How California Developers Exploit Affordable Housing Laws to Strong-Arm Cities

BY BEN CHRISTOPHER, CalMatters

Late last fall, a Southern California developer dropped more than a dozen mammoth building proposals on the city of Santa Monica that were all but designed to get attention.

The numbers behind WS Communities’s salvo of proposals were dizzying: 14 residential highrises with a combined 4,260 units dotting the beachside city, including three buildings reaching 18 stories. All of the towers were bigger, denser and higher than anything permitted under the city’s zoning code

City Councilmember Phil Brock attended a town hall shortly after the announcement and got an earful. A few of the highlights: “Godzilla next door,” “a monster in our midst” and “we’re going to never see the sun again.”

“‘Concerned’ would be putting it mildly,” Brock said of the vibe among the attendees. “A lot of them were freaked.”

As it turns out, freaking locals out may have been the point.

WS Communities put forward its not-so-modest proposal at a moment when it had extreme leverage over the city thanks to a new interpretation of a 33-year-old housing law. Santa Monica’s state-required housing plan had expired and its new plan had yet to be approved. According to the law, in that non-compliance window, developers can exploit the so-called builder’s remedy, in which they can build as much as they want wherever they want so long as at least 20% of the proposed units are set aside for lower income residents.

Over the last two years, local governments across California have had to cobble together new housing plans that meet a statewide goal of 2.5 million new units by 2030. At last count, 227 jurisdictions — home to nearly 12 million Californians, or about a third of the state population — still haven’t had their plans certified by state housing regulators, potentially opening them up to builder’s remedy projects. 

As it turns out, freaking locals out may have been the point.

That gives developers a valuable new bargaining chip. 

WS Communities used its advantage in Santa Monica to broker a deal in which it agreed to rescind all but one of its 14 builder’s remedy projects in exchange for fast-tracked approval of 10 scaled-down versions. 

“The builder’s remedy — the loss of zoning control, the ability of a developer to propose anything, Houston-style, whatever they want, no zoning regulations — that gets people’s attention,” said Dave Rand, the land-use attorney representing the WS Communities. “The builder’s remedy can be a strategic ploy in order to potentially leverage a third way.”

For the developer, the settlement — which still needs a final vote to fully be implemented — is a major win. But this use of a long-dormant law also represents a shift in the politics of housing in California, reflecting a new era of developer empowerment bolstered by the growing caucus of pro-building lawmakers in the Legislature.

“The old games of begging municipalities for a project and reducing the density to get there and kissing the ass of every councilmember and planning official and neighbor — that’s the old way of doing things,” said Rand. “Our spines are stiffening.”

It’s hard to know just how many builder’s remedy projects have been filed across the state. YIMBY Law, a legal advocacy group that sues municipalities for failing to plan for or build enough housing, has a running count on its website of 46 projects, though its founder, Sonja Trauss, admits that it’s an imperfect tally.

Some of the projects, like those in Santa Monica, are towers with hundreds of units. Others are more modest apartment buildings. Whatever the total, Trauss said it represents a significant uptake for a novel legal strategy.

“There were a lot of naysayers who were like ‘it’s too risky,’ ‘nobody knows what’s gonna happen,’ ‘nobody’s gonna do it,’ blah, blah, blah,” she said. “I feel vindicated. You know, people are trying it.”

But counting just the units proposed under the law misses its broader impact, said UC Davis law professor Chris Elmendorf.

Multiple cities rushed forward their housing plans this year, with city attorneys, city plannersand councilmembers warning that failure to do so before a state-imposed deadline could invite a building free-for-all.

“All the action is in negotiation in the shadow of the law,” said Elmendorf. The law “may result in a lot of other projects getting permitted that never would have been approved because the developer had this negotiating chip.”

Rediscovering the California Builder’s Remedy

If it’s possible for someone to unearth a forgotten law, Elmendorf can rightly claim to have excavated the builder’s remedy”

The Legislature added the provision to the government code in 1990, but no one used it for decades. In the one case Elmendorf found where someone tried—a homeowner in Albany, just north of Berkeley, who wanted to build a unit in his backyard in 1991 without adding a parking spot — local planners shot down the would-be builder.

Elmendorf stumbled upon the long-ignored policy 28 years later while researching East Coast laws that let developers circumvent zoning restrictions in cities short on affordable housing. 

He started tweeting about it. He even dubbed the California law the “builder’s remedy,” borrowing the coinage from Massachusetts.

“I think it’s fair to say that people in California had forgotten about the builder’s remedy almost completely until I started asking about it on Twitter,” he said. “​​I think those twitter threads led some people to say, ‘huh.’”

Among those who noticed: staff at the state Housing and Community Development department who began listing the “remedy” as a possible consequence of failing to plan for enough housing.

