As CalWatchdog

Senate Bill 35 by Sen. Scott Weiner, D-San Francisco, requires cities that have not met their affordable housing requirements to approve projects that are properly zoned, pay union-scale wages to builders and have at least 10 percent of units in “affordable” ranges.

After months of objections from Cupertino elected officials and activists, in June, the city signed off on developer Sand Hill Property Company’s plan to convert the largely empty 58-acre Vallco Mall site to a huge multi-use project with 2,400 residential units, 400,000 square feet of retail space and 1.8 million square feet of office space

Given that 98 percent of cities have been found to have an inadequate supply of affordable housing, according to a state evaluation, the Cupertino precedent seemed potentially huge.

Two months later, new developments related to SB35 appear to point in the opposite direction.

Last week, Berkeley officials rejected a plan to use the law to fast-track approval of 260 apartments and 27,500 square feet of commercial space at 1900 4th Street just east of the Berkeley Marina despite evidence presented by developer Blake Griggs Properties that it was properly zoned and otherwise met SB35’s edicts.

City tactics in fighting project have familiar ring

The tactics that Berkeley is prepared to use mirrored the ways that construction projects have been fought in California for decades: raising a variety of legal objections that could cost developers millions of dollars because of delays, even if they have little or no validity or applicability.

Berkeley planning chief Timothy Burroughs said the project could not proceed because:

• It would have been built on land designated as a historical landmark because of a Native American burial ground. As a city with its own charter government, it is given deference in protecting its history.
•  It would have considerable low-income housing but not enough housing for those with very low incomes.
•  It would have increased traffic in the area in ways not allowed by city laws.

The objections were of the sort that Weiner sought to bypass with SB35. This is why the developer warned of a lawsuit earlier in the summer after the city put up roadblocks to approval.

But in a surprising move reported last week by the San Jose Mercury-News, West Berkeley Investors – part of the group backing developer Blake Griggs Properties – has backed out of the project without explanation. The assumption of many is that it saw the hassles as outweighing the chances for success.

The Mercury-News also reported that a spokesman for Berkeley City Hall said officials would welcome it if developers chose to reactivate a previous application that had far fewer residential units – 135 – and slightly more commercial space – 33,000 square feet.

In his Sept. 4 letter rejecting the latest version of the project, the city planning chief emphasized the historical significance of the Native American burial ground. Why that significance would lose weight in planning decisions if a smaller project were being considered was not explained.

But Burroughs pushed back against the idea his city was hostile to adding housing stock. He said 910 housing units have been built since 2014, 525 are now being constructed and 1,070 are cleared and in the pipeline.

But despite these obstacles, the Vallco Town Center project has obtained a crucial go-ahead from the city of Cupertino – providing perhaps the most telling example yet of the power and scope of Senate Bill 35, the measure by state Sen. Scott Wiener, D-San Francisco, that was enacted last year with the goal of spurring new housing construction.

The developer Sand Hill Property Co. plans to build 2,400 residential units, 400,000 square feet of retail space and 1.8 million square feet of office space at the mostly vacant 58-acre Vallco Mall property (pictured), which the company acquired in 2014. Half the residential units would fall in the affordable category.

SB35 requires cities that have lagged in meeting guidelines for new housing construction to approve properly zoned projects that have at least 10 percent affordable housing units, that pay union-scale wages to construction workers, and that meet other obligations. Cupertino is one of the nearly 98 percent of state cities that have not complied with housing construction obligations and are thus subject to SB35 fast-tracking, state officials said earlier this year.

On June 22, city planners notified Sand Hill that at the end of the initial 90-day review of the project provided for under SB35, it had been found “eligible for streamlined, ministerial review.” The developer must provide additional information during a second 90-day review process, but this is considered pro forma, and Sand Hill plans to begin construction in September.

