SB 6 - The Neighborhood Homes Act (AKA Dead Malls to Housing) - Part 3

This is the final post in the 3-part series on SB 6. Part 1 is here and Part 2 is here.

NO COMMERCIAL TENANTS ON 50% OR MORE OF NET INTERIOR SQUARE FOOTAGE FOR THREE YEARS PRIOR TO APPLICATION

SB 6 would permit a housing development to be proposed for a site zoned for office or retail commercial use if the site has had no commercial tenants on 50% or more of its total usable net interior square footage for a period of at least 3 years prior to the submission of the application. (Proposed Gov Code 65913.4 (a)(2)(C)(III)). 

In other words, if commercial tenants occupy 51% of a mall at the time of application, the site will not qualify as a SB 6 neighborhood lot. The wording of this provision is ripe for litigation and challenge, but if SB 6 passes, hopefully agency regulations will provide clarification. Many commercial tenants are engaged in litigation over COVID closures. What happens if a commercial tenant is no longer operating at the property but their materials remain on-site and the tenant is locked in litigation with the landlord? Does that count toward the 50%? Or does a tenant have to be actively engaged in business onsite with a valid lease?

KISS COMMERCIAL SITES GOODBYE?

A local agency can exempt a lot zoned for commercial retail or office use from the bill if the local agency concurrently reallocates the “lost residential density” to other lots so that there is no net loss in residential density, but only if the replacement lots are:

• Suitable for residential development, using an existing definition in housing element law; and

• Subject to an ordinance that allows for development by right. (See Proposed Gov Code 65852.23(d)). 

This is where things get really strange for me. I assume this means a city has the right to say no to a developer and “exempt” the site upon receipt of an application, and not that a city must identify all office/retail sites upon the passage of SB 6 and preemptively exempt them. But, the bill does not read this way – it seems the State wants local jurisdictions to identify all of the “neighborhood lots” in their housing element, and attribute to them certain residential density despite residential never being considered for development in that location.

If a city or county doesn’t want to lose commercial sites (which provide tax revenue and serve as community spaces, especially public-facing retail establishments), has concerns about infrastructure impacts (increased traffic and use of public facilities brought about by increased density), or for some other reason wants to maintain a commercial site as commercial, then the city has to put the residential density that could have existed on that commercial lot (if a developer were to file an application and do all of the things that SB 6 requires) in another area of town and allow it to be developed by right. So this is an illusory exemption. It also seems impossible for a local government to handle.

Does the State expect local governments to audit every single tenancy at every site zoned office/retail, and calculate potential residential density for each site that has less than 50% occupancy? Is this supposed to happen annually? What happened to the prevailing wage developer requirements? Is the city supposed to assume that every single site would qualify for residential development even though no application is pending, and there is no way of knowing whether a developer would actually use prevailing wage or skilled and trained workers?

It does not make sense to me. I am in favor of repurposing dead commercial space to house people, educate people, or otherwise serve the community, but I’m not in favor of convoluted legislation that places unreasonable burdens on local government agencies.

FINAL WORDS 

According to the author,

“This bill will allow cities to approve, through an expedited process, the reuse of infill property zoned for retail and office space for residential construction. This adaptive reuse of shopping malls or strip malls will reduce greenhouse gas emissions and urban sprawl. Shopping malls, strip malls, and ‘big box’ retail stores face a new reality: consumers’ needs are being met online. Many shopping centers struggle to remain viable as large anchor stores like Sears, K-Mart, and Toys R Us close their doors or go out of business leaving vacant, often-times run-down, commercial centers. While commercial vacancies are growing, California’s housing crisis continues to worsen. According to the California Budget and Policy Center, over 50% of renters and nearly 40% of homeowners pay more than 30% of their income in rent. In addition, the Public Policy Institute of California recently reported that California’s housing shortage continues to grow as the number of residential building permits issued for 2018 and 2019 were far below the recommended annual average of new homes needed. This bill allows for the transformation of underperforming commercial sites into mixed-use use centers with residential units, with some affordability restrictions, often in locations that are well connected to major transportation routes.”

According to the Senate Rules Committee Analysis, on the other hand,

“A fundamental principle of zoning since the United States Supreme Court upheld an early zoning ordinance in 1926 (Village of Euclid v. Ambler Realty Co., 272 U.S. 365 (1926)) has been that allowing some uses in one area but prohibiting others can be integral to protecting the public welfare. Local governments have historically separated uses to avoid siting incompatible activities, such as agriculture and residential activity, near one another. It also mitigates potential public health issues, such as air pollution impacts from heavy industrial uses on nearby residents. SB 6 allows residential use on properties that are zoned instead for office and retail uses, and thereby contravenes this principle. It also undermines the planning decisions made by local officials, who established which uses are allowed and at what intensity. In addition, SB 6 allows relatively intense residential uses—up to 30 units an acre in some jurisdictions—on parcels that may have been set aside for lower intensity retail activities that don’t bring many customers to an area. This may pose a particular challenge for jurisdictions without the necessary infrastructure and services to meet the demands of new residents, which could particularly impact rural jurisdictions. Should the state allow this type of residential use in places where local governments have decided it isn’t appropriate?”

SB 6 will likely be used as leverage by developers for non-housing projects they’re trying to get entitled. As for actually building affordable housing, I’m not convinced SB 6 will be used. Prevailing wage and union labor is a nonstarter for most developers. Prevailing wage is far, far higher than minimum wage. For example, in Southern California the hourly rate for a drywall installer earning prevailing wage is $66.65.

It’s unfortunate, because rezoning dead malls for housing seems like a reasonable move to create more affordable housing with minimal impact on existing communities. There is nothing stopping local governments from doing it on their own without SB 6 through a community-based zoning code update process.