and the factors that influence and define a city’s 8-year plan to create new housing (notes drafted in Feb 2021 before goals were final)

Cities across the state are having wide-ranging discussions about housing affordability and accessibility.  While news reports and policy makers often speak of the “housing crisis”, the actual crisis that LA and many cities face is not seen as a housing crisis, but rather as an affordable housing crisis.  LA, for example, met and exceeded its 8-year goal ending in 2021 for market rate housing.  How can cities and the state encourage the construction of affordable (low income, extremely low income, and workforce) housing?  An associated issue is how can cities provide stability to residents today while accommodating housing demand in the future.  (How to maintain people in their existing housing while creating new housing so as not to create a new homeless population.)

At the heart of the matter is the state’s Regional Housing Needs Assessment (RHNA): an obscure and complicated process for assigning localities their part and responsibility for providing new dwelling units in order to meet demand.  RHNA as it is known drives every significant housing conversation in the state and each of its cities.

RHNA is nothing new. Five decades ago the state required localities to plan for providing housing and four decades ago the state followed up with legislation to require localities to formalize housing goals and policies in what is called the housing element of the locality’s General Plan.

The state mandates the housing element to be updated on a regular basis (every 8 years) to reflect changed conditions, demographics, and, anticipated demand for housing. Current activity is focusing on the coming 8-year cycle which runs from 2021-2029.  Cities are due to submit their 2021-2029 Housing Element documents to the state in October 2021.

Many cities were unable to meet their housing goals established for the current cycle and cities are being cited as contributing to the high cost of housing and the high percentage of income that residents must pay for housing in California.  New policies will result in those cities whose housing elements do not meet the State’s requirements to face penalties and loss of jurisdiction over planning decisions.  The lack of production of units sufficient to meet demand is said to be the cause of the current housing crisis.  Many cities have met their overall housing goals or a segment of their housing goals for   2013- 2021.   Los Angeles, for example, exceeded its goal in producing market rate housing.  However, LA was far behind on meeting its formula obligation for low income and workforce housing.

There is a major problem in the foundation upon which the newly adopted penalties are based and that is that local municipalities actually build the housing to meet the goals.  Housing production is primarily a commercial venture much of which is based upon financial considerations and targeted to return profits to those involved.  Those building housing are not limited to constructing it in one municipality; they can build wherever the prospect of maximum profits offers the most favorable opportunity.  The decision to build or not to build will involve many factors – from land cost to financing availability and requirements, from zoning to construction costs, and will also look at vacancy factors and general economic conditions.

Given the crisis in housing affordability, Sacramento (and certain legislators in particular) is increasingly focused on adding to the housing supply and is leveraging the RHNA process to compel localities to provide their fair share.

What fair share means is debatable, of course, and at present localities in the SCAG region are negotiating with the regional planning agency, Southern California Association of Governments (SCAG), over how to allocate the required new dwelling units as determined by the state. The bigger the number, the greater the impact on zoning, density, and development in a city. Cities that believe that the numbers assigned to them by SCAG are not reasonable are in the process of making formal appeals to the agency.  Appeals hearings are currently underway.  (Los Angeles did not appeal its assigned goal which reflects a bias to locate much of the new housing in the more coastal regions.)

Introduction to the Housing Element

A city’s General plan is a policy statement that expresses a collective vision about how each city will grow over time. The foundation of the plan is (should be) informed by community values: how we want to grow and how we will accommodate growth (is growth inevitable?  how is that growth predicted/calculated?) through identified goals and objectives.  With many required parts or elements, the General Plan is a municipality’s plan for the future. A key part of our General plan is a chapter called the housing element.

The seven (7) mandated elements are: Land Use, Open Space, Conservation, Housing, Circulation, Noise, and Safety.

The housing element is one of nine required elements along with land use, circulation, open space, safety, air quality, noise and others.  (A newer element is environmental justice.)  While each thematic element focuses on a specific issue, they are clearly interrelated. Housing is not merely the provision of dwelling units but is one aspect of planning that also touches on circulation patterns, schools, environmental justice, and equity. (Transit-oriented development for example finds housing integrated with commercial uses and located near transportation.)

The state mandates that certain General Plan elements be updated on a regular basis and cities revisit their housing element every eight years. Currently underway is planning on the next (2021–2029) housing element update.  The new housing elements are due in Sacramento October 2021.

About the Regional Housing Needs Assessment

Driving any housing element update is the state’s Regional Housing Needs Assessment (RHNA) which translates anticipated demand for housing across the state into regional obligations for new dwelling units and then, at the local level, an allocation of required units. The local allocation is determined according to a formula developed by our regional planning agency, the Southern California Association of Governments (SCAG).

