Passage of Measure JJJ creates concern among developers

If there’s one word that describes the Los Angeles area (and of course, there are many), it’s “sprawling.” Commercial and residential development has moved further away from downtown Los Angeles and the primary areas where people lived and worked throughout at least the first half of the 20th century. Rather than continue to build further outward, the Governor’s Office of Planning and Research has been working to support what’s known as “infill development” or sometimes “compact development.” That means building within existing developments, often in urban areas, on unused or underused land. The advantages of infill development Infill development has a number of advantages for the people and the environment of Los Angeles (and other cities where it’s used). For example, it reduces the need for people to drive their cars to and from work and other activities. They’re more likely to use public transportation or “active” transportation like bicycles. Both of these options reduce greenhouse gas emissions. It also means that less agricultural land, including sensitive habitats, has to be converted to commercial and residential development. It also lowers the costs of building and maintaining infrastructure. Infill development also helps people create a neighborhood feel that’s often lacking – particularly in more urban areas. When people live, work and socialize in a more compact area, they’re more likely to develop a sense of community. What qualifies as an “infill site” in California? Under state law, the site needs to meet at least one of the following requirements: Be in an area “previously developed for qualified urban uses” Be adjacent to land developed with qualified urban uses Have at least 75% of the land surrounding it developed with qualified urban uses Under the California Environmental Quality Act, qualified urban uses include “any residential, commercial, public institutional, transit or transportation passenger facility, or retail use, or any combination of those uses.” The law now includes industrial use in that definition as well. If you’re interested in infill development and making sure that your development meets the state and local requirements to qualify, then you’ll likely want guidance. This will ensure that you don’t unnecessarily expose yourself to legal liability.

Voters in Los Angeles have approved a new measure that imposes new requirements on certain residential development projects. Measure JJJ applies to projects where builders are seeking zoning changes, such as constructing more units than allowed or in a location where building currently isn’t allowed. Developers on these projects will be required to construct a specified number of below-market units as part of the development. The measure also requires hiring local workers at a union-scale wages. Measure JJJ will raise costs for developers The measure intends to create more affordable options for LA residents by setting aside up to 20 percent of the units in applicable new developments as subsidized housing. It also seeks to promote living-wage jobs. Developers are concerned that the new requirements will raise their costs and perhaps prevent some projects from being built at all. Hiring local workers could increase costs anywhere from 8 to 20 percent. In addition, the new requirements could drive up the price of land, as developers seek property that doesn’t require zoning changes. Unions and affordable housing advocates pushed for the measure, which voters approved by a large margin. Measure JJJ also gives incentives for developers to create housing near major transit lines. Brokers and developers warn, however, that Measure JJJ could lead to a negative effect on the local housing market. One negative effect could be fewer small developments. Many larger developments already use union labor, even though that tends to be more expensive. A well-meaning measure could have unintended consequences Another key issue is the affect of the new measure on land values. Proponents of Measure JJJ argued that putting more restrictions on development would actually contribute to a decrease in land values. This is by no means certain, however, and the opposite could easily occur. Many landowners are currently selling because prices are up. If the value drops, a significant percentage of them might wait to sell, with unpredictable effects on the market. At the same time some investors are starting to pull back from the market, sensing a housing bubble. Though investment in prime real estate locations is still at an all-time high, it is unclear how long that can continue. Measure JJJ has added another level of uncertainty to that already uncertain picture The possibility of litigation It is also unclear how many project proposals that had already been submitted to the city will be exempt from the new rules. Some applications might be grandfathered in, but others might not be. The possibility of court challenges to implementation of the rules on issues such as this is very real. If you are unsure about your situation, it makes sense to get knowledgeable legal counsel.

The sharing economy is a double-edged sword, creating both opportunities and issues. The recent agreement between Los Angeles and Airbnb on the collection of lodging taxes on short-term housing rentals (STRs) is a case in point. In this post, we will update you on this agreement, using a Q & A format. Why are short-term rentals so controversial? Proponents of STRs point to multiple benefits, including economic stimulus for neighborhoods and tax revenue for the city. For hosts, there is the chance to help make their mortgage payments and perhaps share a bit of their lives with travelers. And for travelers, STRs create more options. Critics contend that widespread use of short-term rentals results in de facto unregulated hotels in residential areas, creating noise problems and taking much-needed housing stock off the market. Critics also believe STRs hurt hotels and bed-and-breakfast establishments (who pay lodging taxes) by putting them at a competitive disadvantage. What are the current rules on STRs in LA? Renting out a home or even a room for less than 30 days is not allowed under Los Angeles’s current rules. But the city struggles to enforce this restriction, with many homeowners renting out homes or rooms for shorter stays through sharing sites such as Airbnb or Homeaway. Los Angeles is seriously considering changing the rules. The proposed rules are fairly complicated, but generally they would legalize and regulate STRs. The new rules would allow homeowners to rent out a primary residence for up to 180 days a year. Activists concerned about the effect of STRs on neighborhoods contend that is too long. The Planning Commission approved the new rules last month. The LA City Council, however, has yet to act on them. How do LA’s rules compare with other cities? Let’s take two examples, one nearby, the other up the coast. San Francisco, where Airbnb was founded, has adopted an ordinance by which STR hosts who don’t register with the city could be fined. The fines would be hefty: $1,000 a day. Airbnb has filed a federal lawsuit, seeking to block the ordinance. Santa Monica also has new rules in place. Santa Monica’s rules are among the most restrictive in the U.S., prohibiting homeowners from renting out an entire residence for less than 30 days. What about the tax aspects of STRs? The tax aspects are a story within the larger STR story. Los Angeles and Airbnb recently worked out a deal by which LA will collect lodging taxes from STR hosts. As the LA Times pointed out in an editorial, this has put the city in an odd position. Given how restrictive LA’s current rules on STRs are, Airbnb will in many cases be collecting taxes on illegal activity. The bottom line In short, regulation of short-term rentals is an evolving issue that will affect the real estate industry in Southern California for a long time to come. If you are uncertain about how the emerging rules may affect you, it makes sense to discuss your specific situation with a knowledgeable attorney.