Bankers Hill 150 case, the Fourth District Court of Appeals found that a project meeting the requirements under the Density Bonus Law automatically qualifies for the density bonus, incentives, and waivers, despite any inconsistencies the project may have with the local development standards.  This result provides even greater incentive for developers to take advantage of the Density Bonus Law and incorporate affordable housing into their projects.  

CALIFORNIA’S DENSITY BONUS LAW INCENTIVES

California’s Density Bonus Law, codified in Government Code Sections 65915-65918, was enacted in 1979 as a way to incentivize the construction of affordable housing. It was recently updated by AB 2345, effective as of January 1, 2021, to further expand and enhance the incentives available to projects that include affordable housing. Under the Density Bonus Law, developers who include a certain percentage of affordable units or senior housing in their projects automatically qualify for a density bonus, incentives and concessions, waivers or reductions of local development standards, and prescribed parking ratios (Gov C § 65915(b)(1)).  The only exceptions to the automatic qualification is if the local jurisdiction can provide evidence that the concession or incentive would (1) not result in identifiable and actual cost reductions, (2)have a specific, adverse impact on public health and safety, the physical environment, or any real property that is listed in the California Register of Historical Resources, or (3) be contrary to state or federal law (Gov C § 65915(d)(1)(A)-(C)).

Both the density bonus and incentives available to a project under the Density Bonus Law are based on the amount and type of affordable housing (i.e. low income, very low income, or moderate income) it provides.  For example, project providing at least 24 percent low income units or 15 percent very low income units are eligible for a density bonus of up to 50 percent.  Similarly, an applicant will receive one incentive or concession for projects that include at least 10 percent of the total units for lower income households, at least 5 percent for very low income households, or at least 10percent for persons and families of moderate income in a common interest development; two incentives or concessions for projects that include at least 17 percent of the total units for lower income households, at least 10 percent for very low income households, or at least 20 percent for persons and families of moderate income in a common interest development; and three incentives or concessions for projects that include at least 24 percent of the total units for lower income households, at least 15 percent for very low income households, or at least 30 percent for persons and families of moderate income in a common interest development (Gov C § 65915(d)(2)(A)-(C)).  

Bankers Hill 150 v City of San Diego

In the case of Bankers Hill 150 v City of San Diego, the developer proposed to redevelop a portion of a city block being used for church offices, a small parking lot, and a small apartment building with a mixed-use project that included 18 units with deed restrictions to make them affordable to very low income households.  The 18 units represented 12 percent of the total units and, as a result, qualified the project to receive 57 density bonus units and three incentives.  The incentives requested for the project allowed for (1) a zero-foot setback, instead of the required15-foot setback, on the northerly side of the project site; (2) one loading space off-site and within the public right-of-way, instead of the required two on-site loading spaces; and (3) a reduction in the number of private storage units to be provided to residents.  Additionally, the proposed building would be 20 stories and approximately 223 feet high.  

The Association’s Efforts to Overturn the Project’s Approval

Prior to bringing suit, the Association had appealed the Planning Commission’s approval of the project to City Council.  But the City Council found the request for development incentives to be consistent with the intent of the Density Bonus Law and did not find any substantial evidence to deny the applicant's request, and they voted unanimously to deny that appeal and approve the project.  

The Association then filed a petition for writ of mandate with the court challenging the City Council’s decision.  Their petition alleged that the project (1) violated the City's General Plan and the Uptown Community Plan; (2) violated the Municipal Code; (3) violated state law, including the Density Bonus Law; and (4) that the City Council failed to adopt findings supported by substantial evidence in the record.  The trial court found the project to be consistent with the City’s General Plan and the Uptown Community Plan, the incentives to be appropriate, including the reduced setback to be consistent with both the City’s Affordable Housing Regulations and the state’s Density Bonus Law, and that the City had made the required findings to approve the project. Therefore, the court denied the Association’s petition for writ of mandate.  

Thereafter, the Association filed an appeal.  On appeal, the Association contended that the City erred in approving the project.  The Appellate Court reviewed the facts of the matter to determine whether the City “prejudicially abused its discretion in approving the project by not proceeding in a manner required by law, by reaching a decision not supported by its findings, or by making findings not supported by the evidence.”  While the Association focused on the City’s General Plan and Uptown Community Plan as providing the development standards to be considered for approval, the Appellate Court looked first to the State Density Bonus Law as the appropriate aw guiding the City’s decision.  The Appellate Court’s approach is consistent with the principle that state law trumps local laws.  

Applying the Density Bonus Law to the Facts of the Case

As explained above, when a developer agrees to include a certain percentage of deed-restricted affordable units in a project, the Density Bonus Law mandates a local government to permit (1) a "density bonus;" (2) "incentives and concessions;" (3) "waivers or reductions" of "development standards;" and (4) prescribed "parking ratios" (Gov C § 65915(b)(1)). 

Upon a review of the facts, the Appellate Court found that prior to the project’s approval, an analyst at the San Diego Housing Commission had reviewed the project application, noted the developer’s request for a density bonus pursuant to California Government Code Sections 65915-65918 and the San Diego Municipal Code, and concluded that by proposing to designate 12 percent of the Project's units as affordable to very low-income households, the developer was entitled to a 38.75% density bonus (equal to 57 units) and 3 development incentives.  Accordingly, the density bonus allowed for the project’s 204 residential units and no inconsistency was found by the Appellate Court that would preclude the project’s approval.

Similarly, the project’s approval was not precluded by any inconsistencies with the City’s development standards, such as the reduced setback, because the project was entitled to concessions under the Bonus Density Law. In its application, the project applicant explained that the proposed building would be too narrow if it were to comply with the 15-foot setback standard, and that designing a building to comply with that standard would result in making the project financially infeasible as well as making the building shape inefficient and creating an awkward layout.  Because the project qualified for a reduced setback under the Density Bonus Law, no inconsistency with the local law can be found.

Further the Density Bonus Law does not require applicants to design first a project that complies with local standards before granting the incentives. Rather, a project that qualifies under the Density Bonus Law automatically receives the incentives they are eligible for.  As noted by the Appellate Court, “the law provides a developer with broad discretion to design projects with additional amenities even if doing so would conflict with local development standards."  

Overall, the Appellate Court found sufficient evidence to support the City’s findings of consistency with both the community plan and the general plan in terms of all the issues the Association was complaining about.  Many of the Association’s claims were found to be irrelevant to the project itself.  For those claims that were relevant, the Appellate Court explained that the project’s conflict with certain development standards does not establish a basis for denying the project because the City was obligated to waive those standards if they conflicted with the project’s design as a result of the project’s qualifications under the state’s Density Bonus Law.  In other words, the Density Bonus Law “shapes the City’s discretion in reviewing the Project and undermines the Association’s contention that the City was obligated to deny the Project. “

CONCLUSION

Given today’s affordable housing crisis, both the state and local governments may be relying more and more on the Density Bonus Law as a way to facilitate affordable housing to California.  The current Density Bonus Law with its density bonus of up to 50 percent already provides a huge incentive to developers to provide affordable housing. And with the recent ruling by the Appellate Court in Bankers Hill 150making clear that the incentives provided under the Density Bonus Law cannot be considered when determining a project’s compliance with local development standards, perhaps more projects will be designed with an affordable housing component.

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Click here to read the Court of Appeal of the State of California Fourth Appellate District Division One Opinion.