What is Driving the City’s Housing Policy? RHNA!

Beverly Hills is now entertaining a wide-ranging discussion about housing affordability and accessibility and the key issue is how the city can provide stability to residents today while accommodating housing demand in the future. Cutting right to the heart of the matter is state’s Regional Housing Needs Assessment: an obscure and complicated process for assigning to localities some responsibility for providing new dwelling units in order to meet that demand. In fact RHNA as it is known drives every significant housing conversation in our city today.

The Regional Housing Needs Assessment (RHNA) is nothing new. Five decades ago the state required localities to actually plan for providing housing and four decades ago the state followed up legislation to require localities to formalize housing goals and policies in what is called the housing element of the locality’s General Plan.

The state mandates that the housing element to be updated on a regular basis to reflect changed conditions, demographics, and, crucially, anticipated demand for housing. Beverly Hills updates ours on an 8-year cycle and we are entering the next cycle (2021-2029) soon.

Despite the housing obligation, many localities, including Beverly Hills, arguably do not produce or permit dwelling units sufficient to meet demand. Statewide that has produced a housing crisis as supply now badly lags demand.

Beverly Hills for example couldn’t provide a housing element that met the state’s requirement, and so it had not been certified by the state prior to the last (2013-2021) update cycle. Our city produced relatively few dwelling units and a vanishingly small number of those units were categorically ‘affordable.’

Given the crisis in housing affordability, Sacramento is newly focused on adding to the housing supply and is leveraging the RHNA process to compel localities to do provide their fair share.

What fair share means is debatable, of course, and at present localities in our region, including Beverly Hills, are negotiating with the regional planning agency, Southern California Association of Governments, over how to allocate the required new dwelling units as determined by the state. The bigger the number, the greater the impact on development in our city. In that regard, the RHNA process is driving multiple conversations about housing in Beverly Hills today.

Introduction to the Housing Element

Our city’s General plan is a policy statement that expresses a collective vision about how our city will grow over time. The foundation of the plan is informed by community values: how we want to grow and how we will accommodate growth (because growth is inevitable) through identified goals and objectives. Simply put, the General Plan is our plan for the future. A key part of our General plan is a chapter called the housing element.

The housing element is one of nine required elements along with land use, circulation, open space, safety, air quality and others. While each thematic element focuses on a specific issue, they are in fact interrelated. Housing is not merely the provision of dwelling units but is one aspect of planning that also touches on circulation patterns, schools, environmental justice, and equity. (Transit-oriented development for example finds housing integrated with commercial uses and located near transportation.)

The state mandates that certain General Plan elements be updated on a regular basis and Beverly Hills revisits our housing element every eight years. We are about to embark on the next (2021–2029) housing element update.

About the Regional Housing Needs Assessment

Driving any housing element update is the state’s Regional Housing Needs Assessment (RHNA) which translates anticipated demand for housing across the state into regional obligations for new dwelling units and then, at the local level, an allocation of required units. The local allocation is determined according to a formula developed by our regional planning agency, the Southern California Association of Governments (SCAG).

As SCAG describes it, “This process allows communities to anticipate growth, so that collectively the region can grow in ways that enhance quality of life, improve access to jobs, promote transportation mobility and address social equity and fair share housing needs.”

The RHNA is required by state law. Government Code §65583 regulates the housing element, which must include an “analysis of existing and projected housing needs and a statement of goals, policies, quantified objectives, financial resources, and scheduled programs for the preservation, improvement, and development of housing.”

The important thing here is the regional housing assessment:

(a) The assessment and inventory shall include all of the following:
(1) An analysis of population and employment trends and documentation of projections and a quantification of the locality’s existing and projected housing needs for all income levels, including extremely low income households….
(2) An analysis and documentation of household characteristics, including level of payment compared to ability to pay, housing characteristics, including overcrowding, and housing stock condition.
(3) An inventory of land suitable and available for residential development, including vacant sites and sites having realistic and demonstrated potential for redevelopment during the planning period to meet the locality’s housing need for a designated income level, and an analysis of the relationship of zoning and public facilities and services to these sites.