As SCAG describes it, “This process allows communities to anticipate growth, so that collectively the region can grow in ways that enhance quality of life, improve access to jobs, promote transportation mobility and address social equity and fair share housing needs.”

The RHNA is required by state law. Government Code §65583 regulates the housing element, which must include an “analysis of existing and projected housing needs and a statement of goals, policies, quantified objectives, financial resources, and scheduled programs for the preservation, improvement, and development of housing.”

The important thing here is the regional housing assessment:

(a) The assessment and inventory shall include all of the following:

(1) An analysis of population and employment trends and documentation of projections and a quantification of the locality’s existing and projected housing needs for all income levels, including extremely low income households….

(2) An analysis and documentation of household characteristics, including level of payment compared to ability to pay, housing characteristics, including overcrowding, and housing stock condition.

(3) An inventory of land suitable and available for residential development, including vacant sites and sites having realistic and demonstrated potential for redevelopment during the planning period to meet the locality’s housing need for a designated income level, and an analysis of the relationship of zoning and public facilities and services to these sites.

With the state seeking ways to require cities to meet their housing goals and penalizing them for failing to do so, the RHNA process will have strong influence on the eventual Housing Element goals and strategies and that will be seen in community plans and zoning in local cities to ensure that the goals can be met. 

Cities will need to meet each subgoal within the Housing Element.

The RHNA obligation does not mean the city has to actually build the dwelling units (though it could do so if it chooses and there are currently state constitutional amendments that would incentivize this). Rather the obligation requires a locality to identify opportunities for new housing; and to remove constraints that might discourage production. The private sector can then build to the required number of dwelling units. In other words, as long as a dwelling unit is permitted for construction, then it will count toward our RHNA obligation.

Greater Demand for Housing Means a Larger RHNA Number

Rising rents, reports of housing overcrowding, and a high percentage of household income being spent on rent are seen as symptoms of a housing market where  demand is outstripping the supply of rental housing. Consequently the state is upping the RHNA ante for this housing element update cycle.

Where prior cycles identified the regional (SCAG) housing obligation to be on the order of 700,000 dwelling units (2006–2014) or 400,000 (2013–2021), the current goals established by the State are significantly higher.

Housing advocates lobbied Sacramento to significantly increase the draft SCAG housing goals.  And, using a formula that has been challenged as having double counted two formula factors, the goal assigned to the SCAG region went from 400,000 housing units in the current cycle to 1.3 million housing units.  That is 250% more than the last cycle. 

The 1.3 million regional number is particularly challenging and sobering for smaller cities that see relatively few new units and have stable residential tenant communities.

Goals have been assigned to each of the cities in SCAG’s region and SCAG is currently holding appeal hearings from cities who oppose their assigned goals.  (Any adjustments in another city’s goals will be added to the remaining cities as the total number of units must remain constant for the region.) 

What must cities do in order to foster the production of low income and workforce housing?  Today we can see that even with generous bonus density programs (SB 1818 and the TOC Guidelines) builders choose to construct luxury/market rate housing and most often provide no more than 10% affordable units in their market rate projects.  It is much more profitable to build luxury.

Wow — That’s a Lot of Housing!

Southern California is expected to add 1.3 million new dwelling units over the upcoming 8-year cycle, according to the state determination. (See Embarcadero Institute study that evaluates and questions the process used to calculate that goal.  The Embarcadero Study has identified flaws in the process used to establish the 1.3 million goal which includes double counting that has led to a significantly higher goal than in past cycles.)  With that state determination in hand, our regional planning agency, SCAG, has now divided that obligation into local allocations according to a locally-derived formula. Currently the formula shows three options but all imply a significant obligation. The local allocation is generally described by these SCAG illustrations.

These illustrations show what goes into the local allocation formula. The essence is that projected growth establishes a baseline, which is then modified to reflect demand for housing, which then results in an allocation of required units across tiers of affordability relative to household income.

Again the affordable requirement is the real challenge. “Each jurisdiction must receive a fair share of their regional housing need,” the SCAG methodology says, “including a fair share of planning for enough housing for all income levels.”

To put a fine point on it, SCAG is indicating that nearly 60% (really?) of those 1.3 million required units be affordable to moderate (or lower) income households. To achieve that goal the agency will likely require localities to over-produce affordable units relative to current need and future demand.  The agency calls it a “social equity adjustment” and it will prove quite challenging where land costs are high and height limits for residential development are quite low.

The draft RHNA methodology applies the ‘social equity adjustment’ across the three options for determining the local allocation.

An early preview into SCAG’s methodology to divvy up those 1.3 million required dwelling units into local allocations identified many things to question. Specifically, the proposed formula weights proximity to “high-quality” transit when allocating the local obligation (this related to the state’s objective to put development near transit to reduce car trips and emissions).  As a result, LA’s RHNA allocation reflects that fact that LA should provide a proportionately greater allocation relative many other localities. Why? Because much of our land lies near a “high-quality transit area,” according to the agency.

