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Episode 5: Bungalow Courts and the Sinister Stealth Edit
59 Plays5 months ago
This time on John Nerds Out, I take a deep dive on the travails of the attempts of Senator Anna Caballero to make it possible to build more for-sale housing with up to 10 homes on a lot—and what the amendments made to them say about how we make policy. (SB 684 in 2023, followed by SB 1123 in 2024.)
I cover these bills as quick hits for the first time:
- SB 1123, cleanup/expansion on housing on commercial strips
- AB 2881 and SB 584, social housing
- AB 1893, builder's remedy reform
- AB 1932, remove mortgage interest deduction on second homes
I check in on how these bills from episode 4 are doing: SB 1470 (condo defect lawsuits), SB 1462 (condo deposits), SB 937 (impact fee delay), SB 1210 (utility fee reform), SB 1077 (ADUs in coastal zone), and AB 2560 (density bonus in coastal zone).
Bonuses: why the phrase "suspense file" strikes fear into the hearts of activists all over the state; and why tax deductions are always regressive.
Recommended
Transcript
Introduction and Personal Update
00:00:00
Speaker
Hello and welcome once again to John Nerds Out on California Housing Legislation. I'm John Minot. Thank you for joining. It has been about a month since my last episode. I've been dealing with some family issues, but I am back now and there is a lot to catch up on in the legislature.
00:00:20
Speaker
So once again, I am going to cover one topic as a bit of a deep dive. And then I'm going to revisit some of the quick hits from last time and tell you how some of the stuff I told you about has been progressing through the legislature and what if anything has changed about it.
00:00:40
Speaker
And then I'm going to add some new quick hits because there are so many bills. I'm never going to give you a full picture, but I hope you will get some insight into what is going on through this podcast by these examples that we see.
Bungalow Courts and Legislative Changes
00:00:54
Speaker
This episode is episode five and I am calling it bungalow courts and the sinister stealth edit.
00:01:02
Speaker
This is the story of a particular concept of housing legislation and a particular legislator who has carried an idea over multiple years. And it has been having some interesting edits happen to it.
00:01:19
Speaker
that have limited its application. And these edits have happened sort of in the dark, so I want to go into it and see what it tells us about how the California legislature is orienting itself toward housing now.
Senate Bill 684: Intentions and Provisions
00:01:35
Speaker
The first bill was last year, 2023, and this was Senate Bill 684.
00:01:41
Speaker
It was submitted by Anna Caballero. She's from the Central Valley, a state senator originally out of Salinas, although her district appears to have been moved further east to Merced County and other places in the Central Valley. The idea of Senate Bill 684 was to facilitate ownership housing in more places and more ways.
00:02:03
Speaker
Specifically, the idea was that there should be more opportunities for housing of up to 10 units on one lot. It could be done in a couple of ways. It could be done by simply building a small apartment building. It could be putting up townhouses on the lot.
00:02:21
Speaker
and it could be dividing the lot into little pieces and putting up small homes on them. You may remember these as the bungalow courts. If you go around California to older parts of towns, you may often see these nice little courts with a shared yard and a lot of little houses facing this shared yard, usually two rows facing each other with a fence around it. These are often sold fee simple
00:02:50
Speaker
which is the fancy legal way to say you own them directly. There's no homeowners association, but they can also be condos where the shared area, the shared space is commonly owned, but everyone owns their own unit. They can be relatively affordable because they are usually pretty small houses. And the same can be true of townhouses if you build enough of them. So what did 684 do to facilitate these?
00:03:15
Speaker
It allows this denser ownership housing to be on a lot allowing multifamily housing or on a vacant lot zoned for single family housing.
00:03:24
Speaker
but it doesn't mean you can build 10 units on just any lot.
Constraints and Housing Types of SB 684
00:03:28
Speaker
It needs to follow what's known as Mullen density. Mullen density is a set of densities that essentially depends on how urban your county is decreed to be. So what that means is that if you're in what's called a metropolitan county, your Mullen density is 30 units per acre. In less urban counties, it might be 20.
00:03:49
Speaker
But let's stick with 30 for now because that covers most of the bay where I am and it's a simple example. So if you have one acre, the melon density would be 30 units, more to the point if you have a third of an acre, then that would allow 10 units even if it's zoned for much fewer.
