Written by Traci Mason Baldwin

Most people can agree that California is experiencing a severe housing shortage. The point of contention is what to do about it. On the heels of defeating the recall election, Governor Newsom signed Senate Bill (SB) 9, the landmark law designed to combat California’s housing crisis. SB 9, aka the California Housing and More Opportunity Efficiency (HOME) Act, takes effect January 1, 2022, and has alarm bells ringing in municipalities across the state. The new law would allow qualifying single-family zoned parcels to be ministerially approved to contain two residential units (i.e., duplexes). In addition, SB 9 would allow a qualifying residential parcel to be split, resulting in two lots with the potential to add two additional living units on each lot.

SB 9 AND LOCAL GOVERNMENT OVERSIGHT

While the law has been hailed by housing advocates as necessary to address the lack of affordable homes, many local governments are struggling to grasp the impact the law will have on communities and zoning codes.

Zoning has historically been the jurisdiction of local government, which is why more than 240 cities, led by the League of Cities, opposed SB 9 asserting the legislation strips cities and municipalities of development oversight. Under the new law a proposed development can be approved as a matter of right and without discretionary review by local government. Cities and municipalities would only be able to deny qualifying projects if the project would have a “specific, adverse impact” on “public health and safety or the physical environment” and there are no feasible and satisfactory options for mitigation. Organizations such as Livable California, which is a non-profit group that advocates for the empowerment of local governments to create equitable and livable communities that offer affordable housing, assert law makers have “wrongly dictated fourfold market-rate density on single-family streets.”  The statewide non-partisan group believes the law overrides local control over density in high-risk fire zones and would introduce community and environmental threats, characterizing the 2021 firestorms in Lake Tahoe and the “near-disaster” in evacuating 22,000 people from the Tahoe community as a warning that local control over building and evacuation routes is critical.

HOW MANY HOMES WOULD BE ADDED TO THE HOUSING MARKET UNDER SB 9?

Proponents of the law characterize SB 9 as a win-win. They argue it would create more opportunities for homeowners to add units onto their existing properties and increase the housing supply. According to an analysis of SB 9 by the UC Berkley Terner Center for Housing Innovation, SB 9 could enable the creation of over 700,000 new homes that would otherwise not be market feasible. While the Center’s analysis acknowledged SB 9 has potential to expand the supply of smaller-scaled housing, the findings suggest the law will most likely only impact the development feasibility of a relatively small number of parcels due to the required standards to qualify a parcel.

The criteria for qualifying parcels are arguably extensive. By no means exhaustive, some examples of the requirements: the proposed parcel for development cannot be in a high fire hazard area, historic district, non-urbanized area, prime farmland, or an earthquake fault zone. The project site cannot require demolition or alteration of any housing if housing is restricted as affordable housing, subject to rent control or has been tenant occupied in the last three years. The rental of any unit created must be for a term longer than 30 days. If splitting, a parcel may not be smaller than 40% of the original parcel’s lot area, each new lot must be at least 1,200 square feet in size, unless permitted to be smaller by a local ordinance. The parcel is limited to residential use, and an affidavit must be provided that the property owner intends to use one of the housing units as a principal residence for at least three years from the date of approval.

Although the practical application of SB 9’s qualifying standards is unknown, according to the Terner Center, SB 9 builds on recent state legislation that allows accessory dwelling units (ADUs) for most California single-family parcels. The Center posits that SB 9 permits development of new units with distinct title that would allow property owners to pursue a wider range of financing options beyond what is available for ADU construction.

IT WILL BE A WAIT-AND-SEE        

But even practical questions arise with the potential financing opportunities created by SB 9. How will the new law and the rights of lenders and mortgages on the existing single-family properties intersect? If the existing lot is split into two, will the newly created second lot remain encumbered by the existing mortgage? Can lenders object to a lot split that might impact or compromise the security of the mortgage?

While SB 9 is designed to increase available housing, how SB 9 will unfold and impact the housing crisis is a wait-and-see situation. It is unrealistic to assume that every single-family parcel would be split, or that every existing single-family home would be demolished and replaced with four new units. What is known is that the California Legislature seems committed to finding solutions to California’s chronic housing shortage, and for many, SB 9 is an example of proactive legislation to solve the problem.

Traci Mason Baldwin is an attorney with Porter Simon licensed in California, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Traci’s practice areas include: real estate, construction, business and contracts .  She may be reached at baldwin@portersimon.com or www.portersimon.com.