Project may spur wave of makeovers of empty malls

The project may be a harbinger of more than just SB35’s usefulness in speeding up housing approvals. It could also signal a wave of makeovers of large shopping malls in California that were the centers of local commerce and social activities for decades but which have been hollowed out by the huge growth in online retailing.

The Vallco mall, which opened in 1976, long had nearly 200 tenants. Now only a few remain, including two restaurants, a bowling alley, skating rink and fitness center. Like many other declining malls in California, it is easily adaptable to housing and multi-use conversions because it has adequate parking and already-built infrastructure linking it to roads and mass transit. The mall is next to Interstate 280, on the other side of the freeway from Apple’s immense “spaceship” headquarters.

Even by Silicon Valley standards, Cupertino is among the most expensive cities for housing. Zillow’s latest data put its average home price at $2.36 million. Average apartment rents in May were $3,398, according to Rent Jungle.

Wiener told the San Francisco Chronicle he was “thrilled” to see the Cupertino project advance. It is likely to at least triple the number of housing units considered “affordable” in the 13-square-mile city of 64,000 residents.

Nevertheless, Cupertino Mayor Darcy Paul mostly stuck to his critical views of the project in a recent interview with the San Jose Mercury-News. He defended his comment in his February State of the City address that the housing crisis was exaggerated as being “technically” correct, lamented any reduction in local control of planning and said that his opposition was in sync with his constituents.

On a related front, Paul and other City Council members have expressed interest in imposing unique per-employee taxes on Apple to help cover the costs borne by the city because of the company’s massive long-term growth. Cupertino residents may be asked to vote on the tax next year.

A similar plan made national headlines in Seattle in May when the City Council voted unanimously to impose unique taxes on large employers like Amazon and Microsoft. Council members backed off last month after a backlash from both the business community and local residents.

Senate Bill 35 – the 2017 measure authored by state Sen. Scott Weiner, D-San Francisco, that was billed as the most far-reaching response to California’s housing crisis – could be about to get its first major test in Silicon Valley, the region with the state’s most severe problem with extreme housing costs.

Under the law, cities that have failed to build enough housing to honor their obligations under state law to respond to public needs must approve properly zoned housing projects that meet certain conditions, such as having 10 percent “affordable housing” units and paying union-scale construction wages. State housing officials reported in February that nearly 98 percent of cities would be affected in some ways by SB35’s requirement that housing be fast-tracked.

Weiner’s bill was hailed by many activists, housing experts and think tanks as a potential “game changer” that could address California’s emergence as the state with the nation’s highest effective poverty rate because of the high cost of shelter. But many local elected officials have reacted with anger and dismay to their apparent loss of control over construction permitting, with a Brown administration housing official taking withering fire at a meeting with city leaders in San Diego County in early March.

Now the question of how much say local authorities still have over housing in the SB35 era is about to be addressed in Cupertino.

Voters rejected 800 housing units; now far more may be built

Last Tuesday, officials with the Sand Hill Property Co. announced that they will seek to use provisions of Weiner’s law to compel Cupertino officials to allow their company to build more than 2,400 homes on a lot that now holds the Vallco Mall. Opened in 1976, the mall – shown above in a 2017 photo – was once a vibrant commercial hub, with nearly 200 tenants. Now it has fewer than a half-dozen.

Sand Hill had proposed a multi-use project at the mall site, but Cupertino voters in 2016 rejected the plan out of fears that its housing component of up to 800 units would strain local schools and roads. Now the company wants far more housing, especially less expensive options. Its plan calls for about 1,200 of the proposed residential units to be “affordable housing” – meaning they would be set aside for families making about $85,000 or less a year. A San Jose Mercury-News analysis said this single project “would increase Cupertino’s affordable housing stock fivefold.”

“It has now gotten to a point where we do not have any confidence that this process can come to a conclusion in a timely manner,” Reed Moulds, managing director of Sand Hill, told the Mercury-News. “This housing crisis needs to be resolved in a manner that actually provides near-term solutions, and sites like this have an opportunity to do a lot of good for the housing situation.”