00:04:06
Speaker
So it's probably better adapted for larger lots because under a molar density of 30, if you have a smaller single family lot, say 4,000 square feet, that's a tenth of an acre. So that would only allow like two or three units or three units. Senate Bill 684 also allowed for these projects a range of concessions on development, ways to make the development more feasible.
00:04:31
Speaker
It said that the local government could not require more than one parking space per unit, and even zero if it was near good transit. It eliminates all setback requirements internal to the buildings, so you still have to follow some setbacks externally, but you can have the buildings touch the ones you're building, like townhouses, or they could be one inch away from each other. It reduces the side and rear setbacks to four feet.
00:04:58
Speaker
It increases the floor area ratio, so how much space of residents you can build, up to 1.0 for seven units or 1.25 for eight to 10 units. 1.0 means if you have a 10,000 square foot lot, you can build 10,000 square feet of space, although you'd have to build up for that. So it's that range of restrictions on how much a city can restrict housing.
00:05:26
Speaker
so that it's more feasible to build a number of homes on this lot. And again, it also allows subdivision of the lot so you can put a little house on each one and sell them off one by one.
Amendments and Opposition to SB 684
00:05:38
Speaker
Now, if you remember last time when I talked about the condo liability issue, if you want to build an apartment building in this way, maybe it's a small apartment building and it's like three units per floor and three floors, so nine units,
00:05:54
Speaker
Well, that would be allowed under this. They would have to be condos. But because of condo liability, you're probably not going to get that. So if you just build little bungalows that don't touch each other or townhouses that only touch each other on the wall, then that will probably not run you into that liability issue because everyone is basically responsible for their own structure. So that is probably the kind of housing you would get with this.
00:06:19
Speaker
some other restrictions they put on it to make sure it's perfectly virtuous. If it requires demolition of any low income housing or has been simply holding any kind of rental housing recently, then it doesn't count. And one of the questions to my mind has always been when they say a vacant lot zones single family.
00:06:41
Speaker
Do they mean that there can't be a house on the lot? Or can there be a house on the lot that simply did not have anyone living in it? Or if you bought the lot and then demolished it as long as it didn't have low income housing or renters, is it then vacant enough for the law? That's all a little unclear.
00:07:01
Speaker
and probably meant to be explored in the implementation. So it sounds good and it was getting like zero opposition. It was speeding through. No one in any committee was voting against it. It passed the Senate 34 in favor, zero against, six not voting, which is pretty good. That's well over 75%. It was going through and it looked like it was doing well in the assembly too. And then it got a little edit on July 13th, 2023.
00:07:32
Speaker
Originally, this clause said the lot is either zoned for multifamily residential development or vacant and zoned for single-family residential development. They struck through some of the text, so now it said the lot is zoned for multifamily residential development.
00:07:49
Speaker
So, boom, they have taken out the ability to use it in single-family areas, which is a huge part of most cities, like 70% of most residential areas, really reduces the value. And also, the single-family areas are often the high-opportunity areas that people want to live. Now, who made this change? In theory, you look at the amendments, you look at who voted for it.
00:08:13
Speaker
But this was, I believe, a unanimous vote. It was applied in the Assembly Local Government Committee, and often the local government committees are the ones that are jealously guarding local privileges, though not always.
00:08:27
Speaker
And then if you look at that committee's analysis, it recommended a lot of technical changes. Like for example, they wanted to make sure that you couldn't divide up the lot, but then not build anything on it and just use the law to sell off a bunch of smaller lots for speculation. But again, the committee analysts did not say that they wanted this to happen.
00:08:50
Speaker
I believe I saw somewhere, I can't find it now, that the amendments were formally by the author, the author's amendments. I can't say for sure that. But if they were from the author, it is very possible that limiting the bill in this way was from some powerful person whispering in the author's ear, saying, we're not going to let this pass unless you make this change. Maybe this was an elected official, maybe it was someone high up in the legislature, maybe it was unelected, who knows?
00:09:18
Speaker
So that was kind of a disappointing amendment that it, at a stroke, greatly reduced the potential of this bill.
