The land use entitlement process in California is notoriously complicated, lengthy, and fraught with uncertainty. Less attention is paid to the process of receiving building permits, post-entitlement. Generally, this process is more straightforward because the local agency’s review is limited to ensuring state and local building code compliance. Accordingly, the issuance of building permits is typically a ministerial act, not subject to the discretion of city or county officials and not appealable. In San Francisco, however, post-entitlement building permits are shielded from appeal to the Board of Appeals only if the project has received a Conditional Use Authorization from the Planning Commission, per Charter section 4.106(b). AB 1114, introduced by Assemblymember and former San Francisco Supervisor Matt Haney, would extend this protection to other residential projects that have received, for example, only a Downtown Project Authorization or a Large Project Authorization.

AB 1114 provides that building permits for projects that are “at least two-thirds residential” are not subject to appeal. It builds on prior legislation, AB 2234, which set strict timelines for local agencies to respond to and issue post-entitlement building permits for housing development projects that comply with existing application requirements. If adopted, the bill would apply these timelines to qualifying San Francisco housing projects and protect them from building permit appeals, regardless of the underlying entitlement obtained.

In the Assembly Committee reports, Assemblymember Haney stated that the legislation is necessary because it can take almost two years to obtain a post-entitlement building permit in San Francisco, in part because of the potential for building permit appeals, and that as a result, the city “is struggling to build housing and is falling behind the rest of the State on its affordable housing goals.” The Committee reports cite California Department of Housing and Community Development data indicating that it can take an average of 450 days to obtain entitlements in San Francisco and an average of 524 days to get permits to commence construction for an entitled project—the longest of any jurisdiction that permitted more than 10 projects.

The bill recently passed the Assembly and is moving through the Senate. We will continue to track its progress and provide status updates.

In an Executive Directive dated February 7, 2023, Mayor London Breed declared that “San Francisco needs to fundamentally change how we approve and build housing.” The Directive, titled “Housing For All,” comes on the heels of the Board of Supervisors’ January 31^st adoption of its updated Housing Element, addressing San Francisco’s Regional Housing Needs Allocation (RHNA) of a daunting 82,000 housing units for the next eight-year cycle. (See earlier posts here and here).

With high construction costs and lengthy project approval processes, San Francisco produces only a few thousand units each year. Combining these ongoing challenges with the steep decline in demand for office space resulting from the pandemic, San Francisco is facing both an ongoing housing crisis and a less vibrant Downtown. The Mayor’s Executive Directive pointedly acknowledges these issues, identifies office-to-residential conversions in Downtown as one potential way to help resolve them, and directs that City officials and departments take specific, immediate actions to facilitate more housing development in the City.

The following are the key actions regarding housing production, generally listed by implementation deadlines:

• Create New Funding Mechanisms: By February 14, 2023, the Office of Economic and Workforce Development was directed to advance legislation to create new financing opportunities for pipeline projects that have been unable to move forward due to financing constraints, including authorizing the creation of new infrastructure financing districts (IFD). On that date, legislation was introduced by the Mayor and Supervisor Walton to create and establish rules for an IFD for the Potrero Power Station project site south of Pier 70, which would allow construction to commence on the project’s first 105 residential units.
• Remove Barriers for Office-to-Residential Conversions: By April 1, 2023, the Planning Department and DBI are directed to propose legislation to amend code requirements to facilitate the conversion of existing office uses to residential uses in Downtown San Francisco to spur pandemic recovery efforts. (Recognizing the opportunity that office-to-residential conversions present to help both the housing crisis and Downtown’s vibrancy, the Board of Supervisors also adopted a resolution on February 14, 2023 asking the Planning Department to report on potential candidates for conversion in the Downtown core, and to issue public facing criteria for office to residential conversions.)
• Reduce Procedural Requirements that Impede Housing Production: By May 1, 2023, the Planning Department is directed to advance an initial package of legislation that will remove unnecessary fees and procedural constraints that obstruct the development of housing, including eliminating Conditional Use Authorizations for certain types of housing developments.
• Housing Element Accountability and Oversight: An Interagency Implementation Team is charged with creating a Housing Element Action Plan that will describe specific steps for achieving the goals and actions set forth in the Housing Element and meeting the City’s RHNA obligations, to be presented to the Mayor by July 1, 2023.
• Reform Restrictive Zoning Controls: By January 31, 2024, the Planning Department is directed to present rezoning proposals that will allow the City to meet its RHNA target.
• Permit Review Timelines: City departments involved in development permitting, including Planning and the Department of Building Inspection (DBI), are directed to review their permit processes and reduce overall permitting timelines by at least 50% by February 1, 2024. Also by that date, the Planning Department is directed to eliminate the current Preliminary Project Application process and establish new procedures for providing early design feedback to large projects.
• Revise Inclusionary Housing Requirements: Following issuance of recommendations from the Controller’s Office (no date specified), the Planning Department is directed to propose modifications to the City’s inclusionary housing program and draft legislation that will increase overall housing production while serving the City’s affordable housing goals.

