Implementing State Density Bonus Law in Berkeley

November 13, 2014

City of BerkeleyPlanning & DevelopmentDepartment

State Density Bonus Law

Adopted in 1979, amended several times since

Main purpose is to promote production of affordable housing

Applies only to projects with 5 or more dwelling units (does not apply to group living)

State Density Bonus Law

3 main concepts:Density BonusConcessions/IncentivesWaivers/Reductions

State Density Bonus Law

Density Bonus = “a density increase over the otherwise maximum allowable residential density as of the date of [project] application.”

State Density Bonus Law

Maximum allowable residential density = “the density allowed under the zoning ordinance and land use element of the general plan, or if a range of density is permitted, the maximum allowable density for the specific zoning range and land use element of the general plan applicable to the project.”

State Density Bonus Law

Minimum affordability required (without bonus units):

>10% lower income (80% AMI)>5% VLI (50% AMI)Senior projectsCondo project with >10% moderate

income (120% AMI)

State Density Bonus LawRequired bonus for projects with VLI

units:

% VLI Units % Density Bonus5 206 22.57 258 27.59 3010 32.511 35

State Density Bonus Law

Required concessions/incentives for project with VLI units (without bonus units):

% VLI Units # of concessions/incentives 5 1 10 2 15 3

State Density Bonus Law Definition of “concession or incentive”:

“A reduction in site development standards or a modification of zoning code requirements… including, but not limited to, a reduction in setback and square footage requirements and in the ratio of vehicular parking spaces…”

 “Approval of mixed-use zoning…”

 “Other regulatory incentives or concessions proposed by the developer or the city… that result in identifiable, financially sufficient, and actual cost reductions.”

State Density Bonus Law

Examples of concessions awarded on previous projects in Berkeley

Additional ceiling heightReduced parkingReduced open spaceGround floor commercial space (in

what would otherwise be an all-residential building)

State Density Bonus Law Concessions must be granted unless City

finds that the requested concession:

Is not required to provide for affordable housing costs

Would have a specific adverse impact, as defined in 65589.5, upon public health and safety or the physical environment, or on any property listed on the California Register of Historical Resources, and for which there is no feasible mitigation without rendering the project unaffordable

Would be contrary to state or federal law

State Density Bonus LawWaivers or Reductions

 Basis: 65915(e)(1): “In no case may a city… apply any development standard that will have the effect of physically precluding the construction of a development… at the densities or with the concessions or incentives permitted by this section. An applicant may submit to a city… a proposal for the waiver or reduction of development standards that will have the effect of physically precluding [a project with] the densities or concessions or incentives permitted under this section…”

State Density Bonus Law

Waivers or Reductions  Waivers or reductions do not reduce or

increase the number of concessions/incentives – they implement the required concessions/incentives (and the density bonus)

State Density Bonus Law

Recent amendment (AB 2222):  Affordability required for 55 years

(previously 30 years) Existing affordable units (or affordable

units demolished or vacated in last 5 years) must be replaced as part of new project, at same level of affordability as existing

Applies to applications submitted by January 1, 2015

Berkeley’s Density Bonus Procedures:

Affordable Housing Mitigation Fee

Based on nexus studyApplies to projects with 5 or more new

rental unitsRequires fee of $28K per market-rate unitFee waived if 10% of total market-rate

units (including density bonus units) are provided as VLI units – works out to 9.1% of total

Berkeley’s Density Bonus Procedures:

Density Bonus = a density increase over the otherwise maximum allowable residential density…[65915.(f)]

Dilemma: Most housing projects are located in district without density standards – what is “maximum allowable density” in Berkeley?

Berkeley’s Density Bonus Procedures:

General Plan Density Standards

The General Plan provides density ranges but states that these are “for general planning purposes” and “are not intended to be used as standards to determine the maximum allowable density on a specific parcel,” and that “allowable densities… are established in the more detailed and specific Zoning Ordinance.”

ZONING DISTRICTS WITH NO DENSITY STANDARDS

Types of Projects Allowed in these Zoning Districts:

Mixed-Use Projects• Commercial• Residential

Commercial Districts and MU-R

Multi-Family Residential Projects

Commercial Districts, R-3,R-4, R-S, R-SMU

Four Basic Steps

1) Calculate the “Base Project”2) Calculate Density Bonus3) Review Concessions4) Grant waivers/reductions of

development standards

Step 1: Define the Base Project

Project Site

STREET

ADJACENT LOT

ADJACENT LOT

Conditions:1. Comply with all codes

(zoning, building, fire, etc.)

2. Substantially consistent with “by-right” portion of proposed project (e.g. setbacks, commercial uses, etc.)

“Maximum Allowable Residential Density”

Site of Proposed Project

Step 1A Result: Square Footage, Residential Use

Green = Residential

Blue = Commercial

STEP 1B: DETERMINE PROPOSED PROJECT’S AVERAGE RESIDENTIAL UNIT SIZE

A. Proposed Residential Area (sq. ft.)

B. Proposed Number of Units

C. Average Unit Size

A / B = C

Results Thus Far:

STEPS ITEM VALUE

1.A Base Project Floor Area 40,000 sq. ft

1.B Average Unit Size 2,000 sq. ft

1.C Base Project Unit Count 20 units

2.A # of Affordable Units

% of Affordable Units

2.B % Granted for Density Bonus

2.C # of Density Bonus Units

Proposed Density Bonus Project

Step 2: Define the Density Bonus Project

4 Affordable Units = 20%

% Granted for Density

Bonus = 35%

Density Bonus Units

= 7

Total Possible Units:

27

Results:

STEP ITEM VALUE

1.A Base Project Floor Area 40,000 sq. ft

1.B Average Unit Size 2,000 sq. ft

1.C Base Project Unit Count 20 units

2.A # of Affordable Units 4 units

% of Affordable Units in Base Project

20%

2.B % Increase Granted for Density Bonus

35%

2.C # of Density Bonus Units 7 units

Proposed Density Bonus Project 27 units

Concession Analysis

Project Assumptions

Base Project (100% market rate)

10% Very Low Income units

35% Density Bonus

C. Density Bonus & Concessions

Units 20 MR 18 MR2 BMR

25 MR3 BMR

25 MR3 BMR

Ceiling height

8 ft. 8 ft. 8 ft. 9 ft.

Yield (NOI/ Costs)

5.2% 4.5% 4.9% 5.2%

Return on Equity (Cash Flow/ Cash Equity)

3.5% 3.0% 3.3% 3.4%

Step 4: Waivers/Reductions granted (option 1)

Step 4: Waivers/Reductions granted (option 2)