Passage and Specific Amendments of SB 684
00:09:27
Speaker
And in particular, it made some groups turn against it. California community builders, which tries to represent lower income home builders or home builders in more disadvantaged communities, California community builders actually decided to oppose it.
00:09:49
Speaker
They put out a press release that said, after praising Senator Caballero for championing homeownership, they said, in its amended form, we no longer feel the bill will help communities of color achieve homeownership and economic security.
00:10:03
Speaker
We were surprised and disappointed that Assembly Housing Committee leadership would support limiting new infill development only to neighborhoods that are generally lower income and often formerly redlined while exempting wealthier, whiter, single-family neighborhoods. The surprise amendment reinforces an unfortunate message that many people of color still feel is true. Our neighborhoods matter less to those in power than wealthy white neighborhoods.
00:10:27
Speaker
Regretfully, we have concluded that Governor Newsom should not sign SB 684 unless it is applied equitably to all neighborhoods. So there was an argument that this was no longer serving equity because it was targeting the multifamily areas that were often lower income and less white.
00:10:45
Speaker
There was another amendment that happened after that too, which was a little weird in that it set a minimum density and it said if the parcel had been identified in the city's housing element, then it had to provide at least as many units as the city projected it would have.
00:11:04
Speaker
And the housing element is a very approximate exercise. So it's a little weird to say, if the city said this place should have 10 units, then it should have at least 10 units. Granted, that's probably usually going to be a lower projection than this bill allows, but still. And then this was also a big, odd change. If the parcel is identified for homes for low or very low income household, the development will result in at least as many low or very low income units as projected.
00:11:34
Speaker
That is even more problematic, not because income restricted homes are a bad thing, but because those estimates are especially unrealistic as far as how much income restricted development is going to be there. Because they are actually allowed to say if it is zoned for 30 units per acre, they're allowed to say that 100% of the units will be low income if anything at all is developed there.
00:12:01
Speaker
They're basically allowed to assume that denser is more affordable and is restricted to lower income. And it assumes that that happens without any subsidy, just automatically. Maybe this was more true in 1985, 1990, that it was more likely to be naturally affordable if it was denser. But even then, probably not for the newest of the buildings.
00:12:27
Speaker
And it seems to me that this is going to create a very narrow hoop for these projects to jump through, because they can't go more than 10 units per lot, but they also might not be able to go below, you know, depending on the lot five and they might have to have
00:12:46
Speaker
two or three low-income households, depending on if it was in the housing element. If it wasn't in the housing element, the amendment said it has to result in at least as many units as the maximum residential density. So that's not as hard to meet, but who knows, depends on the zoning. Again, it's a bit of a tightrope. Now, despite these changes, it did sail through after those changes, and it did get passed into law.
00:13:13
Speaker
So it is part of the law now. It didn't go into effect until July 1st, 2024. That was another amendment.
Introduction of Senate Bill 1123
00:13:21
Speaker
So it has not technically gone into effect at the time that I write. One amusing thing about its progress is we were worried when it was going through Senate Appropriations Committee. That is often a committee that bottles things up, which I'll talk a little more about later.
00:13:37
Speaker
Senate appropriations has often killed important housing legislation, and its chairman, who is often in the driver's seat here, is Senator Portentino from Pasadena. And we didn't know if it would get out of appropriations, but when it did, it had a little compromise, which appeared to be extremely targeted to probably one city,
00:14:00
Speaker
It said that these projects could not be, quote, located within a single family residential horsekeeping zone designated in a master plan adopted before January 1st, 1994. That regulates lamb zone single family horsekeeping, commercial, commercial, recreational and existing industrial within the plan area.
00:14:19
Speaker
I think this is one of those towns up north, I don't know, in LA County, Pasadena, or maybe one of those east of Pasadena, Glendora, someplace that has hills and ridges that people keep horses. And Portantino probably had some friends who didn't want their places getting this. So he created an exemption for the quote, horsekeeping zones.
00:14:44
Speaker
Another funny thing is that this amendment was made before single family was taken out, but the amendment stayed in even when single family was taken out. So it was an exemption to a single family application that no longer existed, but it still went into law with really no effect. So that passed to some people's disappointment. And the second part of the story is that we came back for another pass.
00:15:11
Speaker
This year, 2024, there is another bill, Senate Bill 1123, which is trying to expand and extend SB 684 and bring back the promise that was taken away last year.