Why was the builder’s remedy largely forgotten? The text of the law is complicated and it’s only relevant once every eight years, when cities and counties are required to put together their housing plan. Plus, though it allows developers to ignore a city’s zoning code, it’s not clear that it exempts them from extensive environmental review, making the cost savings of using it uncertain.

But more importantly, up until recently, invoking the builder’s remedy — the regulatory equivalent of a declaration of war — was bad for business.

Historically, local governments have had sweeping discretion over what gets built within their borders, where and under what terms and conditions. Developers and their lawyers hoping to succeed in such a climate had to excel at what one land use attorney dubbed the art of “creative groveling.”

But in recent years, as the state’s housing shortage and resulting affordability crisis have grown more acute, lawmakers have passed a series of bills to take away some of that local control. In many cases, cities and counties are now required to approve certain types of housing, like duplexes, subsidized housing apartments and accessory dwelling units, as long as the developer checks the requisite boxes.

That’s all led some developers to rethink their approach to dealing with local governments—one that is less concerned with building bridges and isn’t so afraid to burn a few.

Santa Monica Makes a Deal

Santa Monica’s city council voted unanimously for the deal with WS Communities early last month—but grudgingly.

In exchange for the developer pulling its original proposals, the city agreed to a streamlined approval process for the new plans. The council also agreed to pass an ordinance to give the developer extra goodies on the 10 remaining projects.

If the city doesn’t pass the ordinance, according to the settlement, WS Communities has the right to revive the builder’s remedy for all 14 towers.

Councilmember Brock, elected in 2020 along with a slate of development-skeptics, was hardly a fan of the deal. But as he saw it, the prospect of a lengthy legal battle that the city’s attorney insisted Santa Monica would lose gave the council little choice. That didn’t make what Brock viewed as a hard-knuckle negotiating tactic any easier to swallow.

Elmendorf stumbled upon the long-ignored policy while researching laws that let developers circumvent zoning restrictions in cities short on affordable housing. 

“I don’t believe for a minute that they ever planned to build all those projects,” he said.

Councilmember Caroline Torosis, who was elected last fall, laid the blame on the prior council for failing to pass a timely housing plan. Even so, she said the city had no choice but to reclaim control over its own land use from the developer.

“We were put in a difficult situation,” she said. “I think that this was absolutely the best negotiated settlement that we could have reached, but of course, they had leverage.”

Both Scott Walter, the president of WS, and Neil Shekhter, the founder of the parent company, NMS Properties, refused a request to be interviewed through their lawyer, Rand. 

But in true property kingpin fashion, WS was able to flip these builder’s remedy proposals into things of even greater value: ironclad plans that it can build out quickly or sell to another developer.

“The builder’s remedy projects were anything but fast and certain,” said Rand. “This has been parlayed into something with absolute certainty and front-of-the-line treatment.”

Affluent California Cities Fight Back

About an hour’s drive northeast of Santa Monica, the foothill suburb of La Cañada Flintridge recently rejected a builder’s remedy application.

During a May 1 hearing, Mayor Keith Eich stressed the city was “not denying the project.” Instead, they were denying that the builder’s remedy itself even applied to the city.

The argument: The housing plan the council passed last October complies with state law. California’s Housing and Community Development department rejected that version of the plan and has yet to certify a new one. But La Cañada’s city attorney, Adrian Guerra argued at the hearing that the agency’s required changes were minor enough to make the October plan “substantially” compliant.

That’s not how state regulators see it. In March, the housing department sent the city a letter of “technical assistance.”

“A local jurisdiction does not have the authority to determine that its adopted element is in substantial compliance,” the letter reads.

Not so, said Guerra: “The court would make that determination.”

A number of cities across the state have made that argument. Among them are Los Altos Hillsand Sonoma. Beverly Hills is already fending off a lawsuit contending that the law applies to that city, though it recently rejected a builder’s remedy project on extensive technical grounds.

It’s a question that’s almost certain to end up in court. A recent California’s Fifth Circuit Court of Appeal ruling offers legal fodder to both sides.

The April opinion ruled against the state housing department’s certification of the City of Clovis’ housing plan. That’s a point for those arguing that the word of state regulators is not inviolate. But the ruling also noted that courts “generally” defer to the state agency unless its decision is “clearly erroneous or unauthorized.”

Down the coast, the City of Huntington Beach isn’t relying on such legal niceties. In March, the city council passed an ordinance banning all builder’s remedy projects under the argument that the law itself is invalid. Days later, the Newsom administration sued the city.

But in Santa Monica, city council members didn’t see much upside in pushing back.

“You can’t just fight a losing battle,” Brock said. “I think anybody who decides they’re gonna be an all star NIMBY is up for failure.”

This article originally titled "‘Godzilla next door’: How California developers gained new leverage to build more homes" appeared first at CalMatters here: https://calmatters.org/housing/2023/06/california-builders-remedy/

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.