This year, the First Appellate District Court of Appeal heard the first case interpreting the amendments of SB 1818.  In Friends of Lagoon Valley v. City of Vacaville (2007) 154 Cal.App.4th 807, the court faced two main issues: whether the project was consistent with the general plan, and whether the density increase granted by the city violated section 65915. (For a discussion of the general plan consistency portion of the opinion see “Flexible General Plan Leads to Flexible Consistency”.) The project included both moderate-income and senior housing.  Inclusion of these types of housing entitled the project to a density bonus. The city awarded the project a 40 percent density bonus.  This meant that the developer could increase the density by an extra 40 percent over the generally permissible number of units pursuant to the city’s zoning and land use code. Under section 65915 subdivision (g), the maximum stated density increase mandated is 35 percent.

In objecting to the granting of a 40 percent density bonus, plaintiffs presented two main arguments: 1) section 65915 does not permit a 40 percent density bonus, and 2) the calculations of the density bonus were incorrect. Although the plaintiffs presented various grounds for their first argument, the main contention involved an interpretation of the provision requiring a maximum density increase of 35 percent. Plaintiffs contended that the 35 percent increase was a legal cap on the density increase permissible under section 65915. In other words, the city cannot lawfully allow a developer to increase the density of a project more than 35 percent. The court disagreed. The court found that the purpose of section 65915 and the 2004 amendments was to encourage developers to build affordable housing. In reviewing the legislative history and the language of the statute, the court stated that the 35 percent density increase was meant to ensure that local governments provided at least that amount when a developer chose to provide a certain number of affordable housing units. 

The court also found that subdivision (n) of section 65915 clearly stated that the statute did not place any caps on the density bonus allowable. Subdivision (n) states that “[nothing] in this section shall be construed to prohibit a city, county, or city and county from granting a density bonus greater than what is described . . .” In light of the language in subdivision (n) and the overall purpose of section 65915, the court held that the 35 percent density increase reflected “the maximum density increase that would be statutorily imposed upon municipalities,” not the maximum permissible.

The second argument, based on the calculations used to reach the density bonus, was quickly dismissed by the court. Plaintiffs contended that the 20 percent density increase mandated for senior housing did not apply to the development as a whole, but rather only to the senior housing development. Under the plaintiffs’ logic, a developer who built a senior housing development would only be entitled to increase the density of the senior housing units, not the other housing units built. According to the court, the argument was procedurally barred because it had not been raised during the administrative process. Even if it was not barred, the court found that interpretation to be incorrect. Like the previous argument, the court held that plaintiffs’ interpretation of the senior housing development provisions was contrary to the spirit and purpose of the density bonus law. There would be no incentive to build senior housing if the density increase did not apply to the project as a whole. Therefore, the court held that the 40 percent increase was permissible and dismissed plaintiffs’ claims.

Overview of the Density Bonus Law – Supersize this Project!

Construction of Affordable Units

Land Uses Qualifying for a Density Bonus

The following residential project types qualify for the benefits of the density bonus statute:

1. 10% affordable to lower income households, or
2. 5% affordable to very low income households, or
3. A qualifying seniors development (Civ. Code, §§ 51.3 and 51.12) or mobilehome park (Civ. Code §§ 798.76 and 799.5), or
4. 10% of units in a condominium or planned development project affordable to moderate income households.   § 65915(b).

Table 1 evaluates section 65915 before and after SB 1818.

Table 1

Required Target Percentage of Total Housing Units Required to Receive Density Bonus
Income Level	2004	As Amended By SB 1818
Lower (Health & Saf., Code § 50079.5)	20% tdu	10% tdu
Very Low (Health & Saf., § 50105)	10% tdu	5% tdu
Senior Housing Development	50% tdu	Senior citizen housing as defined by sections 51.3 and 51.12 of the Civil Code or mobilehome park as defined in Civil Code sections 798.76 and 799.5
Moderate (Health & Saf., § 50093)- Condominiums or Planned Development	20% tdu	10% tdu

Note: tdu = total dwelling units, not including the units generated by the density bonus.

Where tax credit financing or similar programs are used for lower and very low income development projects, then the affordable units must be restricted for affordability for 30 years or longer, as specified by the program. § 65915(c)(1). If these programs are used for rental units, the rent must not exceed 30% of 60% of the area median income. For those units that target very low income households, the rent cannot exceed 30% of 50% of the area median income.

When the developer builds a project subject to moderate income household rules (option D above), then a lot/unit purchaser, upon reselling, must share the appreciation on the resale with the city or county. § 65915(c)(2).

The applicant has the option to submit a proposal to the local agency for the incentive or concession. The local agency must grant the request of the applicant, unless it adopts written findings, based upon substantial evidence, that the request is not necessary in order to provide affordable housing, or that there would be a specific adverse impact upon public health and safety, or the physical environment, or on specified historic properties and for which there is no feasible way of mitigating or avoiding the impact without rendering the project unaffordable to low and moderate income households. § 65915(d)(1). Because of CEQA considerations, it is preferable that the applicant makes its election early on in the application process.

Calculating the Bonus

The amount of density bonus varies by affordability target and by percentage of affordable units as a percentage of the overall development. These numbers are set forth in Table 2.

