Norris Bruce
May 17, 2019

ADUs, SB 1069, and SB 13 Part 2 With Senator Bob Wieckowski #643


Aaron Norris is joined again this week by Senator Bob Wieckowski, who he interviewed back in November. He’s been a representative since 2014 for the 10th Senate District in California, which stretches from Southern Alameda County into Santa Clara County. Mr. Wieckowski chairs the Environmental Quality Committee and budget Sub-Committee 2 on resources, environmental protection, energy, and transportation. He is also a member of the Senate committees on judiciary, budget, and fiscal review, transportation, and housing and ethics. He’s been one of the leaders in the accessory dwelling units space. Today they will continue their discussion ADUs, SB 1069, and SB 13.

Episode Highlights

  • What transportation is covered under SB 1069?
  • What should investors and homeowners understand about local building standards?
  • Are historic zones a part of SB 1069?
  • How will SB 13 impact mitigation and impact fees?
  • Are HOAs and CCNRs included in the bill?
  • What can people do if they want to support SB 13?
  • When will it go up for a vote?

Episode Notes

Aaron began by talking about how he got to see the person in charge in L.A. of their transportation department. They’re really working on a lot of multi-modal. For the cities that are doing that for the half mile rule, it may not even apply to L.A. Aaron asked if he was speaking mainly about trains and buses, or at some point will it include those scooters and bikes that these companies are leaving on the sidewalks. Bob said in 1069, there is a thing called Ride Share. It’s a provision that’s much closer than half mile, maybe even on your same block where you have a Ride Share. It did not say “Automobile Ride Share Program,” it just said Ride Share. Aaron thinks there is a fee, but if LA Dot builds it into part of their multi-modal transit system then the scooter should apply as Ride Share.

Cities can always do what they want to do. Bob is dealing with those 282 cities that aren’t aren’t doing what the state law says. He hopes that some of the more urban areas that are adopting ordinances would get clever. The new bill requires ordinances to allow an 850 square foot structure, and that’s up from eight hundred square feet. Aaron asked if there is any backstory to that. Bob said they wanted to have a one bedroom and include one bedrooms versus efficiencies. Your investors would know you can get a one one bedroom, but a lot of times that just creates one big huge efficiency. Instead, they wanted to have different types of ADUs. That’s why he did twelve hundred. They say that you limit it to 1200 because it was it they want that 2-bedroom, and Bob wanted to give them another option of ADU.

Aaron said after living in New York City for seven years, 850 square feet is quite generous. The bill also spells out that if there’s more than one bedroom, it’s up to 1000 square feet. Bob is really locking in more specifics here. Bob said two years ago, LA was looking at a prototype that was going to be a thousand square foot, two story. However, the footprint was only 500 square feet. This meant it was going to be a 500 double-decker, a two story ADU in the backyard. We are in crisis, and some people need that extra space. Right. It makes it attractive to the homeowner who has a 2500 square foot house that says they are going to downsize instead of going out to Del Webb Community. Instead, the’re just going to stay right in their own backyard. They could move into the ADU, travel the world, and rent out the front. It’s brilliant.

Aaron asked what investors and homeowners should understand about local building standards. He wondered what overlays they can do now, whether it be historic districts or the size of the lot. Sometimes it feels like investors are educating the planning department. This is why he wanted to be clear on what overlays are acceptable. Bob said some have the hazardous area, like an earthquake zone, landslide zone, or state zone for fires. Not every city has restrictions on these, and in fact most cities don’t. But there are areas like Fremont that have a landslide area that’s been mapped much to the chagrin of all the people who bought houses in the landslide area. Those existing restrictions on development is what they are trying to get.

The other building standards are the physical look of the house. He does not speak disparaging of the one-story ranch style stucco houses that are predominant in California, but rather he is thinking about city ranch that’s got the the weathered red wood paneled outside building. If you owned a lot and you want to put an ADU in there, they said you can’t just put in the mission style stucco house. It has to have these restrictions and this exterior look.

