California lawmakers, after years of easing zoning rules to allow more housing near mass transit, are turning to what developers say remains the biggest obstacle: financing.
A new bill called AB 2074 would create a $500 million revolving loan fund to help underwrite residential towers in the state’s largest, transit-rich cities. While it has yet to pass the full state Assembly floor, supporters hope that will happen by the end of May with the goal of reaching the governor's desk by year-end.
“Our downtowns are still struggling and need new energy,” said a statement from Assemblyman Matt Haney, who authored the bill, framing it as an economic development strategy as well as a housing solution for the nation's most-populous state.
The bill lands as California continues to fall short of its housing goals, with the state producing only a fraction of its self-mandated goal of building roughly 2.5 million new homes by 2030. Meanwhile, apartment vacancy rates remain tight with rents in the state's major metropolitan areas far outpacing national averages.
AB 2074 builds directly on successfully passed prior efforts such as SB 79 and other pro-housing laws that override zoning laws and community opposition to spur high-density housing near transit. The latest measure extends those policies into the more complex reality of financing steel-and-concrete high-rises, according to Saad Asad, communications manager of California YIMBY, short for Yes In My Back Yard, a nonprofit group that supports statewide housing development.
“We’ve made a lot of progress on allowing housing, but the next step is to make sure it’s feasible to build,” Asad told CoStar News.
There are challenges to financing for these projects, according to Asad, that continue to stall projects even after zoning rules have loosened.
Revitalizing business districts
Even so, supporters say the measure is designed to accelerate downtown recovery by turning underused office districts into residential hubs, a shift they argue is critical as remote work has hollowed out urban central business districts.
San Francisco's office vacancy rate of 21.5% represents a glut of empty space compared to the nation's average of 14%. Apartment rents in the city, meanwhile, ask an average of $3,496 per month, nearly twice the national average.
The new bill requires California’s seven largest transit-rich cities, with populations over 400,000 — Los Angeles, San Diego, San Jose, San Francisco, Sacramento, Oakland, and Long Beach — to designate regional transit districts. Developers in these districts could then apply for loans from the California Housing Finance Agency.
It's not yet clear if the proposal has the potential to push housing projects forward and make a dent in regional goals to spur development, and lower rents.
At its core, the proposal is about encouraging more residential development in downtowns that have struggled to regain pre-pandemic foot traffic.
Proponents argue that dense housing near transit can simultaneously address the housing shortage, revive small businesses and reduce long commutes that have defined California’s growth pattern for decades.
Challenging design
But high-rise construction is also one of the most difficult types of housing to finance, with costs for steel, concrete and labor significantly higher than mid-rise projects and timelines that can stretch years longer.
To power more projects across the finish line, AB 2074 aims to pair a streamlined approval process with subsidized capital through a revolving loan fund administered by the California Housing Finance Agency, allowing developers to access below-market financing.
The structure is designed to recycle public dollars as loans are repaid and reinvested, creating an ongoing funding source while limiting long-term taxpayer exposure.
Supporters say the bill could jumpstart a new generation of downtown living, turning unused commercial districts into round-the-clock neighborhoods anchored by residents instead of commuters.
“This is the kind of policy that big cities need right now,” said San Diego Mayor Todd Gloria said in a statement.
He added that “it makes it easier to build more affordable housing while directly supporting good-paying jobs. In San Diego, we’ve done the work to get housing built faster, and we’re seeing the results. This bill takes the next step by turning underused spaces into homes near jobs and transit.”
San Francisco case study
The big city business district Haney represents, downtown San Francisco, has already seen several proposed housing high-rises of the kind the bill envisions.
The city suffered the steepest office market crash in the nation in the aftermath of the COVID-19 pandemic, along with a rise in crime and street disorder, as foot traffic evaporated and shops closed. San Francisco's Financial District has long been criticized as an office-only neighborhood that was largely deserted after 5 p.m., a fact that left the city especially vulnerable when tech workers departed en masse in early 2020.
Moreover, San Francisco has one of the worst shortages of affordable housing in the state. Even as the artificial intelligence boom has spurred a revival in and around the city's central business district, rents have soared as very little new housing has come online. Haney and other officials argue that building dense housing near public transit is a key solution to multiple problems.
Officials recently green-lighted a proposal from Miami-based Crescent Heights to build a 67-story, mixed-use tower with about 1,000 units in place of a shuttered car dealership at 10 S. Van Ness Ave., at the edge of the city’s gritty downtown Mid-Market neighborhood. It could become the third-tallest building in the city. Another proposed tower, with more than 70 stories, at 530 Howard St., has received key approvals.
Neither development has yet broken ground, but both are poster projects for a slew of recent pro-housing legislation on the state and local levels. San Francisco Mayor Daniel Lurie has also pushed through a plan to build taller buildings with tens of thousands of new homes via his criticized initiative called the Family Zoning plan.
Lurie and his allies in the YIMBY movement argue that the plan is a long-overdue step that could help reverse the historic resistance to building that has fed a shortage of housing in San Francisco and throughout the state.