Bad To Worse
Happy Tuesday, and welcome to another edition of Rent Free. This week’s issue takes a look at the regulatory regime holding back the Los Angeles area’s wildfire rebuilding efforts. Stories include:
- California policymakers running in the opposite direction of productive property insurance reforms,
- Nightmare tales of past wildfire rebuilding efforts being strangled in red tape, and
- One possible solution to speed up permitting for wildfire rebuilds and housing generally.
But first, a look at how Gov. Gavin Newsom’s latest “streamlining” executive order might actually make Los Angeles’ rebuilding efforts much more difficult.
Newsom’s Phony Red Tape CuttingÂ
On February 13, California Gov. Gavin Newsom issued another executive order that purports to ease burdensome red tape on property owners trying to build after the recent devastating wildfires in Los Angeles.
“We will not let overly strict regulations get in the way of rebuilding these communities,” said the governor in a statement.
Like his last two streamlining orders, Newsom’s latest directive waives the requirements of the California Environmental Quality Act (CEQA) and the Coastal Act for property owners rebuilding homes and businesses and adding new accessory dwelling units (ADUs) to their properties.
The biggest apparent innovation in the governor’s new order is a provision that exempts wildfire rebuilds in the City of Los Angeles from a state law requiring that new housing projects replace any “protected” housing units they demolish with new affordable housing.
A Positive Reform on the Surface
At first blush, this would appear to be major regulatory relief.
Under California’s Housing Crisis Act, a protected unit includes units covered by rent control, a deed restriction that caps rents, or a unit that’s been occupied by a low-income renter within the past five years.
To date, there’s been a lot of uncertainty around whether protected units destroyed in the recent fires would count as demolished units that need to be rebuilt as low-income affordable housing.
Builders have been deeply concerned they would be, given the huge effective tax that would apply to wildfire rebuilds.
Under normal circumstances, developers are only going to take on the cost of redeveloping a property if they can add more units and charge higher, market-rate rents for them. Where developers do build below-market-rate units, it’s because they’re receiving some sort of subsidy or because those units are a required part of a larger, mostly market-rate project.
If rebuilt fire-destroyed housing did have to be rented at prefire rates, “nobody is ever going to rebuild,” Mott Smith, a developer in the Los Angeles area and chairman of the Council of Infill Builders, told Reason last month.
Given that protected units include unsubsidized market-rate units occupied by low-income tenants within the past five years (regardless of what the rents were or who lived in the unit at the time of the fires), it’s even possible property owners would have to lower their rents on rebuilt fire-damaged units.
Toothless in Practice
By waiving the state’s requirement that protected units be replaced with new affordable units, Newsom’s order would seem to allay builders’ fears that they’d have to rebuild under these burdensome unit replacement mandates.
The trouble is that the city of Los Angeles just passed its own protected unit replacement standards into local law.
Two days prior to Newsom’s order, Los Angeles’ Resident Protections Ordinance went into effect. It effectively copy-and-pastes the state’s protected unit replacement requirements into local law, while also tightening them in some respects.
The governor’s waiver does not apply to Los Angeles’ new local standards.
So, the primary practical upshot of Newsom’s order would be a confirmation that protected units destroyed by fires should be considered demolished units—and, therefore, units that have to be rebuilt as low-income units.
Since Los Angeles’ Resident Protection Ordinance so closely mirrors state law and explicitly states in the text that it “shall be implemented consistent with the requirements” of the Housing Crisis Act, there doesn’t seem to be any reason to doubt the state and local unit replacement requirements are the same.
Lingering Questions
Newsom’s order does contain some potentially ambiguous language saying that state unit replacement requirements are waived “to the extent” that they would otherwise apply to wildfire rebuilds.
It would not be an atypical Newsom
Article from Reason.com
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