California’s Density Bonus Law: Incentives for Affordable Housing Development
In 1979, California passed the Density Bonus Law (Gov. Code §§ 65915-65918) to encourage affordable housing development by offering incentives to developers. This law allows developers to increase property density above the maximum that the jurisdiction’s General Plan accommodates.
If a developer requests increased density, a significant percentage of the space must include affordable dwelling units that have rents below market rate (BMR). Developers who adhere to these guidelines will receive numerous benefits, such as a reduction in required development standards.
If a developer reaches a high percentage of affordable housing, they will obtain greater benefits. This guide provides a comprehensive overview of California’s Density Bonus Law and the incentives developers gain access to.
What Is a Density Bonus?
A density bonus is an increase in the total number of residential units beyond the currently maximum allowable density. There are a couple of factors that determine the amount of the bonus, which include the percentage of affordable units and the income category of those units.
The different income categories include moderate, low, and very low. For developers, taking advantage of the density bonus can be highly beneficial. You’ll obtain the opportunity for higher unit capacity in exchange for meeting the affordability requirements.
Eligibility for Density Bonus
To qualify for the density bonus, you must meet certain requirements. For example, any housing development that’s set to contain at least five units and use some of the space for affordable units will be eligible for the density bonus. The affordable housing developments that may qualify for this bonus include the following:
- 5% of units for very low-income individuals
- 10% of units for low-income rental units or moderate income units that are for sale
- 10% very low-income units for disabled veterans, homeless individuals, or foster youth
- 100% of affordable units with an upper limit of 20% moderate units
- 20% low-income units that serve as student housing for accredited colleges
The following housing developments should also qualify for the density bonus:
- Senior housing development without affordable units
- Projects that donate one or more acres of land to the jurisdiction to be used for very low-income units
- Age-restricted mobile home park, which doesn’t require affordable units
- Projects with a childcare facility
If you meet these requirements, all units that are reserved for affordability must remain affordable for at least 45-55 years.
Types of Incentives and Concessions Available
During a standard development project, developers may be tasked with altering building plans to meet established design standards, which can involve everything from regulations on parking spaces to limits on building height. Developers who qualify for the density bonus incentive may be able to deviate from design standards and development regulations regarding height, setback, and parking requirements. These requests should lead to significant cost reductions.
An applicant can apply for multiple incentives depending on the total number of affordable units in their project. The maximum incentives that an applicant has access to can vary based on project size and affordability levels.
For example, a developer who sets aside 5% of units for very low-income individuals or families can request one incentive or concession. If 15% of the units are available for very low-income individuals, the developer can request three incentives.
For the very low-, low-, and moderate-income categories, the maximum of four concessions is only available to developers who reserve 80% of the units for qualifying individuals. In the senior income category, developers who reserve 100% of the units for senior citizens can request three incentives.
Understanding Waivers in Density Bonus Projects
In a density bonus project, a waiver is a request to modify development standards that might prevent the existing project from achieving the necessary density of affordable units. Keep in mind that requests aren’t automatically granted. The developer must provide the city with written documentation that justifies why the waiver is needed to complete the construction project.
Unlike incentives and concessions, there isn’t a limit on the number of waivers that you can request. If the development standard would physically stop the development project from going forward, you’ll be entitled to a waiver. As mentioned previously, development standards involve construction conditions like:
- Setback requirements
- Height limitations
- Parking ratios
- Onsite open-space requirements
- Floor area ratios
Even though you must justify your need for a waiver, you won’t be tasked with obtaining a pro forma. Before you request a waiver, there are other conditions aside from physical feasibility. For your request to be approved, the project can’t negatively impact public health and safety or the surrounding environment.
How to Apply for a Density Bonus
To apply for a density bonus permit, you must enter into an agreement with the Department of Housing and Community Development Services (HCDS) in your county. You can only obtain a density bonus permit if you agree to the terms and conditions associated with this law.
County employees will periodically inspect the property to ensure that you’re compliant with all requirements that come with the density bonus permit. Once you come to an agreement with the HCDS, you’ll need to provide a copy of the document to the Planning & Development Services (PDS) department.
The terms in the agreement should include the affordability rate, the length of time the units need to be reserved, and the percentage of reserved units. You’ll also be tasked with making sure that the residents who move into these units meet the eligibility requirements. If you request any incentives, you’ll need to submit a pro forma as well.
Once your density bonus permit is approved, you must negotiate and record the affordable housing agreement. This process usually takes around six to 10 weeks to be completed.
Financial Considerations and Pro-Forma Requirements
A pro forma is a type of financial document that allows you to demonstrate whether the requested incentives will provide you with significant cost reductions. In this document, you’ll need to compare the costs and revenue with and without affordable units and bonuses.
The financial information you submit helps ensure the feasibility of your project. It also supports the affordable housing project by getting you one step closer to completing it.
Special Provisions for 100% Affordable Housing Projects
Based on Assembly Bill (AB) 1763, any project that reserves all its units as affordable for households with low or very low income will receive an 80% density bonus. Keep in mind that 20% of the total affordable units can still be reserved for moderate-income households.
You may also be eligible for additional waivers if your project is located near a major transit stop. You must reserve 100% of the units for affordable housing to qualify for this benefit. The building will need to be located within a half mile of a transit stop. If you meet these requirements, you can request a waiver that accommodates a height increase of up to 33 feet and maximum controls on density.
Reserved Units and Their Impact on the Density Bonus
Before you apply for the density bonus, you must understand what reserved units are and how to implement them in your building. Affordable housing units are designated specifically for households with moderate, low, or very low income. These units are also available for senior households.
As mentioned previously, you’ll be able to claim a density bonus if a certain percentage of housing units are set aside for affordable housing. To obtain incentives when accommodating very low-income households, at least 5% of your units must be made available to these individuals and families. For moderate- and low-income households, the minimum increases to 10%.
If you intend to provide affordable housing to seniors, 100% of the units will need to be available to people who qualify as senior citizens. The maximum number of incentives that you’re eligible for depends on the total percentage of reserve units you set aside. You can qualify for four incentives if 30% of the units are made available to moderate- or low-income households. This threshold is just 15% for households with very low income.
Conclusion
There are many reasons why developers should seek incentives via California’s Density Bonus Law. The law encourages the development of more affordable housing and provides developers with financial flexibility. It also supports transit-oriented growth by providing additional benefits to developers who construct buildings near transit stops.
This law plays a crucial role in addressing California’s housing crisis by making units more affordable for households that have low annual incomes. At a time when home values throughout much of Southern California are rapidly increasing, affordable housing supports non-affluent citizens. The Density Bonus Law serves as a critical tool for balancing affordable housing with development incentives.
Jason Somers, President & Founder of Crest Real Estate
With over 15 years of professional experience in the Los Angeles luxury real estate market, Jason Somers has the background, judgement and track record to provide an unparalleled level of real estate services. His widespread knowledge helps clients identify and acquire income producing properties and value-ad development opportunities.
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