California Gov. Gavin Newsom signed a package of housing bills into law on Wednesday, including two measures that could affect the state’s housing crisis by potentially replacing vacant stores, strip malls and offices with millions of residential units.
Assembly Bill 2011 and Senate Bill 6 are among the first statewide laws in the nation aimed at replacing underused or vacant commercial properties near public transit and city centers with higher-density affordable housing.
A compromise between supporters of the bills, a broad coalition of affordable housing developers, advocates for the homeless, mayors groups, and California’s politically connected buildings trades and carpenter unions, cleared the way for legislators to pass the laws in August.
“This bill re-imagines what our cities could look like,” Buffy Wicks, a Democrat from the East San Francisco Bay Area who authored AB 2011, said at a news conference to announce the signing of the bills. “We have an abundance of retail space and office parks that are no longer being utilized, and we have a real deficit of housing.”
The new laws join other efforts in the state Legislature in Sacramento over the past year to make it easier to build housing to address high housing prices and rents in the nation's most populous state. Lawmakers say high housing costs have undermined California’s economic competitiveness and contributed to many companies and residents moving to more affordable states such as Arizona and Texas.
Increasing density, especially in areas connected by mass transit, has emerged as a strategy in recent years as lawmakers try to overturn decades of California policy favoring single-family zoning in seeking to address an estimated deficit of 3.5 million housing units in the next few years. Housing affordability fell to its lowest level in nearly 15 years last summer, according to the California Association of Realtors.
Legislators last year passed laws that for the first time in modern California history allow homeowners to split their single-family lots to build as many as four units and that give local governments the power to allow developers to build up to 10 market-rate multifamily units on certain lots.
Parking Mandates Abolished
California last week became the first state to abolish parking mandates for housing and commercial developments near public transportation to encourage affordable housing development.
Newsom on Wednesday also signed several other high-profile housing measures, including Senate Bill 886, sponsored by San Francisco Democrat Scott Wiener, aimed at accelerating student and faculty housing construction at college and university campuses. The governor, who is running for reelection in November, also signed Assembly Bill 2221, authored by Orange County Democrat Sharon Quirk-Silva to make it easier to build accessory dwelling units, also known as casitas or granny flats.
“This is a moment on a journey to reconcile the original sin in the state of California, and that’s the issue of housing and affordability,” Newsom said at the news conference. “It is at the core of the frustration many of us have about our state and our future.”
The laws will ease regulatory barriers to housing projects such as the California Environmental Quality Act and make it easier for developers to rezone commercial property to housing, Peter Belisle, market director for brokerage JLL's southwest region, told CoStar News. However, the state needs to take more action to ease building permit requirements and reduce taxes, development fees and other costs, Belisle said.
"This is definitely a step in the right direction, but much more needs to be done," Belisle said. "Construction costs are up 25% to 30% year over year, and when you factor in all the rehabilitation necessary to convert properties to residential, it's difficult to get many projects to pencil out."
However, groups such as California YIMBY, a nonprofit group working to end the state's housing shortage, believe that the laws on residential conversions signed on Wednesday could make a significant dent in California's housing deficit, which has been estimated at more than 3.5 million units.
Spurring Housing Development
California UrbanFootprint, a software platform that analyzes data for urban planners and local governments, estimated that between 1.6 million and 2.4 million new housing units could be developed on commercial properties eligible under the new law, including hundreds of thousands of affordable units.
California YIMBY spokesperson Matthew Lewis said he doesn't know of any other statewide law to encourage commercial-to-residential conversions.
New York Gov. Kathy Hochul in June signed a more limited bill to simplify the process to convert some hotels in or near residential zoning districts to permanent residential spaces.
"This is a game changer for housing in our state," California YIMBY CEO Brian Hanlon said in a statement. “California has a huge amount of underutilized and abandoned commercial properties that could see rapid development of subsidized affordable housing under this legislation."
The laws could increase the momentum for office-to-residential conversions, which are already occurring in California and cities across the country as demand for office space fades.
For example, in one of the nation's most significant downtown office-to-housing projects, developers National Real Estate Advisors of Washington, D.C., and San Francisco-based Emerald Fund in 2015 converted the 29-story former California Automobile Association office tower at 100 Van Ness in San Francisco to 418 apartments.