Los Angeles Business Journal

Developers Stand Ground Against Housing Bill

REAL ESTATE: Foes warn state proposal may mean fewer affordable units. By Howard Fine Monday, September 2, 2013

Developers and apartment owners are fighting a bill in Sacramento that would allow the revival of requirements that they set aside a portion of their projects for low-income tenants at below-market rents, saying it would make their projects unworkable.

The bill would effectively overturn a 2009 court ruling in a case brought by an L.A. apartment developer that invalidated the low-income set-asides. It would once again allow cities to enact set-aside ordinances, called “inclusionary zoning,” with the aim of boosting affordable housing.

Proponents say restoring this tool for cities is especially crucial now that redevelopment agencies have been eliminated. Those agencies had been a key source of financing for affordable housing projects.

But developers and the investors and companies that buy their buildings say that inclusionary zoning amounts to full rent control, which is illegal under a 1995 state law known as the Costa-Hawkins Act, and will make projects difficult to pencil, if not unfeasible.

“The ability of developers to proceed with multifamily projects will be severely reduced and, in many cases, eliminated,” said Jeffrey Lee Costell, attorney and spokesman for Geoffrey Palmer, the West L.A. apartment developer who filed the lawsuit that invalidated the requirement.

And, opponents say, even if a developer decides to go ahead with a project, it would have to raise rents on the rest of the units.

“This is a tax on the middle class: The rent is set higher to offset the subsidies that the developer has to provide,” said Carol Schatz, chief executive of the Central City Association, which represents mostly downtown business and property owners along with several major multifamily developers with projects there.

Opponents also said the zoning would complicate negotiations between developers and city councils for incentives and conditions.

Backers of the bill, AB 1229 by Assemblywoman Toni Atkins, D-San Diego, say that if it passes, individual cities could still choose whether to enact inclusionary zoning laws.

“This bill doesn’t require anything; all it says is that local governments have the authority to adopt inclusionary zoning,” said Brian Augusta, Sacramento lobbyist with the Western Center on Law and Poverty, an L.A. non-profit that advocates for low-income people and co-sponsored the bill. “We also have not expanded or detracted the ability of local governments to give incentives.”

However, Costell said local governments will demand the zoning rule.

“If AB 1229 passes, cities will inevitably pass new or reinstate former inclusionary housing ordinances,” he said.

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