New Laws allowing Housing to be Built in California’s Underused Commercial Properties

In a bid to both alleviate the state’s housing crisis and make use of empty or abandoned commercial properties, Governor Gavin Newsom earlier this year signed legislation that would allow certain sites currently zoned for retail, office and parking to be transformed into residential space. The two bills – California Assembly Bill 2011 of 2022 and California Senate Bill 6 of 2022 – were signed into law by the governor on Sept. 28, and proponents of the newly-enacted laws believe this will provide an opportunity for more families to be able to afford homes, but what does this mean for Commercial Real Estate?

The Middle-Class Housing Act or SB 6 can result in the construction of at least two million housing units and is one solution to build up and avoid sprawl. SB6 gives local governments the option for an expedited development process to avoid the property remaining vacant. SB6 includes strong worker protections to ensure that homes built under SB6 pay workers fair wages and prioritizes the use of a skilled and trained workforce. The bottom line is that SB6 is transformational for cities and middle-class families which coupled with historic state investments, families will have a real chance at being able to buy a home of their dreams.

The two laws create three potential pathways for housing developments on commercial properties, and each bill has its own detailed process for establishing permissible density and other applicable development standards for residential development on sites where commercial zoning applies

Office space is shrinking as more of the workforce goes remote, this will allow housing to be built in place of unused commercial properties, ultimately benefiting the changing need for space.

While the impact of the new laws may not be felt in some of the smaller communities, in larger cities like Los Angeles and San Francisco, where there’s a lack of affordable housing, there are some that believes there could be much more of an overt effect on the market. Any impact, however, won’t be immediate – it was pointed out that the process of delivering a multifamily project is approximately two to three years, so he would expect the results of these new laws to not appear in any significant sense until then.

It’s noted that these new laws are just one of several steps that he thinks need to be taken in this direction to address the housing problem that is “not unique to California. Construction costs have increased so much, that companies find themselves needing to charge more in rent without pricing themselves out of the market. At the same time, construction costs are starting to flatten in some cases and multifamily project costs could start to drop.

In addition to allowing housing to be built in underutilized commercial sites, the new laws are slated to generate thousands of jobs with health benefits and good wages that encourage apprenticeships as well as increase the use of public transit by ensuring that housing is built near existing transit or near corridors for new transit, according to the governor’s announcement.

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