On February 22, California State Assembly Member Toni Atkins, D-San Diego, introduced a bill, AB 1229, to restore the ability of California cities and counties to require affordable housing as part of market-rate housing developments. The bill would override a notable 2009 court decision, Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, 175 Cal.App.4th 1396 (“Palmer”), that rendered many inclusionary housing requirements unenforceable under California law.

In Palmer, the California Court of Appeal held that the Costa-Hawkins Rental Housing Act’s guarantee of the right of a landlord to set the initial rental rate of an apartment preempts local affordable housing requirements. The court held that “[f]orcing [a developer] to provide affordable housing units at regulated rates in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.” The court further determined that an option to pay an in-lieu fee does not save the validity of inclusionary housing ordinances because it still impinges on the right to establish rental rates provided by the Costa-Hawkins Act. The California Supreme Court denied review of the Palmer decision.

As a result of the Palmer case, which invalidated the City of Los Angeles’s affordable housing requirements at issue in the case, several California local governments, including the City of San Francisco and City of San Jose, suspended or revised their existing affordable housing ordinances until the Palmer decision was reversed by another court or the State Legislature. The City of San Mateo placed a moratorium on the construction of new rental housing until it could determine how to lawfully require developers to provide affordable housing. Other cities such as the City of San Diego have taken the position that existing inclusionary housing ordinances are valid. Some commentators have suggested that the holding in Palmer applies to for-sale as well as rental inclusionary housing ordinances.

AB 1229 is intended to supersede the holding of Palmer and eliminate any confusion on the ability of cities and counties to require affordable housing from market-rate developers through inclusionary zoning ordinances.

AB 1229 adds the following to the list of types of zoning ordinances a city or county may adopt under Section 65850 of the Government Code:

“(g) Establish, as a condition of development, inclusionary housing requirements, which may require the provision of residential units affordable to, and occupied by, owners or tenants whose household incomes do not exceed the limits for lower income, very low income, or extremely low income households specified in Sections 50079.5, 50105, and 50106 of the Health and Safety Code.”

The bill text is silent as to whether it applies to for-sale or rental units, meaning it will most likely be interpreted to apply to both. Last year Senator Mark Leno, D-San Francisco, introduced a similar bill, SB 184, which died in the Senate due to lack of support. Sen. Leno is a co-author of AB 1229.

The bill will likely be set for hearing before the Assembly Committee on Housing and Community Development on April 17 or May 1, and if passed out of committee, will then be referred to the Assembly Committee on Local Government. Sheppard Mullin will continue to track AB 1229 as it progresses through the legislative process.