Table 2

Income Level	Minimum Inclusionary	Minimum Bonus	Bonus Increase for Additional 1% (Total Maximum 35%)
Lower	10%	20%	1.5%
Very Low	5%	20%	2.5%
Seniors	All	20%	N/A
Moderate – Condo/Planned Developments	10%	5%	1%

• A density bonus means an increase of at least 20% over the maximum allowable residential density under the applicable zoning ordinance and general plan as of the date of application by the applicant. § 65915(g).
• A density bonus applies to housing developments with 5 or more dwelling units.
• An applicant may opt to accept a lower percentage. § 65915(g)
• The density bonus is not included when determining the number of housing units that is equal to 5% or 10% of the total. § 65915(g)(1), (2).
• The granting of a bonus by itself, shall not be deemed to require a general plan amendment, LCP amendment, zoning change or discretionary approval. § 65915(g)(1), (2).

The Bonus/Incentive Mix

For qualifying projects, the developer is entitled to a density bonus and an incentive/concession. The number of incentives and concessions increase as the developer increases the percentage of affordable units. § 65915(d)(2).

Table 3

Required Percentage of Total Housing Units for Incentives or Concessions-SB 1818/SB 435
Income Level	% Total Housing Units	Number of Incentive(s) or Concession(s)
Lower	10%	1
Very Low	5%	1
Moderate-Condominium/Planned Development	10%	1
Lower	20%	2
Very Low	10%	2
Moderate – Condo/Planned Development	10%	2
Lower	30%	3
Very Low	15%	3
Moderate – Condo/Planned Development	30%	3

A concession or incentive includes a reduction in site standards such as parking, zoning code, architectural standards, parking requirements, mixed use approvals. § 65915(1).

Waiver of Development Standards

In some circumstances, the granting of the density bonus, incentive or concession may trigger a conflict with other local regulations. In these circumstances, the applicant is authorized to seek a waiver or modification of the standard. § 65915(e). In no case may a local agency apply any development standard which will have the effect of precluding the construction of a qualifying development, unless it has a specific, adverse impact, upon health, safety or the physical environment for which there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact. In addition, a local agency is not required to waive or reduce standards which would adversely impact any real property listed in the California Register of Historical Resources. The burden is on the applicant to demonstrate the need for the waiver or modification. § 65915(f).

Local Agency Absolutes

• Must adopt an ordinance to implement the new law. §§ 65915(a), 65915(d)(3).
• Must adopt a procedure to waiver or modify development standards which preclude or interfere with the effect of the bonus. § 65915(d)(2)(C).
• Must adopt a procedure by which the incentive or concession is granted, including legislative body review. § 65915(d)(3).
• Appreciation recapture from sale of moderate income units must be reinvested within three years to promote homeownership. § 65915(c)(2).
• In no case may a local agency apply any development standard which will have the effect of precluding the construction of a qualifying development, unless it has specific, adverse impact, upon health, safety or the physical environment for which there is no feasible method to satisfactorily mitigate or avoid the specific adverse impact. § 65915.
• Granting of concessions or incentives shall not, by themselves, necessitate a general plan amendment, LCP amendment, zoning change or other discretionary approval.  § 65915(k).
• Upon request of a developer who has met the minimum standard(s) of § 65915(b), maximum parking standards can be capped as follows:

1. 0-1 bedroom = one onsite
2. 2-3 bedrooms = two onsite
3. 4 and more bedrooms = two and one-half parking spaces
4. Parking can be tandem or uncovered, but not on-street. § 65915(p).

Got a Beef, Get a Lawyer!

Should the applicant be rejected in his or her efforts to obtain the density bonus incentive or waiver of development standard and there is a successful legal challenge to the local agency’s administration of the density bonus statute, the plaintiff may be entitled to recover his or her attorneys’ fees and costs. §§ 65915(d)(3), 65915(e). Interestingly, the statute allows the award of attorneys fees to the plaintiff, who may or may not be the applicant.

Land Donation

A developer’s donation of land for affordable housing may also trigger a bonus. There are a number of important tests that must be passed before a project qualifies for a bonus. The amount of land and zoning and other development requirements must permit 10% of the total project units to be developed for units which are affordable for very low income households, all permits must be in place by the time the first parcel map or subdivision map is filed, the site must be one acre or larger or be able to accommodate at least 40 units, and the site is subject to a recorded restriction regarding allowable rents. The affordable site must be within the boundary of the overall development, or within a quarter mile with the approval of the local agency.

Projects meeting these qualifications are entitled to a bonus of 15% above the otherwise maximum allowable density, plus an additional one percent for each percent that the project exceeds the minimum 10%, to a maximum of 35%. This is in addition to any other increase in density mandated by section 65915(b), and up to a maximum density increase of 35% should the applicant seek both. § 65915(h)

Child Care Facilities

If a project otherwise qualifies for bonus (see Construction of Affordable Units – Table 2 above) and the developer agrees to include a child care facility onsite or adjacent thereto, the developer is entitled to either: (a) a bonus of an equal of square footage; or (b) an additional concession or incentive which contribute significantly to the economic feasibility of the construction of the child care facility. § 65915(i)(1). To qualify, the child care facility is subject to operating requirements, including income limits for the users equal to those of the qualifying land use (e.g. 10% lower income). If the city or county determines, based upon substantial evidence, that adequate child care facilities are available, then it is not obligated to grant a density bonus. § 65915(i)(3).

Remaining Issues to be Resolved

If a city or county has an inclusionary requirement, do these units count towards the required inclusionary bonus percentage, or does the statute operate solely on the basis of voluntary developer behavior?

If an applicant seeks an amendment of a land use element to a higher density use, what is the base for calculating the bonus amendment?

Can a developer operating under a development agreement executed prior to December 31, 2004, now claim the benefits of SB 1818?

*A version of this article was previously published April 28, 2005.