The core component of the Housing Element is the RHNA, an evaluation of the number of units needed in the next eight years and the land use plans and regulations necessary to accommodate them.

The State Department of Housing and Community Development (HCD) first determines the housing needs in each region of California by examining population data. The agency also considers economic and demographic trends, overcrowding, and overpayment of rents and mortgages. (There is lobbying at the State level during HCID’s consideration of final housing goals.  While SCAG submitted a local goal developed with input from its Housing /RHNA subcommittee, that goal was rejected by HCD.)  The number that HCD calculates gets passed to a local regional planning agency—the Southern California Association of Governments (SCAG), in the case of LA—that looks at more local data and distributes the total among its jurisdictions.

In 2019, as cities across California grappled with soaring rents and a homelessness crisis, HCD announced an ambitious goal of about 3.5 million new units over the new Housing Elements cycle. Southern California’s share of the load came out to 1.3 million units. For Los Angeles:  ___ units.  (The final number has not yet been released and will be increased if any of the local challenges to their assigned goals are successful.  In comparison, in the last housing cycle, Los Angeles’ allotment was ____.

While the City is required to plan for a certain level of growth and take efforts to facilitate it, the RHNA is “not a development mandate,” the Staff Report notes. Jurisdictions must ensure that bureaucratic hurdles like zoning and planning do not obstruct development, but they do not need to build housing or issue permits themselves. But, if the State determines that a jurisdiction has not done enough to foster development, it can withhold certification of its General Plan. This results in loss of certain State funds, more frequent updates to the City’s Housing Element, and loss of control over housing project decisions.

Cities face similar penalties for not meeting their RHNA obligations. Jurisdictions will have to implement a streamlined review process to approve housing development projects.

To comply with RHNA, a City must demonstrate that it has land use plans and regulations either in place or to be implemented that will allow housing developments adequate to meet its RHNA obligations. This can include changes to the zoning itself or to regulations to make it more permissive to build housing. And then, throughout the RHNA cycle, cities must show their progress to the State that they are actually meeting the numbers as required.  (There are proposals at the State level to establish monitoring procedures and staff to do so.)

It should be noted that RHNA goals were established before the Covid-19 pandemic and the pandemic’s impacts on housing, transportation and how and where people work.

The RHNA breaks down the housing goal figures into four income categories, very low, low, moderate, and above moderate. For LA, this currently breaks down as ___ very low income units, ___ low income units, ___ moderate income units, and ___ above moderate income, or market rate, units.

The Housing Element document must show that a city can meet the RHNA number that’s been assigned.  And. as part of that process, cities must look at housing barriers and address those through policies, must show that land is zoned to accommodate units, and that policies and programs are either in place or to be implemented that will encourage the appropriate number of units at each income level.

The current RHNA numbers are still only a draft. Jurisdictions have had the right to appeal the number allocated to them by their local regional planning agency.  However, it should be noted that in the past, very few jurisdictions have been successful in their appeals, because there are such limitations on what the grounds for appeal are and those tend to get tighter over time.

“For example, an ‘unrealistically high’ RHNA allocation based on market trends and lack of vacant land is not considered to be legitimate grounds for appeal,” the Staff Report reads.  Further complicating the process, any reduction granted to a jurisdiction must be offset by an increase in units in other jurisdictions.

There are three grounds for an appeal. Jurisdictions can appeal on the grounds of a misapplication of methodology.  Additionally, a City could argue that SCAG did not consider certain local factors, including a lack of capacity for sewer and water service, lack of available land suitable for urban development, and the rate of overcrowding.  Finally, a City could claim a “significant and unforeseen change in circumstance” that happened after April 30, 2019. As an example of a change in circumstance that might pass muster, one could consider the situation at the town in Northern California of Paradise, where they had wildfires come through and they lost just about all of the city.  By this standard, while LA looks about the same as it did on April 30, 2019, does the Coronavirus pandemic present an opportunity for challenging RHNA goals?  Los Angeles did not file any appeal. 

Jurisdictions had until Oct. 26 to file an appeal, and hearings are currently underway at SCAG in response to the appeals filed.  A total of 50 appeals have been filed.  West Hollywood filed an appeal that was later withdrawn. 

In the last RHNA cycle eight years ago, 12 cities appealed their allotment. None succeeded. Some cities are concerned that a meritless appeal could risk alienating the State agency in charge of overseeing the process—losing valuable goodwill in the process.

Many local city council members have expressed frustration with the process. In Beverly Hills, Councilmember Dr. Julian Gold accused the State of a “bait and switch.” Councilmember Lili Bosse argued that the RHNA numbers fail to account for the City’s limited power in realizing new developments. “Unfortunately, I believe that we have been really trying to encourage development for affordable housing, but on the other hand, we can’t necessarily make people build housing,” she said.  One of the most vocal councilmembers on the subject, John Mirisch, described the RHNA number as “punitive” and the entire process as “weaponized.”

