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

California Assembly Bill 2011, California Senate Bill 6, JLL, Los Angeles, San Francisco, Holland and Knight
Courtesy of the Office of Governor Newsom

By Kate Snyder

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.

“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,” said State Senator Anna M. Caballero (D-Merced). “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.”

According to Holland and Knight, a multinational law firm, 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.”

Peter Belisle, president of the southwest region for JLL, said because 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.

“There’s a number of markets where you’ve got non-performing office buildings, but there’s strong residential markets,” he said.

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, Belisle believes there could be much more of an overt effect on the market. Any impact, however, won’t be immediate – Belisle 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.

Belisle also 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, he said, 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.

This kind of sustainability is also good for the environment, Belisle said, because new construction is a leading cause of greenhouse gasses. Additionally, the new laws have given some good dialogue to the issue, especially during an election season, and that could lead to more programs or legislation in the same direction.

“This has really become a political hotspot,” he said. “Regardless if you’re Democrat or Republican, it’s a hot button issue.”

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.

“The Governor’s signature on AB 2011 marks a turning point for California’s housing production needs — no longer will lack of land be an issue,” said Assemblymember Buffy Wicks. “No longer will there be a lack of incentive for workers to join the construction workforce. And, no longer will red tape and bureaucracy prohibit us from building housing in the right locations to address our climate crisis.”