We will continue to monitor the City’s various legislative and administrative responses to the Mayor’s Directive and provide further updates.

Local landlords and owner-groups filed a lawsuit in San Francisco Superior Court last week in response to the recently-passed Proposition M, also known as the Empty Homes Tax Ordinance. We previously covered the new San Francisco legislation here. The Empty Homes Tax Ordinance imposes an Empty Homes Tax (the “Tax”), which ranges from $2,500-$20,000 per unit, applies to vacancies of more than 182 days in a tax year within residential buildings with three or more units, and is effective as of January 1, 2024. It passed in November 2022 with 54.5% of the vote.

The lawsuit was filed by the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, the San Francisco Association of Realtors, and four individual landlords. The lawsuit argues that the Tax is intended to force property owners to rent their vacant units by imposing burdensome charges, and thereby the Tax violates the Takings Clause of the Fifth Amendment of the U.S. Constitution and the state Ellis Act by penalizing owners for exercising their rights under those provisions.

The lawsuit also argues that the Tax threatens the constitutionally protected privacy interests of due process and equal protection by, among other things, exempting units that are rented to strangers but not units that are rented to close family members. The Empty Homes Tax Ordinance provides that the Tax applies when a unit is vacant (unoccupied, uninhabited, or unused) for more than 182 days in a tax year, and none of the exemptions enumerated within the Empty Homes Tax Ordinance apply. One exemption is where the unit is subject to a bona fide lease with a third party. This so-called “Lease Period” exemption does not apply to a lease with a close family member. In other words, a unit is considered vacant and is subject to the Tax if a close family member leases the unit but does not occupy or use the unit for more than 182 days in a tax year, whereas if the unit is leased to a bona fide third party, that third party need not occupy or use the unit at all for the owner to avoid the Tax.

We will monitor the lawsuit and continue to provide further updates when they are available.

Contact Real Estate attorney Caitlin Connell at cconnell@coblentzlaw.com for additional information.

 

Voters in San Francisco and Oakland approved[1] two measures with significant implications for residential property owners: San Francisco’s Proposition M, also known as the Empty Homes Tax, and Oakland’s Measure V, which expands Oakland’s Just Cause for Eviction Ordinance.

Proposition M – the Empty Homes Tax (San Francisco)

The Empty Homes Tax provides that owners of San Francisco properties with at least three residential units will be taxed on any residential unit that is vacant for more than 182 days in a tax year, whether consecutive or not. The tax ranges per unit for each year of vacancy, depending on the unit’s size, from $2,500-$5,000 for the first year, to $5,000-$10,000 for the second year, and $10,000-$20,000 for the third year and beyond.  These amounts are subject to adjustment for inflation. The assessed funds will be deposited into a Housing Activation Fund to support housing for elderly and low-income residents and rehabilitate multi-unit buildings for conversion to affordable housing.

Exceptions to the tax include single-family homes, two-unit buildings, primary residences, units intended for travelers or other transient occupants, and units owned by nonprofit organizations or government entities.  In addition, the tax does not apply during certain periods of time following: (i) a building permit application for the repair, rehabilitation, or construction of a qualifying residential unit; (ii) City issuance of a building permit for repair, rehabilitation, or construction of a qualifying residential unit; (iii) a natural disaster that severely damages a qualifying residential unit; (iv) City issuance of a certificate of final completion and occupancy for a new qualifying residential unit; and (v) the death or medical absence of an owner-occupant of a qualifying residential unit.

