Construction & Claims: January 2024

Nossaman eAlert

Welcome to Construction & Claims, a periodic digest of the headlines, statutory and regulatory changes and court cases involving construction news, claims, bid protests, contract administration and payment-related disputes. 

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Legislation Aimed at Increasing Affordable Housing in California Signed into Law 

Governor Newsom signed Senator Scott Wiener’s Senate Bill 4 and Senate Bill 423, which took effect on January 1, 2024, and collectively aim to significantly increase affordable housing stock across California.

Senate Bill 4, the Affordable Housing on Faith Lands Act, allows affordable housing to be developed on property owned by churches, faith institutions and nonprofit colleges without the need for rezoning or discretionary approval processes or review under the California Environmental Quality Act (CEQA). Many such institutions own excess land that could accommodate affordable housing, but have been blocked from developing housing on that land by zoning laws or other permitting processes in their cities. Senate Bill 4 removes these barriers and streamlines the process by providing a process that allows faith institutions and nonprofit colleges to build qualifying housing projects regardless of zoning restrictions if certain requirements are met. There are strict affordability requirements, which will be enforced via deed restrictions for 55 years on rental units and 45 years on purchaser units. One hundred percent (100%) of the units must be designated as affordable with at least eighty percent (80%) of the units for lower income households, up to twenty (20%) of the units for moderate income households and up to five percent (5%) of the units for staff of the religious institution or education institution. Affordable housing is defined by reference to 80% or less of the “Area Median Income” determined by the Federal Department of Housing and Urban Development. According to Senator Wiener, Senate Bill 4 will open up 170,000 acres of land for affordable housing.

Senate Bill 423 extends and expands Senate Bill 35, a soon-to-expire law introduced by Senator Wiener in 2017 that requires local governments that are failing to meet state housing planning targets to streamline affordable housing projects. Projects that qualify for Senate Bill 35 are exempt from discretionary entitlements and are not subject to the requirements of the CEQA. Studies suggest that, measured by the number of new units added, Senate Bill 35 has been effective: an August 3, 2023 study by UC Berkley concludes that it has added 18,215 new housing units across the state. Senate Bill 423 will extend the operation of Senate Bill 35 until January 1, 2036, as well as extend exemption from CEQA and discretionary entitlements for housing projects. Additionally, Senate Bill 423 will add new labor standards. While Senate Bill 35 required the use of “skilled and trained” labor for all but 100% affordable projects, Senate Bill 423 creates a three-tiered regime for projects that include market-rate units: (1) projects with fewer than 10 such units have no additional labor provisions, (2) projects between 10 and 50 such units must pay prevailing wage and (3) projects with more than 50 such units must employ apprentices and provide health care for workers. 

Senate Bills 4 and 423 aim to address California’s housing and housing affordability crises by simplifying and expediting the approval of new housing and will affect the housing construction landscape in California for the foreseeable future.

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