The project also would include 2.2 million square feet of office and retail space.

But SB35 or not, local activists are gearing up to try to persuade Sand Hill to sharply downsize the project. The Better Cupertino group has fought development of the Vallco Mall site for years. Its website bristles at attempts to limit local control of planning and even challenges the widely held view that suburban malls such as Vallco are doomed, given the steady growth in online shopping.

But the tone, at least, of city officials seems to reflect an assumption that times have changed. Cupertino Councilman Barry Chang told the Mercury-News that he didn’t see how his city could reject the application, at least if it met the standards set out by SB35.

Cupertino, home to Apple’s headquarters, has a median home price of $2.3 million as of late February, according to data from the Zillow real-estate information company. Zillow said home values have soared by more than 25 percent in the last year alone. The Rent Jungle website said that as of February, the average monthly rent of an apartment in Cupertino was $3,114.

The first major votes on a raft of bills meant to address California’s housing crisis could come up for a vote Friday, with the Democrats who control the Legislature eager to demonstrate they know how much extreme housing costs are harming low- and middle-income families.

Gov. Jerry Brown has often been critical of plans to add new dollars to California’s traditional method of providing affordable housing – by building subsidized units that help a relatively small number of residents. He prefers to sharply streamline the housing approval process.

But after horse-trading this year with Democrats, Brown agreed to support two affordable housing initiatives, apparently in return for support for Senate Bill 35, a measure by state Sen. Scott Weiner, D-San Francisco. It would hasten approvals for new housing units in cities that aren’t creating the volume of units mandated under state law and make it significantly more difficult for local opponents to block construction.

Unlike Weiner’s measure, both the affordable housing initiatives require two-thirds support to win passage in the Legislature.

Real-estate fee struggles to win two-thirds support

One of the measures – SB3 by Sen. Jim Beall, D-San Jose – appears to have sufficient support. It would put $4 billion in general obligation bonds before state voters next year to fund construction of affordable rental units and to fund “smart growth” projects near transit centers and other housing projects. It would also provide $1 billion to the state’s veteran home loan program, which the San Francisco Chronicle reported would otherwise run out of money next summer.

The other affordable housing initiative – SB2 by Sen. Toni Atkins, D-San Diego – appears to be in trouble. It would add fees of $75 on some real-estate transactions to provide ongoing permanent funding for affordable housing, estimated at $250 million a year. The Los Angeles Times reported that in a bid to boost support, Atkins had made changes this week to her bill to provide some of the funds it would generate to local governments. But it is unlikely to win any GOP votes in the Assembly, meaning all 54 Assembly Democrats would have to support it.

Many of the 54 have already voted this year to raise gasoline and diesel taxes and to approve a continuation of the state’s cap-and-trade emissions trading program, which also makes fuel more expensive. For those in swing districts, backing SB2 may seem risky.

“My concern is that it looks and smells like a tax,” Assemblyman Al Muratsuchi, D-Torrance, told the Times.

Prevailing wage mandate in Weiner bill questioned

Weiner’s proposal reflects the Republican view that regulatory relief is the only way to build enough housing to stabilize rents and home prices. With two-bedroom apartments renting for more than $2,000 a month in most big cities – and double that in parts of the Bay Area and Silicon Valley – there’s a growing fear among California business executives that housing costs will drive off talented workers and make it difficult to recruit new ones.

But in recent days, a new GOP talking point has emerged that takes dead aim at the idea that Weiner’s bill would accomplish much. It notes that by requiring projects that win quick approvals to use “prevailing wages” – union-level pay – those projects would be far costlier than those built with non-union crews.

Earlier this year – in a fight over another bill before the Legislature seeking to require “prevailing wages” on construction projects – the Building Industry Association estimated the mandate would add $90,000 to the cost of building a 2,000-square-foot home in California.

State housing officials say California has added about 800,000 housing units over the past decade – 1 million less than needed.