The Empty Homes Tax is effective as of January 1, 2024 and will expire December 31, 2053. Owners of qualifying residential units (e.g., a building with 3 or more residential units, not owned by a nonprofit or government entity) must file an annual return in the form and manner to be prescribed by the Tax Collector.

The Empty Homes Tax is the third such tax in the United States, following Washington, D.C., which reportedly generated $9.4 million from a similar tax in calendar year 2016, and Oakland, which reported gross revenues from its empty homes tax in the amount of $7.3 million in calendar year 2020. Vancouver, British Columbia, has a similar law that generated the equivalent of $21.3 million US dollars in calendar year 2019; and in the first year after the tax was adopted, Vancouver had a 21.2% reduction in vacant units.[2]

The Empty Homes Tax has similarities to San Francisco’s previously enacted Commercial Vacancy Tax, which became effective on January 1, 2022.  The Commercial Vacancy Tax applies to ground floor, street-facing commercial space in certain commercial districts that is vacant for more than 182 days in a calendar year. The Commercial Vacancy Tax is calculated at an initial rate of $250 per linear foot of storefront facing the street, increasing to $1,000 per linear foot for the third or greater year that a space is vacant. Filing and payment of the Commercial Vacancy Tax will first become due on February 28, 2023.

Measure V – Expanding the Just Cause for Eviction Ordinance (Oakland)

Oakland’s Measure V passed with 65% of the vote, expanding Oakland’s eviction protections in several ways.

The pre-existing Just Cause for Eviction Ordinance (Oakland Municipal Code Chapter 8.22, Article II) (“Just Cause Ordinance”) provided eleven just causes for an eviction of a residential tenant, including, generally: failing to pay rent; failing to cure a breach of the lease; refusing to sign a new lease after lease expiration; damaging the premises and failing to repair the same; disturbing other tenants; using the premises for an illegal use; refusing the landlord’s reasonable entry; a move-in by the owner or its qualifying relative; removal of the unit from the rental market; and the owner’s performance of substantial upgrades. A local COVID-19 eviction moratorium that is still in effect prevents most evictions in Oakland, even those permitted under the Just Cause Ordinance. When the Oakland City Council lifts the local emergency, the moratorium will end and Oakland will revert to the Just Cause Ordinance, as amended by Measure V.

Previously, the Just Cause Ordinance only applied to residential rental units (“Rental Units”) built before 1996. Measure V extends the eviction protections to Rental Units of any age, except during the first 10 years after the issuance of a certificate of occupancy for a newly constructed Rental Unit or building containing Rental Units. Measure V also extends the Just Cause Ordinance to tenants of Vehicular Residential Facilities, which includes qualifying motor homes, travel trailers, truck campers, camping trailers, and park trailers.

Measure V prohibits “no-fault” evictions of children enrolled in school and educators during the school year. No-fault evictions are those unrelated to a tenant’s actions, such as an owner move-in or removal of the Rental Unit from the rental market. Evictions due to the fault of the tenant, such as failure to pay rent, may still be pursued at any time during the year.  Measure V also removes from the list of “just causes” for eviction a tenant’s refusal to sign a new lease when its lease expires, and clarifies that an eviction based on illegal use does not include residing in a Rental Unit that violates building or planning codes.

Finally, Measure V clarifies that if an owner (or qualifying relative) fails to comply with move-in rules following an owner move-in eviction, the landlord must allow the tenant to move back into the Rental Unit at the same rental rate the tenant was paying when they vacated, and the landlord must pay the tenant all of its expenses incurred to return to the Rental Unit.

We will continue to provide further updates when they are available.

Contact Real Estate attorney Caitlin Connell at cconnell@coblentzlaw.com for additional information.

 

 

[1] See San Francisco Chronicle article linked here and Alameda County Election Results website linked here.

[2] See City and County of San Francisco Board of Supervisors Policy Analysis Report dated January 31, 2022, available here.