00:15:25
Speaker
So some of the things 1123 did, or does, if it passes, it has some ups and some downs. It adds back the option to do it on homes that are both vacant and zone single family. It does add the additional requirement that in that case, they cannot make a parcel that is smaller than 1200 square feet, previously was 600.
00:15:48
Speaker
I have to say I think that is probably smaller than anyone would have likely made in practice, especially when you look at the Mullen densities and see if you're dividing up, you know, a third of an acre into 30 units per acre, then you're going to get lots of 1450 square feet.
00:16:07
Speaker
So that probably wasn't a risk, but so whatever, put it there. The other things that did make the feasibility possibly a little lower, it allows them to apply the height limit. There were some other provisions that prevented cities from adding in whatever else they felt like that made the allowable density not feasible.
00:16:31
Speaker
But allowing the zone's regular height limit to apply is outside of that. So that means even if it reduces feasible density, then the city can still apply the height limit. But if they put in one affordable unit, then they can get the density bonus. And that's how current state law works. And that usually allows you to override height limits. So that might work for some places if they're large enough to accommodate one low income unit.
00:16:58
Speaker
It reduces the maximum size of a lot that can be subject to this bill. Previously, the maximum size was five acres. Now it's 1.5. So that's probably not going to affect the density too much. It clarifies that cities can also allow ADUs over and above that. So you could have a 10-unit project under this bill, and then you could add two ADUs, and it would still count under this bill.
00:17:28
Speaker
but that is an option for cities, not a requirement. It also allows these to be structured as tenancy in common instead of condos. Tenancy in common is this thing you see in San Francisco and a few other places, which is a sort of less well-defined mutual or joint ownership arrangement. It's usually used for smaller multifamily buildings. And again, not very common outside San Francisco or a little in the East Bay.
00:17:57
Speaker
So some of those reduce it a little bit, reduce the potential a little bit. Some of those increase the potential. If it passes, it'll be pretty good. It'll allow a lot more for SB 1123, allow a lot more of these ownership projects, bungalow courts.
00:18:14
Speaker
SB 1123 is also doing pretty well at this point. It got through Senate housing, Senate local government. Once again, it got no no votes. It has now passed the Senate floor with 31 votes in favor, five against for not voting. So once again, that's over 75 percent in favor. So now the question is, how does it do
Legislator Reluctance and Withdrawn Bills
00:18:35
Speaker
in the assembly? We know it had trouble in the assembly last time, so we'll have to wait and see. And
00:18:43
Speaker
call your legislator to support it. But thinking about what was the motivation that got someone to use their power to carve single family areas out of this bill, this speaks to a continued problem that I've talked about in previous episodes, which is
00:19:06
Speaker
A lot of legislators seem to think that touching single family zones is the third rail, that they will be subject to an immense backlash if they do something that really allows a lot of development, even small multifamily development, in well off single family areas.
00:19:25
Speaker
This also seems like the explanation for why Senate Bill 450, which was a cleanup to the duplex law, Senate Bill 9, died just before passing in 2023 last year, has not yet done any more movement, although it could still come back this year. That was designed to take the duplex law, which allowed duplexes on paper in every single family lot.
00:19:51
Speaker
But it had a lot of exceptions that made it not as useful as the ADU laws have been, for example. It required the project to usually be done by an owner-occupant, which ADUs, you do not have to be an owner-occupier, an owner-occupant. And both of these have in common that they are the bills that affect single-family zones. And they were also both sort of mysteriously pulled.
00:20:19
Speaker
The legislative process is designed to create transparency, but there are a lot of ways around that, and both of these bills were subject to that.
00:20:31
Speaker
Many more bills are underway, and so I am going to revisit the bills I talked about previously. So I spent a long time last episode talking about condo laws, condo defect lawsuits, set up Bill 1470, condo deposits, set up Bill 1462. Unfortunately, both of those are dead now. 1470 was about reforming the defect law. That got killed really quickly.
00:20:59
Speaker
Never had a single hearing, never had a single analysis. It seems like it got scrummed by lobbyists. In particular, the California Association of Realtors lobbied against it. And I believe that the developers, the California Building Industry Association joined in out of, I don't know, professional courtesy.
