California Senate Bill 4 New Housing Law Unlocks Tax benefits for Developers, Higher Ed, Religious Groups

 In tax planning

If California wants to build its way out of its long-term housing shortage, plenty of things stand in its way in 2024: high interest rates, sluggish local approval processes, and a persistent shortage of skilled construction workers, among others. Calmatters reported that a slew of housing bills from the 2023 legislative session, which went into effect on Jan. 1, promise to ease or eliminate some of the other burdens.

Numerous faith-based organizations and non-profit colleges in California own land where local zoning codes explicitly prohibit the development of multifamily housing. To construct homes on these properties, they must first navigate the cumbersome and costly process of rezoning the land – a time-consuming undertaking that can significantly delay the delivery of much-needed affordable housing for Californians by years.   

Last October 2023, Governor Newsom signed Senate Bill 4, dubbed the “Yes In God’s Backyard” or “YIGBY” bill, into law. This groundbreaking legislation, which takes effect in 2024 streamlines the approval process for affordable housing development on land owned by religious institutions and independent higher education institutions across California. 

The bill establishes a streamlined building process that allows faith-based organizations and specific colleges to construct qualifying housing projects, regardless of existing zoning restrictions, provided specific requirements are met. By cutting through bureaucratic red tape, SB 4 aims to accelerate the development of affordable housing units, benefiting developers and the institutions that own underutilized land.  

What is the Senate Bill 4 in California 2023?

This new law represents a significant step in addressing California’s housing crisis. It fosters collaboration between policymakers, developers, and institutions to increase the supply of affordable housing options across the state.   

  • California’s groundbreaking affordable housing law opens new avenues for religious organizations, higher education institutions, and developers to collaborate and accelerate the creation of much-needed housing units. 
  • The streamlined approval process facilitates swifter project completion for developers. It opens up new revenue streams by developing underutilized land assets, providing a promising outlook for California’s future of affordable housing. 
  • Additionally, developers can leverage Section 179D tax deductions for the installation of qualifying energy-efficient systems in buildings, including the building envelope, HVAC systems, and lighting solutions. This not only incentivizes sustainable construction practices but also paves the way for a greener, more environmentally friendly future.

California’s new affordable housing law presents significant opportunities for various stakeholders to contribute to the state’s efforts in addressing housing needs. Those poised to benefit from this legislation include:

Religious Institutions – Entities owned, controlled, operated, and maintained by bona fide churches, religious denominations, or religious organizations qualify under the law.

Higher Education Institutions—Independent institutions of higher education, excluding the California Community College and California State University systems, may benefit if they own sufficient developable land before January 1, 2024.

Qualified Developers:

  • Local public agencies authorized to develop or operate affordable housing
  • Nonprofit corporations engaged in development activities
  • Developers contracting with nonprofit corporations holding a welfare exemption under Section 214.15 of the Revenue and Taxation Code
  • Developers with prior experience collaborating with religious and higher education institutions

With an estimated 170,000 acres of land owned by qualifying religious and higher education institutions across California, this law unlocks substantial potential for the development of affordable housing units through collaborative partnerships between these entities and qualified developers.

What development does the affordable housing law allow?  

Under the new affordable housing law, there are specific requirements regarding the income levels served and long-term affordability provisions:

Income Level Requirements:

  • 100% of the apartments or housing units must be designated for lower-income households, excluding the building manager’s unit(s).
  • Up to 20% of the units can be allocated to moderate-income households.
  • Religious and higher education institutions may utilize 5% of the units for staff housing.

Additional Provisions:

  • Parking Requirements: Projects must provide off-street parking up to one space per unit unless state or local laws allow a lower standard. Off-street parking is not mandatory if the project site is within a half-mile of a high-quality transit corridor or transit stop or within one block of a car-share vehicle.
  • Industrial Zone Restrictions: Development restrictions apply based on proximity to sites zoned for light and heavy industrial use and refineries.
  • Long-term Affordability Requirements: Strict affordability covenants, enforced through deed restrictions, mandate that rental units remain affordable for 55 years, while purchased units must remain affordable for 45 years.

These provisions aim to ensure the development of housing units that cater to lower and moderate-income households while promoting long-term affordability and sustainable transit-oriented development.   

What are the New Housing law benefits?

The law offers significant advantages to landowners and developers, streamlining the development process and providing financial incentives:

Streamlined Permitting and Environmental Review: Landowners benefit from an expedited permitting process and an exemption for ministerial approval of projects under the California Environmental Quality Act (CEQA). This provision could shave off a year or more from the typical development timeline, often extended due to extensive review and approval processes.

Energy Efficiency Tax Incentives: Developers can leverage Internal Revenue Code Section 179D tax deductions for installing qualifying energy-efficient systems in buildings, including the building envelope, HVAC, and lighting systems. Recent changes to Section 179D deductions allow tax-exempt entities, such as religious and educational institutions, to allocate these deductions to architects, engineers, or developers responsible for designing and installing the qualifying energy-efficient systems.

The law aims to accelerate the development of affordable housing units while promoting energy efficiency and reducing the environmental impact of new projects by streamlining approvals and offering financial incentives for sustainable construction practices.

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