Aaron asked if historic zones are still a possible overlay. Bob said yes and that they were a part of 1069. Aaron thinks one of the biggest changes that this audience will be excited to hear about is the owner occupant requirement. Aaron asked if this is one of the biggest hurdles that you’ve been disappointed in watching the cities do by making this change. Bob said yes and that it’s nonsense, especially when you you think about owner occupancy. There’s a study that came out with the four biggest cities that don’t require owner occupancy. Portland is in there, and Vancouver is another one. This whole fear of this whole private equity firms coming in, buying up every house that exists, and building ADUs is just unwarranted. It just hasn’t occurred.

If you own a commercial building, you don’t require that the owner of the commercial building have space in the commercial building. Bob already owns an apartment complex. If he owned a fourplex, he wouldn’t say you have to live in one of the fourplexes. This isn’t done on any other form, and all of a sudden somebody’s sitting back in the planning department or legal apartment saying we should require owner occupancy.

In the foreclosure crisis, a lot of people lost their houses, and a lot of investors bought these houses because you could buy a house for a quarter of a million dollars and it cost $400,000 to build. If you have $250,000, who doesn’t take that deal? You don’t even have to rent it out. It’s just an investment, so that that ship has sailed. Those people already lost those homes. Investors don’t go in when the market’s high right now and by things. Maybe somebody does, but normally you buy low and sell high. If you bought one hundred houses in Pasadena and wanted to put ADUs in all of them, then it shouldn’t be a problem. It just seems like unnecessary restriction.

The topping on the cake is that banks don’t like it, especially when it comes to the deed restrictions. In some of these cities, their ordinances say if you build an ADU, you have to put a deed restriction on the title of your land. That way, when you sell it the person has to make it owner-occupied. It’s restricted, and this is something SB 1069 will wipe out. The problem is if you are a bank, you have a mortgage on the house, and you go into foreclosure, you cannot cannot foreclose on the property and take it unless you take owner-occupancy. They will recall all those loans, and that’s a nonstarter. No you would never agree. Cities just want to throw up whatever monkey wrench they can put into the system, so that’s what they’re trying to correct.

Aaron said from the investor standpoint, it’s very difficult to go into these different cities who have not created an ordinance and take that risk. They won’t if they’re aware of this and build an ADU if they don’t have clarity on the bill. One of the things they are warning investors on is short term rentals. That part of the ADU conversation that happened as the cities were having to write these ordinances was that they were probably going to put restrictions on short term rentals and vacation rentals in the city. Aaron understood this because the bill is trying to address affordable housing.

Aaron asked if this an overlay that the local municipalities will still be able to do. Bob said he is agnostic on the short term rentals, but he considered it. It just it seems. He represents Milpitas, California. He has no idea who would want to do an Airbnb here. If the Niners are in the Super Bowl and you’re six miles from the game, then that’s once every 20 years. If you’re in a city where you have an ADU and you want to rent it out for something like that, it makes sense. Some folks don’t want to limit that use, and that’s up to the local control.

Another one of the big changes was if the municipality doesn’t give you a permit in 120 days, it was considered approved. SB 13 now moves it to 60 days. Aaron was curious why this change was necessary. Bob said he started off with 60 days on SB 1069. It got through the Senate at 60 days, got into the assembly on the housing committee, and it was one of the things that the cities and counties were bellyaching about not being able to get it done. He was saying how it’s ministerial and should be done in six minutes, not 60 days. These plans should be approved all over the counter, but they were complaining. When the Chair got involved, it was one of those negotiations where Bob decided to accept the amendment since originally he was fighting it.

What’s funny is you do some research, and you find out that there was a 1977 law that said the Permitting Streamlining Act required all decisions to be made from the cities and counties within 60 days. When he goes back to 1069 and thinks about the critics who are criticizing the bill and saying what we cannot do. The Legislature will come in and argue with him about issuing permits for a high rise commercial building within 60 days and not putting in an ADU. Meanwhile, Bob is trying to be willing to listen to the critics and compromise.