With the state getting increasingly serious about addressing the housing crisis, the RHNA process will ensure that Beverly Hills can no longer skate on our fair share of the housing burden by, say, showing the state a draft housing element that it could not certify as having met the state requirement (which we long had). We can’t simply build a couple of market-rate condominiums each year (as we have done) and expect to call it a day. RHNA will force our hand.

The equity requirement under RHNA in particular demands our city think about housing. For example, during the prior 8-year cycle of the housing element update (2013–2021) our RHNA obligation was only three dwelling units. But that low number was an historical anomaly: our stable population and the economic downturn kept the requirement very low. But in the current update cycle (2021-2029) our RHNA obligation will rise substantially. (The actual local dwelling unit requirement won’t be known until the fall of 2020, but the magnitude of the obligation is becoming more clear now.)

The RHNA obligation does not mean the city has to actually build the dwelling units (though it can if it chooses). Rather the obligation requires a locality to identify opportunities for new housing; and to remove constraints that might discourage production. The private sector can then build to the required number of dwelling units. In other words, as long as a dwelling unit is permitted for construction, then it will count toward our RHNA obligation.

Greater Demand for Housing Means a Larger RHNA Number

Take one look at rising rents and we can see that demand is outstripping our supply of rental housing. And it’s not just rental housing but all categories of housing where supply is failing to meet demand. Consequently the state is upping the RHNA ante for this housing element update cycle.

Where prior cycles identified the regional housing obligation to be on the order of 700,000 dwelling units (2006–2014) or 400,000 (2013–2021), the housing crisis and the improving economy together will push-up the RHNA numbers this cycle.

In fact draft RHNA numbers for our region were recently previewed for the Planning Commission — and the big number raised some eyebrows. In the coming 8-year cycle, commissioners were told, the state may require Southern California to ensure more than 1 million dwelling units are added. That’s 250% more than the last cycle. Here is the video from the commission’s discussion.

https://beverlyhills.granicus.com/MediaPlayer.php?view_id=57&clip_id=6721&starttime=8305

The 1+ million regional number is sobering for a city that builds relatively few units. “We should be thinking, starting right now, as to how we will comply with these requirements,” said Commissioner Peter Ostroff. “We’re going to have an obligation to do something dramatically different than we have have done.” And Beverly Hills must formalize our thinking in our next housing element.

How many dwelling units will Beverly Hills be allocated? That won’t be known until late 2020 after the regional planning agency finalizes the regional numbers. But estimates presented to the commission by our planners put our number somewhere between 488 units and 1,600 units for the upcoming 8-year cycle. Even that low-ball 488 figure would include a very substantial number of lower-income units: as many as 95 low-income and 143 very-low-income dwelling units.

Let’s put those numbers into perspective: over the prior 8-year cycle (2013-2021) our city barely met the three unit RHNA requirement. What if our share this cycle is significantly higher? How would the city meet that obligation? Especially when it comes to required lower-income units….it’s is a heavy lift even to generate a unit or three under existing voluntary state and local incentives. It’s much easier to build luxury!

Wow — That’s a Lot of Housing!

Subsequent to the Planning Commission discussion the state released a determination for our region: Southern California should expect to add 1.3 million new dwelling units over the upcoming 8-year cycle, according to the state determination. That’s one-third more than the million that stunned the planning commissioners.

With that state determination in hand, our regional planning agency, SCAG, will now divvy that obligation into local allocations according to a formula. Currently the formula shows three options but all imply a significant obligation. The local allocation is generally described by these SCAG illustrations.

RHNA methodology projecting housing need equation

RHNA methodology determining housing need across income levels equation
These illustrations show what goes into the local allocation formula. The essence is that projected growth establishes a baseline, which is then modified to reflect demand for housing, which then results in an allocation of required units across tiers of affordability relative to household income.

Again the affordable requirement is the real challenge. “Each jurisdiction must receive a fair share of their regional housing need,” the SCAG methodology says, “including a fair share of planning for enough housing for all income levels.”

