The Normal Rules Don't Apply When it Comes to Affordable Housing Projects

By Cori Badgley

After a challenge based on the density bonus law and the California Environmental Quality Act (CEQA), a mixed-use affordable housing or senior affordable housing project (depending on what the developer chooses) in the City of Berkeley can move forward. In Wollmer v. City of Berkeley (March 30, 2011, Case No. A128121), the court held that the city properly applied density bonuses to the project and the categorical infill exemption under CEQA.

The developer approached the city with two alternative projects for the same site: a mixed-use affordable housing project or a senior affordable housing project. The city reviewed both projects and determined that the developer was entitled to certain density bonuses under either project. Also, the city determined that both projects were exempt from environmental review under the categorical infill exemption (14 Cal. Code Regs. § 15332). Mr. Wollmer and a neighborhood group challenged the approval, and the trial court found in favor of the city. The petitioners appealed.

In its decision, the appellate court began by addressing the application of the density bonus law to the developer’s projects. Petitioners raised three novel arguments: “(1) condition 68 of the use permit allowed the Developers to receive Section 8 subsidies for density-bonus-qualifying units, thereby exceeding the maximum ‘affordable rent’ established in Health and Safety Code section 50053; (2) the City’s approval of amenities should not have been considered when deciding what standards should be waived to accommodate the project; and (3) the City improperly calculated the project’s density bonus.” The appellate court found for the city on all issues.

(1) Section 8 Subsidies and the Density Bonus Law

The crux of petitioners’ first argument was that the total amount of rent that the developer would receive from very low income tenants qualifying for Section 8 subsidies would exceed “affordable rent,” and therefore, the project could not qualify for a density bonus.

Section 65915 of the Government Code requires that “[r]ents for the lower income density bonus units shall be set at an affordable rent as defined in Section 50053 of the Health and Safety Code.” Section 8 subsidies are subsidies given out by the federal government to cover the difference between the fair market rental value of a property and what very low income tenants can afford. Landlords who enter into Section 8 agreements receive one check from the tenant and the balances from the government.

In this case, one of the conditions of approval for the projects (Condition 68) allows the rent received under Section 8 as the maximum allowable rent for the very low income rental units. In addition to setting the cap for very low income residents at the level permitted under Section 8, the city also granted the developer the very low income density bonus. Petitioners argued that since Section 8 results in the developer/landlord receiving the fair market rental value, albeit not from the tenant, the rent would exceed “affordable rent” as defined in Section 50053 of the Health and Safety Code. The court disagreed.

The court found that the Health and Safety Code defined rent in terms of “the charges paid by the persons and families of low or moderate income for occupancy in a housing development.” (Health & Safety Code, § 50098.) The Health and Safety Code regulations also specifically state that “affordable rent” includes “rent charged as a tenant contribution under the provisions of Section 8.” (25 Cal. Code Regs. § 6922, subd. (d).) Therefore, according to the court, rent received under Section 8 qualifies as affordable rent. The relevant inquiry is what the tenant has to pay, not what the landlord receives in total from the tenant and other sources. In light of the statutes and regulations, the court held that the city lawfully granted a density bonus for very low income units that allowed receipt of rent under the Section 8 program.

(2) The City Properly Included the Amenities in its Density Bonus Determination

Government Code section 65915, in addition to requiring density bonuses, requires that the local agency grant waivers or reductions of development standards that “will have the effect of physically precluding the construction of a development meeting the criteria” of the density bonus statute. In this case, the city granted waivers of height and setback requirements in order to accommodate the development envisioned by developer, which included certain amenities such as a courtyard and higher ceilings. Petitioners argued that these amenities should not have been included as part of the “development” in order to obtain the waiver of development standards.

According to the appellate court, the narrow interpretation urged by petitioners was incorrect and went against the spirit of the density bonus law. The city properly included the amenities as part of the development in waiving some of its development standards. Otherwise, the city would have violated the prohibition against imposing development standards that “will have the effect of physically precluding the construction of a development.”

(3) The Calculation of the Project’s Density Bonus Properly Used the Zoning Code Density as the Baseline.

In calculating density bonuses, the local agency uses the density allowed under the zoning code, unless the zoning code is inconsistent with the general plan, in which case the maximum general plan allowed density is used. In this case, the city used the zoning code to establish the density baseline. Petitioners asserted that the zoning code is inconsistent with the general plan, and thus, the general plan (which has a lower density) must have been used. However, the court pointed out that the general plan specifically states that the zoning code is consistent and that the more specific provisions in the zoning code govern. Therefore, the court held that the city properly calculated the density bonus.

After addressing the density bonus law, the court addressed the CEQA argument. This also involved a novel argument concerning the interplay between the density bonus law and the CEQA infill exemption. Petitioners contended that the infill exemption did not apply because the city waived some of the development standards, resulting in inconsistency with the general plan and zoning code (which is required under the infill exemption). As Petitioners pointed out, without the waivers or reductions granted under the density bonus law, a variance would have been required for the project and the infill exemption would not have applied. For purposes of this argument, the relevant portion of the CEQA infill exemption reads as follows: “The project is consistent with the applicable general plan designations and policies and all applicable zoning designations and regulations…” The court reasoned that the development standards waived under the density bonus law were not applicable to the project for two reasons: 1) the density bonus law authorized the waiver, and 2) the city’s code requires the city to grant density bonuses upon a proper application. Therefore, the court held that environmental review under CEQA was not required because the infill exemption applied.

This case illustrates the broad reach of the density bonus law for project’s that fit within its requirements, and the reluctance of the courts to narrowly interpret its provisions.

Cori Badgley is an attorney at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

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