He decided to do it on his own. His staff did the research and found out that this is a 1977 law, so they had to comply with it anyway. That’s why it’s back. You can imagine that if they raised the issue again, they can’t approve it. They’re not doing your job. They should be ministerial, and you should have guidelines so the investor community knows this is one and done. He went in for an hour to get his permits, but it was misleading from the advocates that wanted it for a longer period time and were saying they couldn’t get it done.

Aaron asked about the logistics of it and If he were an investor or homeowner going in to get the permit, and it’s just not getting done after day 60, it’s considered approved. Aaron asked if this would lead to him having any problem with the city and if they can fine him. He wondered what ramifications the city would have against him. Bob said they wouldn’t have any, but who wants to go to court. Your investors are investors, they’re not saying they want to go to court. This is whey they put in the language about HCD, or Housing Community Development, having authority and the Attorney General being the backstop. The Attorney General is our attorney.

There are some cities now where the people have had permits and were hanging out there for a year and haven’t gotten approved. You can’t thumb your nose at at the law. The idea is to give some enforcement mechanism. That creates a cost, and that’s why Bob is in front of the Appropriations Committee right now to review what that cost is. He thinks it’s unnecessary costs. Even he wasn’t changing the law with SB 13, he would need to have that mechanism in any way because you can’t have cities just ignore people’s right to develop their property. That’s the bottom line.

One of the questions about SB 13 had to do with mitigation fees and impact fees. Aaron has heard some crazy things from different utility companies trying to charge $20,000 to school districts. Aaron asked what a homeowner investor should expect and what’s reasonable at this point if this were to go through. Bob said a 750 foot unit pays no impact fees whatsoever. Done. If you’re at 750 feet or less, then you’re not paying any impact fees. Currently, if you have less than 500 feet and an AD, you pay no school impact fee.

Last year’s bill said there was a school impact fee, and people were trying to say their garage was 400 square feet because it was 20 x 20. Bob said he wouldn’t pay a school impact fee anyway, and the schools are saying they need this money. Studies show it’s single digits, and these ADUs have kids. It’s 8% or 6% depending on what what study you’re looking at. He wants to think it is young professionals living in these things, but it could have a family. If you have over 750, then it’s 25% of what the impact fee is. The cities can pay less and waive the fee overall, but that’s his compromise decision on what the fees are.

Aaron says he has a builder on the line that says he’s been building these, and the utility water meter upgrades are costing up to $10,000 in some cases. One of the issues is different people reaching out to make some money. That’s why in 1069 they had the proportional language. The argument was if you had a four bedroom house and paid their development fee, this was the time of Ozzie and Harriet when mommy and daddy were in one bedroom and the three little pigs were in the other three bedroom. There were five people using the toilets, water, and electricity. You don’t have to be a genuis to know that four bedroom house typically has two people in it. So putting an ADU on it means you’re still only three people stressing out the system. You’re below what was originally put in. Even if you put two people in the ADU, you’re below the five people that were in there. This was his theory on the proportionality. Everyone was fiddling around; and if you have an old house, you should probably upgrade your electricity anyway. Bob had already done a remodel of his house, and he had two electrical boxes. You have to pay it, but it should be the homeowner’s decision of what they what they want to do.

Aaron asked what people can do if they are interested in supporting him in SB 13 and what they can do to encourage our legislators to vote on this. Bob said the best thing they can do is contact their senator and their assembly member and tell them SB 13 is the best thing since sliced bread. Tell them you want them to vote for it and get the commitment. Send them text or email and make sure that they know that that you’re watching them and want it passed. This is a piece of solving the housing crisis that we have, and it makes sense. That’s the biggest thing. If people send copies of that to Bob’s office, they collect them and see how many people are supporting it and from where they’re coming. Typically they will try to put that into his opening statement. He has heard from all 58 counties from members who want to build the ADUs, and they’re having problems.

