Newmark PCG

August 05, 2022

California’s recent Regional Housing Needs Assessment (RHNA) allocation is drastically changing residential zoning throughout the state. Santa Monica is one of the most impacted cities. We drafted this overview as a reference document for property owners to better understand how the zoning changes.

In 1969, California established the Regional Housing Needs Assessment (RHNA), which mandates that city and county general plans account for the housing needs of all residents—regardless of income— through a housing element. The California Department of Housing and Community Development (HCD) calculates the housing needs throughout the state and distributes housing development requirements to councils of governments. In Southern California, one council of governments is the Southern California Association of Governments (SCAG). In practice, SCAG receives housing mandates segmented by income level where, for example, 50,000 very lowincome units could be required in Southern California. It is SCAG’s duty to allocate the figures from HCD to cities and counties. Due to its significant impact on zoning, allocations are heavily lobbied.

In 2019, the RHNA calculation method changed. The calculation changed to combat the housing shortage. The old calculation planned to meet the needs of regional job and population growth. However, the State believes the old calculation did not effectively allocate housing near job centers and led to housing shortages. The new calculation uses the California Department of Finance’s population projections, people per household, demolished units, vacancy rates, and a margin of safety to address overcrowding. The change in the calculation resulted in a significantly higher housing mandate throughout California.

Housing elements are updated every eight years to coordinate with state and federal planning requirements. SB 375 (2008) directed the California Air Resources Board (CARB) to reduce greenhouse gas emissions from transportation. CARB’s goals must be written in regional transportation plans (RTP) every five or eight years to match federal Metropolitan Planning Organization (MPO) requirements. Federally funded, MPOs ensure the cooperation of transportation policy between cities and counties. MPOs must update RTPs every four or five years, depending on their pollution status determined by the U.S. Environmental Protection Agency (EPA).

The EPA measures many sources of pollution and grants either attainment or non-attainment status to an MPO. Attainment status means an MPO meets EPA standards, and non-attainment status means an MPO does not meet EPA standards. SB 375 dictates that non-attainment status requires a new housing element on alternating RTP updates, or every eight years. SB 375 also dictates that attainment status allows cities and counties the option of updating their housing elements every five or eight years. Updating a housing element is time-consuming and expensive, so local governments generally choose eightyear schedules.

As discussed, the 6th cycle RHNA allocations distributed in 2021 are significantly larger than before. Santa Monica’s most recent allocation increased more than four times the 5th cycle in 2012. The changes to the RHNA calculation increased the number of new housing units allocated around major job centers. Many job centers in beach cities, with historically difficult and lengthy development timelines, are forced to comply or face penalties.

Between 2017 and 2022, the State Legislature passed laws to increase affordable housing development. If local governments do not follow the rules, they are penalized. One state requirement is housing element certification granted by HCD. HCD certification means the housing element is compliant with all state laws and meets a local government’s RHNA allocation. Local governments have until October 15, 2022, to adopt a certified housing element for the latest required update. Without certification, a housing element is deemed non-compliant and opens the local government to penalties.

The list below details select penalties for non-compliant municipalities.

Loss of State & Federal Funding: If local governments do not have a certified housing element, they are no longer eligible for some state bonds, grants, and loans. Examples of state programs that require housing element compliance are The Community Development Block Grant Program and The Infill Infrastructure Grant Program. Additionally, some state funding does not require a compliant housing element, but the program provides “extra points” on applications for compliance. Examples of state programs that give “extra points” are The Local Partnership Program and The Transit and Intensity Rail Capital Program.

Lawsuits & Attorney Fees: Local governments with non-compliant housing elements are vulnerable to litigation from housing rights’ organizations, developers, and the Attorney General’s Office. Local governments may incur higher legal fees if lawsuits become more prevalent.

Lawsuits & Attorney Fees: Local governments with non-compliant housing elements are vulnerable to litigation from housing rights’ organizations, developers, and the Attorney General’s Office. Local governments may incur higher legal fees if lawsuits become more prevalent.

State Fines & Fees: If a court finds a housing element to be non-compliant, the court can levy fines, payable to the Building Homes and Jobs Trust Fund, attorney’s fees to the plaintiff, or both [Cal. Gov. Code 65585]. State fines are structured with a minimum of $10,000 per month and a maximum of $100,000 per month. However, continued non-compliance allows the state to multiply these fees by a factor of three to six.

Court Approval of Projects: The courts can approve certain projects if the local government has a non-compliant housing element [Cal. Gov. Code 65589.5]. The projects must have either 20% lower income units or 100% moderate income units. Additionally, the courts can take away land use power from a local government. In Mejia v. City of Mission Viejo (2006), the court removed three parcels from the City’s land use jurisdiction for affordable housing.

Loss of Permitting Authority: Courts have the authority to issue a moratorium on all building permits if the housing element is not HCD certified [Cal. Gov. Code 65755].

Court Receivership: Courts may appoint an agent who may take all governmental powers necessary to remedy identified deficiencies and bring a housing element into compliance [Cal. Gov. Code 65585].

Sources: California Legislature, Fair Housing Elements, and Association of Bay Area Governments

Santa Monica's RHNA Allocaiton & Status of Housing Plans

The City of Santa Monica’s RHNA allocation for the 2021-2022 update is 8,895 units. The current allocation is roughly four times the number of units required by the last RHNA allocation in 2012. Of the 8,895 units, the City must plan for 6,168 units (69%) to be deed-restricted lower-income housing. Lower-income housing means very low, low, and moderate-income residents. Lower-income ranges between 0% and 120% of the average median income. The remaining 2,727 units are to be market rate units. Market rate is above moderate- income or greater than 120% of the average median income.

Income Category RHNA Allocation
Very Low Income (0%-50% of AMI) 2,794
Low Income (51%-80% of AMI) 1,672
Moderate Income (81%-120% of AMI) 1,702
Above Moderate Income (>120% of AMI) 2,727
Total 8,895

About the Author(s)

Authored by Newmark Private Capital Group’s Vice Chariman Sean Fulp and Financial Analyst Jordan Garcia.