Berkeley residents are about to discover how dysfunctional the latest California Regional Housing Needs Allocation (RHNA) has become. The RHNA (pronounced REE-na) process, and the housing elements based on it, have always been bureaucratic, expensive and ineffective. But thanks to the intervention of state Sen. Scott Wiener, RHNA has been twisted into a profit-making tool for his corporate allies. With the city of Berkeley starting to work on its housing element, which will force the city to make drastic revisions to its zoning, residents must struggle to limit the damage.
What Wiener and his allies have managed to accomplish is remarkable. If he had proposed a bill to his fellow legislators that would force many of the state’s cities to rezone for bigger, taller buildings and then would restrict cities to rubber-stamping the new building permits, I don’t think he would have found the votes. Yet he has managed to accomplish the same thing in a piecemeal fashion.
In what follows, I’ll provide my perspective on RHNA and the housing element process, explain how Sacramento has corrupted them, and explore what Berkeley residents can do to protect themselves.
“Since 1969, California has required that all local governments (cities and counties) adequately plan to meet the housing needs of everyone in the community. … In order to create a housing plan (aka housing element) showing it could meet the local housing needs, a jurisdiction must first know how much housing it must plan for (and estimate how much will be needed at a variety of affordability levels in order to match the needs of the people who will live there). This is determined by a process called the regional housing needs assessment.”
Bay Area cities are currently planning for the sixth RHNA cycle, which starts in June and goes through Dec. 2030.
Creating a housing element is labor-intensive and requires specialized expertise. Many cities hire planning consultants to assist them. Recently I spoke with one highly regarded consultant who confided that she was limiting her housing element work because the “process was broken.” Although her criticism was heartfelt, it is more accurate to say that the process never worked well. This had become obvious by 2003, 18 years ago. The introduction to a 2003 report from the Public Policy Institute of California on the state’s housing element policy stated:
“During the 1990s, noncompliant communities were just as likely to expand their housing stock as communities that complied with the law. Furthermore, when other factors were held constant, noncompliance was not a significant predictor of the rate of multifamily development.”
Senate Bill 35
In past decades, the housing element process didn’t make much difference. For market-rate housing, most cities met their numerical targets, but often not in ways the house elements emphasized. When it came to subsidized affordable housing, the targets were seldom met because the required subsidies were beyond the means of most cities, and state and federal funding was scarce.
In 2017, things changed. The state legislature passed a housing bill package of 15 bills and Gov. Jerry Brown signed them. Probably the most influential and controversial was Senate Bill 35, authored by Sen. Wiener. The bill streamlined multifamily housing projects approvals ministerially (a euphemism for rubber-stamping applications without public hearings) in cities that failed to issue building permits for their share of the RHNA housing allocations by income category.
The bill had a serious defect, as the League of California Cities pointed out in its request for a veto to Gov. Brown. The League’s letter stated that the bill should:
“Require the trigger for ministerial approval of housing projects to be based on the number of entitled and approved applications, a process that a local agency actually controls, rather than building permits, which a developer controls and will not pull until they are ready to construct a project.”
Although this may seem like a trivial point, it has major consequences. To understand why, two things need to be explained: First, cities do not build housing, developers build housing. Cities approve project applications but cannot require developers to build the approved projects. Since approvals typically have a shelf life of one to three years, developers can bank their approvals and be picky about when they convert them to building permits.
Second, the goal of developers, in my opinion, is not to build housing. The goal of developers is to make money. Building housing and making money are not the same thing. Developers are portfolio managers. They hold a range of assets including undeveloped land, project approvals, unfinished projects, market-ready completed projects, and cash and other financial assets.
Developers reallocate their assets to maximize the value of their holdings. Developers loathe to dump so much of their product on the market at one time that they drive their prices down against themselves. Developers are also captive to their lenders and suppliers. If banks don’t want to lend, or if labor and building materials are too expensive, they may have to put their plans on hold until they “pencil out.”
For all these reasons it makes no sense for SB 35 streamlining to be triggered by developers failing to pull building permits. But in the aftermath of SB 35’s becoming law, this is the reality cities face. Typically, a city is not evaluated until the mid-point of the RHNA cycle, when the city reports to the Department of Housing and Community Development the number of building permits issued since the start of the RHNA cycle. At that point, a city is required to have issued at least 50% of its share of the RHNA goal for building permits in the region. This determination is made separately for each income category of households — above moderate, moderate, low income, and very low income.
If there are an insufficient number of building permits in any income category, for the rest of the RNHA cycle the city must issue building permits ministerially, or by right, for projects in that income category. The city can only require the developer to meet “objective standards,” those that involve “no personal or subjective judgment by a public official.” If these standards are met, then the building permit is issued without any public meetings or any other review.
Cities are often blamed for dragging their feet and creating bottlenecks by issuing approvals too slowly, but the data show otherwise. In their report “New Development in California 2018,” the Construction Industry Research Board (CIRB) stated:
“Considering only the projects that are under construction or approved awaiting building permits, there are currently 451,000 new homes and 308 million square feet of non-residential space that will likely be built over the next five years.”
