California statutes dealing with density bonuses say that a city or county is required to grant a developer a density bonus (or other housing incentive or concession of equivalent value) to a for-profit developer or non-profit developer who agrees to construct housing that is affordable for persons of "very low" or "low-income," with only a few exceptions.  It also states that a city must adopt an ordinance that specifies the procedures for processing and approving such developer incentives.

In the recent case of Latinos Unidos del Valle de Napa y Solano v. County of Napa, 217 Cal. App. 4^th 1160 (2013), the Court of Appeals overturned a portion of Napa’s local density bonus ordinance.  The ruling held that cities and counties must count "Inclusionary Housing Units" towards satisfying density bonus standards set forth in State law.

Under State law, Inclusionary Housing Units are a percentage of units in market rate rentals or condos that are required to be "affordable," as defined by cities and counties. 

The Court based its ruling on the fact that Napa’s density bonus ordinance counted only those units in excess of the units required by the county’s inclusionary housing ordinance in determining whether a project would be eligible for a density bonus and other concessions under the State density bonus laws.  In light of this decision, experienced land use attorneys in San Francisco are wondering whether it is time to finally review its density bonus ordinance (actually, its lack thereof) to determine whether it meets the Court’s holding in the Latinos Unidos case.

The State density bonus law mandates that a density bonus or other development standards concession must be granted to a project sponsor upon certain criteria being shown.  The most important criterion for the developer is to demonstrate the economic need for the bonus or concession once the project’s inclusionary units exceed a certain threshold, generally about 10 percent.  In other words, if a project sponsor can show that providing more than 10 percent of the units as affordable housing under an inclusionary housing ordinance would lead to an economically infeasible project, the required criteria could be met.  San Francisco has long refused to give density bonuses or concessions except to projects that are 100 percent affordable, and then only through site-specific rezonings (called special use district ordinances).  The process of creating new site-specific ordinances is expensive and time consuming;  it is equivalent to a "spot" rezoning and acts contrary to a 1999 clarification from the Legislature that the granting of a density bonus shall not be interpreted, in and of itself, to require a zoning change.  Thus even 100 percent affordable projects may be subject to a long expensive rezoning that is not necessary.

This ruling might provide a useful impetus to confront our local housing affordability crisis.  The Napa ruling could be particularly helpful for the production of middle-income housing, one of the City’s notable weaknesses.  Such housing is now generally infeasible to build outside of the highest priced new residential neighborhoods without some density bonus or other development standard concession from the City.