—

The City of Beverly Hills sent a letter to SCAG on December 1st requesting a special closed meeting of the SCAG Regional Council. The letter points to data that contradicts the State Department of Housing and Community Development (HCD)  and suggests a much lower housing need in the State. The special closed meeting would consider the possibility of SCAG launching a legal challenge against the HCD in an effort to reevaluate the housing burden across the State.

“In analyzing information provided in September 2020 by Freddie Mac and the Embarcadero Institute, it is clear HCD’s determination of the overall housing shortage in California is flawed,” the letter, written by City Manager George Chavez, says. “For these reasons, the City of Beverly Hills supports a special closed meeting of the SCAG Regional Council be convened in order to discuss the RHNA Litigation Committee’s recommendation.”

According to the City’s letter to SCAG, the State of California made fundamental errors in calculating the amount of housing needed in the Golden State. The letter cites two studies conducted by Freddie Mac and the Embarcadero Institute, a non-profit policy analysis organization. In the study conducted by the former, Freddie Mac calculated the State’s housing shortage at only 820,000 units. As the staff report for the Dec. 1 Regular Meeting notes, “This means the number assigned to the SCAG region by HCD far exceeds the housing units identified by Freddie Mac for the entire state.”

The study by the Embarcadero Institute challenges the methodology used by the State, arguing that the State may have “used an incorrect vacancy rate and performed double counting,” according to the staff report.

“Given the recent information released by Freddie Mae and the Embarcadero Institute, we also feel this subject merits the additional consideration and recommendation of the Regional Council,” the letter reads. “We hope this special meeting can be convened immediately.”

We are unaware of a response to the City of Beverly Hills’ letter.  The same issues related to the data used to form the regional goal are being raised in some of the appeals made to SCAG related to assigned goals. 

THINGS TO THINK ABOUT

Impacts of tying housing to transportation?  (Covid-impacts?)  Upzoning near transit and the impact on land values (and the cost of housing subsequently built there?)?  Impacts of focusing housing in areas that are considered to be jobs, transportation or educational facility rich (which tend to be more expensive areas)?  Emphasis on coastal region as opposed to areas where land is less expensive and where economic development is desired?  Impacts of construction of market rate housing on adjacent area.

Effectiveness of inclusionary housing policies. How much affordable housing should be required under bonus density programs?  The failure of existing programs to produce adequate levels of affordable/low income housing.  The impact of housing policies that result in the loss of affordable units.

The need for governmental financing and tax credits to make low income housing developments “pencil out.”  It is not the cities that are stopping low income and workforce housing from being built.  Those projects require financing arrangements different from market rate housing.  What funds are being provided to help to incentivize such housing?  (Redevelopment agencies used to play a major role in this before being unfunded and put out of business during the last recession.)  What kinds of tax credits are needed to bolster affordable and low income housing?  (Recent tax reform under the previous administration removed some tax credits used for affordable housing production.)

Impacts on existing multi-family housing and the preservation of RSO units.  Impacts  and threats to R1/single family neighborhoods. 

The preservation of RSO measures (expansion?)  State law impacts.  (First version of SB 1818 actually incentivized the destruction of existing protected units.  SB 330  now provides some protections for tenants losing their housing.)  Should rent control be extended to housing built after 1978 in LA?  Efforts to change state law related to rent control failed in a recent statewide election. 

What is equity in housing?  Is it moving people to places that have existing resources or providing equal resources to places lacking them? 

Quality of life issues related to upzoning and added density. 

What is the role of real estate speculation in the increased cost of housing?  (See recent book:  Sick Cities)  What is the impact of foreign investment on housing costs and availability?  What has happened to the LA City motion to enact a vacancy tax for units purposely left vacant and uninhabited? 

What about infrastructure needs related to increasing density in urban (and rural ) areas?  The Housing Element does not address a city’s ability to provide needed infrastructure and services to newly densified areas.  It does not evaluate current infrastructure capacity.  It does not provide resources to improve infrastructure. It does not require the provision of open space to meet the needs of a growing population (and added density and reduced building setbacks remove opportunities for on-site recreational activity, reduce stormwater capture and contribute to increasing heat island effect).  The State does indicate that the content of the General Plan “must  form an integrated, internally consistent plan.”

It must be noted that if/when the state reduces a city’s ability to regulate zoning and allows more and more construction “by right,” it is the developers who will decide what gets built where and cities will have no voice (or the resources) to assure that adequate services do exist.  Planning for resource expansion will not be possible in an organized manner if developers get to decide what gets built and where.