Under SB 35, whether cities approve enough housing to meet the RHNA targets makes no difference. And even if developers and trade unions agree they couldn’t possibly build that much new housing, it doesn’t matter. If building permits are not pulled, cities are blamed. The passage of SB 35 left cities vulnerable to schemes that set up cities to fail. All that was needed was a bill that politicized the RNHA process and inflated the numbers. That bill was SB 828.
Senate Bill 828
The Bay Area Council is the leadership organization of the Bay Area’s corporate elites. It lies in the middle of an ecosystem of other pro-development organizations including the Metropolitan Transportation Commission, the Silicon Valley Leadership Group and SPUR. Among legislators in Sacramento, Sen. Wiener, notorious for his ties to big real estate (links here and here), is their main water carrier.
The Bay Area Council is not interested in making the RHNA calculations scientific and accurate. The council’s task is to see that its corporate members make money. Sen. Wiener helped them do that by inflating the target number of housing units in the new RHNA process and by changing the wording of the relevant government code to emphasize production.
The inflated housing goals in SB 828 set cities up to fail.
SB 828 empowered the Department of Housing and Community Development (HCD) to set outrageous RHNA targets for cities, sometimes more than doubling or tripling the goals from the previous fifth cycle RHNA. The sixth cycle target for the state’s four main planning regions is 2.1 million housing units. One outside review that corrected HCD’s overcounting placed the target at 1.2 million. That number is still 29% larger than HCD’s fifth cycle target of 905,850 housing units, although the state’s population only grew between 3% to 4% during the fifth cycle. For Berkeley, the goals have more than tripled, from 2,959 total housing units in the fifth eight-year RHNA cycle to 8,934 in the sixth cycle.
To comply with these new targets, in their housing elements cities must first “upzone,” or rezone for higher densities by raising height limits to allow apartment buildings to become taller, and in some cases reducing setbacks from property lines to allow buildings to become wider and deeper. This allows apartments to contain more units.
The larger developable box makes the property more valuable — without any effort from the property owner. It’s a windfall increase in the property value, especially for undeveloped commercial properties.
But there’s another bonus for developers. If developers don’t pull enough building permits early in the RNHA cycle, the city and its residents are penalized by being forced to accept streamlined ministerial approval processes. This is true even if cities issue a generous number of approvals early in the RHNA cycle. Note that this creates perverse incentives for developers to delay construction, perhaps an unintended consequence of SB 828. On the other hand, if cities fail to comply with RNHA rules, there are painful consequences. The combination of SB 35 and SB 828 has led to what cities call “carrots for developers and sticks for cities.”
What can Berkeley do?
There are three important things that Berkeley’s residents can do:
1) Have realistic expectations about the amount of affordable housing that can be built, and where it can be built. Berkeley’s RNHA allocation calls for 3,854 housing units for low- and very low-income residents. The subsidies for that much affordable housing would be in the range of $1.6 billion to $2.2 billion dollars. It’s highly unlikely that nonprofit affordable housing developers will find the required amounts.
In addition, some city council members may have the mistaken notion the housing element process can be an effective tool for integrating high-income, mostly white neighborhoods. That also is unlikely to happen. I would encourage the residents of Berkeley not to waste time and energy chasing naïve city council members down rabbit holes. Learn about the process, keep your expectations reasonable, and choose your battles carefully.
2) As the current president of ABAG and the head of the ABAG executive board, Mayor Jesse Arreguín accepted the Bay Area’s RHNA target of 441,176 new housing units. He was also in charge of allocating these new units to the Bay Area’s nine counties and 101 cities, including the figure of 8,937 housing units for Berkeley, a 17% increase over existing units. At an Oct. 15 ABAG administrative committee chaired by Arreguín, four Marin Counties had their RHNA allocation appeals rejected. In their presentation, the counties asked on a slide: “Areas at risk of natural hazards are not identified in housing element law as a constraint to housing development.” Berkeley’s hillside fire risks are well known. But there are also earthquake liquefaction risks in parts of the western flatlands. It is imperative to ask Arreguín how the city can squeeze in almost 9,000 new housing units without creating new fire or liquefaction risks.
4) Get up to speed on land value recapture, as many local governments are doing (including Berkeley). In the words of land-use economist Cameron Murray, the decision where exactly to rezone:
“Involves the allocation of property rights from the community to the owners of the land within the rezoning boundary at the moment of rezoning. In the absence of mechanisms such as land value taxes or betterment taxes that recoup the value of the resulting price-differential, there is scope for bargaining between politicians and landowners of different areas, including the potential for corruption and bribery during the final determination of rezoning boundaries.”
The residents of Berkeley will have to be on the lookout for precisely this sort of potential for corruption and bribery, in addition to learning more about land value and betterment taxes.
I wish the residents of Berkeley the best of luck in confronting the RHNA monstrosity that is slouching toward the city.