Progression of SB 937 and SB 1210
00:21:18
Speaker
And it was clear that it was not making it anywhere. And so the author abandoned it. So that was very disappointing because it was a dialogue we needed to have and they were not willing to have it. It raises the question, why would the realtors be against something that allows more units to be made for them to sell? What is it about realtors interests? I have some theories, but I will save that for another day.
00:21:45
Speaker
Another was Senate Bill 937 by Weiner that was delaying when impact fees are charged, making it so that a city would only charge impact fees once the units were ready to move in rather than once you started construction. This has had a lot of amendments, and at the start, it looks like they've limited the delay of fees to what they call priority residential development projects.
00:22:13
Speaker
which includes a lot of categories, including 100% affordable, but also anything subject to the density bonus law, and also anything less than 10 units. So if that were the only change, that would be fine. There is also some confusing language that seems to be adding back the old legal language that was in that same section that could be an exemption to the whole thing.
00:22:39
Speaker
because it exists in current law where it says the city has to wait to charge the fee unless XYZ. Well, they added back XYZ even for the priority residential development projects. I could be misreading it. I've asked for some help understanding it. This is sailing through. The others are mostly still sailing through unless I say otherwise.
00:23:01
Speaker
But 937 did, I think, pass the Senate. And it is, in whatever form it is taken now, it is moving to passage.
00:23:11
Speaker
Nancy Skinner's Senate Bill 1210 was about limiting utility fees. It has been reduced to just publicly posting the fees and the timeframes in which utility approvals and hookups happen. So we heard that was likely to happen. It does not seem to have been edited. It does not seem to have created any ability to pay the fees over time like we thought might have.
AB 2243: Expansion of Commercial Housing
00:23:34
Speaker
There was Senate Bill 1077 by Blakespear, which required coastal areas to allow accessory dwelling units, ADUs, on par with non-coastal areas. As I talked about last time, the coastal zone is a very exclusive area and has its own exclusive land use system with the California Coastal Commission.
00:23:58
Speaker
wielding a lot more discretionary control and tending to forbid housing on much easier grounds than cities are allowed to. So 1077 would have allowed ADUs to be as possible there as they are in the rest of the state.
00:24:14
Speaker
again, only in built up areas. Unfortunately, that seems to have mostly been gutted. It requires the Coastal Commission to guide local governments in clarifying and simplifying the processes by which ADUs are to be approved. So guiding is not a requirement. It's unclear that this would stop the Coastal Commission from doing the shenanigans it's been. So disappointing.
00:24:41
Speaker
Another coastal bill that I talked about previously was Assembly Bill from Assemblymember Alvarez, Assembly Bill 2560. This once again put the coastal zone in built up areas on more of an even footing with the rest of the state by allowing the density bonus law to fully apply there. Here it's a happier story. There have been some restrictions in how far it applies.
00:25:06
Speaker
Essentially, you cannot use the density bonus within 300 feet of the actual beach, within tide lands, within wetlands, anywhere that the sea level is projected to rise to this area. The sea level rises five feet, several other things. But from what I can tell, it would still apply to most of the built up coastal areas, the coastal cities, Redondo Beach, all those bad actors.
00:25:33
Speaker
And it does seem to be going through en route to passage. So that's some good news. Those are the quick hits from last time. If you can stand it, I'm going to add some new quick hits. And in the future, I will probably have to winnow these down some.
00:25:49
Speaker
I previously talked about Buffy Wicks' bill two years ago, Assembly Bill 2011, the Affordable Housing High Roads and Jobs Act. It was about allowing dense housing with some affordability component on wide commercial streets, essentially replacing dead malls and other underused commercial areas. It wasn't for industrial areas, but it did allow housing in commercial areas that had not allowed residential.
00:26:17
Speaker
So that passed and that was a, that was a big upzoning bill. No, it did not touch single family areas. But anyway, this year we have also from Buffy Wicks assembly bill 2243, which is AB 2011 cleanup and enhancement.
00:26:33
Speaker
Often when you pass a bill, you then discover in the next year, there are some things in it that did not work as well as you thought, that people have discovered there are conflicts that didn't exist before. So this makes a number of changes, and most of them are small. There is an exclusion that you cannot build under AB 2011 if you're too close to a freeway.