To put a fine point on it, SCAG is indicating that nearly 60% of those 1.3 million required units be affordable to moderate (or lower) income households. That is one quarter of the total required units. To achieve that goal the agency will likely require localities to over-produce affordable units relative to current need and future demand.

The agency calls it a “social equity adjustment” and it will prove quite challenging where land costs are high and height limits for residential development are quite low.

RHNA Methodology social equity adjustment across three options
The draft RHNA methodology applies the ‘social equity adjustment’ across the three options for determining the local allocation.

The regional planning agency has previewed its methodology to divvy up those 1.3 million required dwelling units into local allocations and there is plenty to question. Specifically, the proposed formula weights proximity to “high-quality” transit when allocating the local obligation. (After all, it is the state’s objective to put development near transit to reduce car trips and emissions.) Indeed our RHNA allocation will likely show Beverly Hills should provide a proportionately greater allocation relative to other localities. Why? Because 83% of our land lies near a “high-quality transit area,” according to the agency.

Beverly Hills Pushes Back

Pubic comment is part of the whole RHNA process and City Hall is taking its equivalent of three minutes at the microphone to push for a change to the formula. In a city letter to the agency, officials argue against assigning a housing obligation based on transit proximity. Instead the agency should more heavily weight the formula to reflect anticipated job creation, the letter says, so that “existing jobs/housing imbalances are not further exacerbated.” (That point is debatable as the process is intended to redress inequities in past housing production.)

However our city’s letter to the regional agency goes on to make a very cogent point that would be relevant to any household that rents an apartment in Beverly Hills:

In the City of Beverly Hills, 63 percent of the housing units are located in multi-family buildings. The majority of this multi-family housing is subject to rent stabilization, which helps ensure that the City maintains a wide variety of housing types for our residents. In addition, the City is entirely built out, with almost no vacant land upon which to construct new housing. Due to these factors, almost any new multi-family units that are constructed would be displacing existing residents, most of whom are in rent controlled units.

To his credit, our mayor, John Mirisch, has been aggressive about pursuing progressive housing policies that include keeping our rental housing stock stable. However the message from Sacramento officials is that there will be no escape from our obligation this time. To put a fine point on it, a parade of bills in Sacramento have sought to strip localities of their power to determine how and where to build housing (call it the nuclear option).

RHNA is Driving Housing Policy in Beverly Hills

City Hall is cognizant of the need for housing and of course officials saw new RHNA numbers coming a mile away. But the closer the final state determination came the bigger those numbers seem to get! In response to that sizeable obligation to provide new dwelling units the city is undertaking several important initiatives:

The city has required a ’nexus study’ of a developer building the new Friars Club because the construction of relatively few ultra luxury condominiums won’t meet even today’s housing needs down the household income ladder;

The city is undertaking a mixed-use housing study to identify appropriate development requirements and standards that could be permitted ‘by right’ in commercial areas (whereas several recent such developments — including Friars Club — were approved on an ad-hoc basis);

The city is undertaking an inclusionary housing study to evaluate policy options that may require developers to provide affordable housing as a condition of project approval — a policy that our municipal neighbors use to great effect to get affordable housing built;

The city is looking hard at preservation strategies (including Mills Act incentives which we described in our explainer, Mills Act: The Key to Multifamily Preservation?) as well as a variety of other means to keep rent-stabilized housing stock on the market; and,

The city has shown a renewed interest in maintaining the stability of households that rent in rental housing (even beyond the amendments to the rent stabilization ordinance that reduced the cap on the maximum annual rent increase and eliminated no-just-cause evictions).

Upcoming posts will address each of these initiatives but know for now that our approach to housing as a whole is being driven by the RHNA numbers. That’s not to say that equity concerns like housing affordability and accessibility are not important to policymakers, though, and Mayor John Mirisch has led the charge on equity by stressing the importance of preserving affordable rental housing, for example.

But again the state is facing a housing crisis, and there is nothing so good at focusing the collective mind than a crisis. Except maybe a giant RHNA number!