00:26:56
Speaker
this removes on-ramps and off-ramps from the definition. So if you're right on the border and what you're closer to is the on-ramp or off-ramp, then your measurement goes all the way to the actual highway.
00:27:10
Speaker
There was a maximum size of 20 acres. This has been moved up to 100 acres, but only for, quote, regional malls. It allows the bill to apply to industrial areas if the city already allowed residential as well as industrial or if there was residential in an adjoining lot.
00:27:28
Speaker
It allows for housing to be built within the distance of the freeway that was previously banned. But if it does that, it has to quote, provide air filtration media for outside and return air that provide a minimum efficiency reporting value of 13.
00:27:46
Speaker
minimum efficiency reporting value is an air filtration standard, often known as MERV. And 13 is, as I understand, fairly robust. So it basically means that if you build by a freeway,
00:28:00
Speaker
the residents of your building need to be protected from its pollution when they're inside. This also does the interesting move of setting a minimum density, that it basically overrides the city density. It already said in certain areas, 30 units per acre, another area is 50 or 60 or 80. Well, the new bill also adds a minimum density of 75% of whatever that number was.
00:28:28
Speaker
So once again, the window reduces a little bit, which is interesting. This passed the assembly with 71 votes out of 80. So unless someone big takes a really big whack at it, it seems pretty set.
AB 1893: Modifying Builder's Remedy
00:28:40
Speaker
Another one, I'll keep going through Buffy Wicks's ones. Buffy Wicks has a new one called AB 1893, which is reforming the builder's remedy.
00:28:49
Speaker
You may remember reading about the builder's remedy. I don't know if I've talked about it here. It is basically that if a city has not had an approved housing element, which is their plan for accommodating a sufficient amount of housing, if they're not up to date on their housing element or if it's not compliant with state standards, then builder's remedy basically gives you a zoning holiday.
00:29:11
Speaker
It allows developers to build whatever they want as long as it's 20% affordable, basically anywhere. 1893 seems to be designed to limit that a little bit, but also to make it more feasible. So far, the builder's remedy has been used in a lot of places, but not so much to build stuff as to threaten the cities and allow them to unstick projects that were already applied for. There is also, it seems, some concern of a backlash
00:29:39
Speaker
There were renderings that went around of a 50-story building.
00:29:47
Speaker
in the far southwest of San Francisco in an otherwise single family area, although replacing an old big garden center store. This is the Slope Tower. And the funny thing is, this was not actually a builder's remedy project. And it's dead now, regardless. It was relying on some very clever interpretations of the density bonus law, which would have had to be hashed out in court. But it's not going forward. The project is dead. But it seems like there were some people who were spooked by those renderings.
00:30:17
Speaker
The sense I get is that Buffywix is thinking to keep the builder's remedy, we need to reform it. So instead of having no density caps, this adds caps, but they're still pretty high. Once again, we go to the Mullen densities and it creates a differential set of densities that are your max density, depending on the high resource status of the area. So the state makes all these opportunity maps that say basically how good is your area?
00:30:47
Speaker
How much education is there? How much pollution? How much disease? How high income are people? And they divide it into a lot of categories. The top is highest resource, and below that is high resource. Under this bill, in either of those two areas, the builder's remedy allows you to build up to two times molar densities, so that's usually going to be 60 units per acre, or three times whatever is zoned, whichever is greater.
00:31:18
Speaker
And I believe you then get to add density bonus to that. So you could start with 60 units per acre, and then you could bump that up another 50% or even 100% depending how much you use the density bonus. In medium resource, low resource, it would just be Mullen densities or what you can build with the builder's remedy or two times the zoning.
00:31:41
Speaker
And in all cases, if it's near a high quality transit stop, there would be some multiplier. They haven't filled that in. It's still, I believe, a blank in the legislation. Also, it overhauls the affordability requirement because 20% affordable is actually, yeah, it's pretty difficult to achieve without subsidy. So this basically allows you to do instead of 20% low income, it allows you to do 10% very low income. So
00:32:09
Speaker
fewer affordable units, but a lower income value.
00:32:14
Speaker
And then for projects that are less than 10 units, if you want to build one of those nine-unit projects under a Comiero's bill, then there is no affordability or requirement. They can simply be market rate. And there it makes sense, I think, because that scale of project has never been very well-suited to building income-restricted units, which is more a thing for bigger buildings. There appears to be an attempt to streamline it to make CEQA not apply.
00:32:43
Speaker
Remember the California Environmental Quality Act has been a way that cities have thrown sand in the gears of the builder's remedy.
00:32:52
Speaker
That does require more affordability. It also has more requirements as to location. So I'm not sure yet exactly in how many circumstances this streamlining would apply. I've heard some grumblings that this is sort of backing off on the builder's remedy, that it is negotiating with ourselves, that there has not been an attack on the builder's remedy, so why are we withdrawing on it? So that's kind of a judgment call, I would say.
Suspense File Mechanism Explained
00:33:19
Speaker
There are also some people who want this to be a new way to use the builder's remedy, but to allow the old way to still be an option that has not emerged as an amendment. So this is still moving through, and it's an interesting attempt. There was another Social Housing Act by Alex Lee that would have set up a state agency to just build social housing directly, mixed income, so that it would be more self-sustaining with some market rate.
00:33:49
Speaker
That is dead. And I'm going to use this opportunity of the killing of a good bill to tell you a little bit more about what we mean by bills being killed and specifically the suspense file. Because this is a thing specific to California that you're sometimes going to hear about. And I think it'll foreground a lot of further discussions. The Senate and Assembly Appropriations Committee
00:34:18
Speaker
both have jurisdiction over bills that spend over any minimal amount of money. I believe it's 50,000. Don't quote me on that. So most bills fall into that category unless they're purely regulatory and have no impact on implementation. So the appropriations committees are really choke points, and it's only really powerful people who get appointed to be their chairperson. So they have what is called the suspense file.
00:34:45
Speaker
I don't know what it was originally intended to do, but here's what it does now. Basically at a certain point in the year, they take all the bills that have been referred to them and they put them all or mostly all on suspense, which is basically putting them in a holding pattern. When it's on suspense, it's not moving forward. It has to be pulled off suspense to go forward. And the trouble is this takes everyone's fingerprints off it.
00:35:13
Speaker
Because when it goes on suspense and never comes back, there has not been a vote. It has not had a vote and failed. No one is on record as having opposed it. It just didn't make it through. And who's to say whose fault that is?
00:35:28
Speaker
If you were going through leginfo.legislature.ca.gov, which is the reference for all these bills and all these amendments and analyses, if you click on the History tab and you see that a bill has been, quote, referred to suspense file, that means it went to the Appropriations Committee and it's on suspense. And it's in limbo until you hear otherwise. It does not mean the bill is dead.
00:35:55
Speaker
But then, if you see another more recent notation that it was held under submission, that means the bill is not getting out, at least not this year.
00:36:05
Speaker
So held under submission means that the bill is not moving forward. The person to blame is usually the chair of appropriations because the buck stops with them. It may be someone else in practice, but the appropriations chair could have gotten it out usually if they wanted. And this is why I commented on the role of Portantino, the previous Senate appropriations chair.
00:36:34
Speaker
I guess the current one until he's out at the end of this year. So this is a bit of a democratic deficit. You can imagine how leadership likes to be able to have some ways to kill bills without having their fingerprints on them or anyone's fingerprints on them. So they can simply say, well, it didn't get off suspense. What are you going to do? It can sometimes happen that a bill goes on suspense in the first year of a two year legislative session and comes back in the second year.
00:37:04
Speaker
Not that often. You will also hear proponents saying, well, it became a two year bill. What that means is they are going to try again next year with the same bill, but a two year bill is not a formal status. It's really an intention. And you can sometimes hear that it's a two year bill. And then later here, we weren't able to get it back. Unfortunately, it's fully dead and we have to try again next session with an all new bill.
Proposed Tax and Mortgage Deduction Revisions
00:37:32
Speaker
Okay.
00:37:33
Speaker
That is some more depressing explanation of how the California legislature works. So now let's move on to some other bills that I found interesting that are moving forward. Senate Bill 584 is not a housing production bill, but a housing funding bill. It was submitted by Limon with co-author Caballero.
00:37:53
Speaker
And it imposes a new tax, specifically a 15% tax on Airbnb and other short term rentals. 15% according to their preliminary analysis would raise $150 million a year. They would use it to build workforce housing. For some reason, they're calling it labor force housing. It would be
00:38:13
Speaker
by public agencies or by nonprofits. So the State Department of Housing and Community Development would be distributing the money to projects that they want built. These workforce housing projects would be mixed income in the sense that they would go from very low or extremely low income all the way up to moderate income, but not include above moderate, which is the people who can theoretically afford market rate housing or afford it without too much trouble.
00:38:43
Speaker
which is a choice. It means that you need a lot of subsidy, but this is developing the subsidy that you need for it. So there you are.
00:38:52
Speaker
The Housing Committee pointed out that they were requiring skilled and trained workforce, so basically a unionized workforce that may make it difficult to actually get the workforce to do it. As you recall, under current law, Senate Bill 35 has recently amended and improved. For several years, you have not needed skilled and trained workforce for 100% affordable housing, and this would be 100% affordable housing.
00:39:18
Speaker
So nonprofit, affordable developers might choose not to use this.
00:39:23
Speaker
But taxation is relevant, so that's another thing to keep in mind. Another one that has been held in appropriations that I am disappointed about, that is about taxation, is Assembly Bill 1932 by Assemblymember Chris Ward. That would have removed the mortgage interest deduction on the second properties or on non-principal residences.
00:39:49
Speaker
As you may know, as you probably know, if you have a mortgage, but many of you listening probably do not, when you pay a mortgage, some of that is interest on the loan. And some of it is the principle, which is paying off the loan. And a subsidy for homeownership that the US has maintained for a long time is that mortgage interest you deduct from your income before you pay taxes.
00:40:16
Speaker
Now, this only applies to people who itemize their deductions, and that is increasingly the higher income people. California generally follows the federal rules.
00:40:29
Speaker
And currently, California income tax, which goes up to, I forget, 12, 15% at the high level. California income tax includes a mortgage interest deduction, and it is not limited to principal residences. So you get a mortgage deduction if you buy a second or even a third home, in my understanding. Maybe they took out third homes, but they definitely give the bonus to second homes.
00:40:54
Speaker
which is a really big tax giveaway to people who not only own more than one home, but also are quite high income.
Conclusion and Future Topics
00:41:03
Speaker
So it's kind of the definition of a meaningless or needless subsidy.
00:41:08
Speaker
In addition, an analysis found that in 2020, at the federal level, 90% of the federal tax expenditure from this exemption went to homeowners with incomes above $100,000 and 63% went to homeowners with incomes over $200,000.
00:41:26
Speaker
This is to get on another of my hobby horses, the problem with tax deductions. When you make a tax deduction, that is always going to give more to the rich than to the poor. First of all, because of the itemizing thing, standard deduction means you don't get that benefit, but also because of the marginal tax rate. Like if you deduct $1,000, but your rate on that last $1,000 is 35%, then that's a $350
00:41:57
Speaker
If your tax rate was only 10%, then that's $100 benefit. So tax deductions in general are pretty regressive. But again, this is a thing we shouldn't have a tax deduction for at all. It would have taken a lot of more money from not giving that tax deduction and spent it on housing, building housing, renter subsidies, and so forth.
00:42:20
Speaker
The usual suspects, the California Association of Realtors opposed, and it was held in the Appropriations Committee. Right now, of course, the state is in the throes of budget negotiations. There is a big deficit and yet another reason why this bill should not have been killed. It could have made up cuts that the governor was making to housing programs, but that's where we are now.
00:42:44
Speaker
The budget has to be passed by the end of June and the legislative session will continue for a few more months as the bills that passed out of the first house go to the second house. Some final business is cleaned up. And then we have, of course, the wait to see what Governor Newsom signs or vetoes. So there are a lot of bills that I have not had time to cover.
00:43:08
Speaker
but this is plenty, I think, for one episode. So I will sign off with this. Please email me. If you've listened all the way through, I will give you the email address, johnnerdsonhousingatgmail.com. Email me your questions and I will see if I can answer them possibly on air.
00:43:30
Speaker
Look forward to revisiting more bills and more developments in the next episode. And until then, as always, keep on learning.