Aaron asked about the upcoming SB 13 and what is being proposed versus what is happening. The city of Hawaiian Gardens has a moratorium, and they just extended a year for lots less than 7500 square feet. They’re saying they’re doing it for a parking study, so Aaron wondered if this should be allowed at this point. Bob said absolutely not, not under the current law. You can’t have a moratorium on ADUs, and you can’t have a minimum lot sizes at 7500 square feet. It’s just more games. The passage of that ordinance would have been voided under 1069. Right now, HCD doesn’t have that muscle or the person to go in and say what is void and give them a copy for the homeowner and the person with the ADU. It is ok for them to work on their ordinance; but they have to comply with 1069, which says there’s no moratorium or minimum lot size.

Aaron asked what we can we do when we’re running into these problems. Do we contact the state and ask for a letter from Greg Nicholas up there saying what is not allowed. Aaron asked what ramifications we have at the local level. You can hire an attorney and sue the city. These people are homeowners, they’re not litigants. You send it to HCD, and they keep track of it. Sometimes they will make a friendly phone call. But beginning on January 1, they’re going to be able to take action on this. This is one of these arguments that he is trying to make with his colleagues and the members of the assembly. San Diego is doing a wonderful job, and they are trying to figure out what to do. They want to encourage this versus these other cities, so it’s a nightmare.

Aaron next asked about HOAs and CCNRs. Even if SB 13 goes through, it still would not apply for those private communities. Bob was tempted to include HOAs since they fall into different categories. There’s some HOAs that are basically tract homes in the city built to save money. It’s like they all got together to build an HOA and discuss what works. Is there a clubhouse that they run together? What makes this a homeowner’s association other than just the way they are similar to the organization at the beginning versus a townhouse condominium. Assembly member Friedman has a bill that would extend the 1069 and the ADU ordinances to fit the homeowners associations.

Aaron asked Bob if he would like real estate investors to send case studies to his office. One investor Aaron knows says the city of Chula Vista in San Diego is charging $15,000-$25,000 for fees for an ADU on top of permitting fees. These are the kinds fo things they have been running up against. The permitting fees are going to stay there. It is the impact fee for which they’re charging a lump sum. There are some cities that are higher and go north of $15,000 as a discouragement. SB 13 would say you can’t do that anymore unless it’s over 750 feet. Then it would be $3,750, and that’s a different check to write for big units.

Aaron said one of the interesting conversations that Riverside has been mulling around with is the thought that tiny homes, which technically fall under DMV regulations, not Title 24 or Title 25, would be considered part of the ADUs. They can get more aggressive, but that’s going to be a city by city thing. If it falls under that category, it wouldn’t re-trigger the reassessment of the property. The Norris Group has funded a few of these via their hard money loan division. They’re doing a beautiful job. They will buy a three bedroom, two bathroom, and they’re building on ADU. They are also renovating the front at the same time that they’re building the ADU, so they look really nice. The appraisals haven’t been the issue. So far it’s been that the lenders just haven’t caught up. Under ADU rules, manufactured housing and prefab should be fine, but manufactured housing can trigger problems with financing. You just need to see it coming, and it’s going to take some some years to catch up.

Whenever Bob is with the bankers, he asks them to come up with a product come with a product for the difference between the manufactured ADUs and the person who’s purchasing a property and building the ADU or doing an ADU conversion as part of the purchase before they take occupancy. They will make them qualify for the anticipated rent that they’re going to be able to get. Right. There are also the fixed income seniors who, on paper, don’t look like they have any money but they’re going to build the ADU. They may be in Sunnyvale across the street from Microsoft and are saying, “Well I think I could get $2,000 for it.” The bankers come to the table.

Aaron concluded by saying what is interesting about this is how Bob is attempting to give some teeth to the state. They are reviewing the ordinances that are in place, and they have some feedback. Aaron asked what the thought is on compliance. If the cities are not in compliance, what will the state be able to do? Bob said the ultimate step would be the Attorney General’s office. He has been talking to the Attorney General’s people about supporting SB 13, getting them online, and making sure they are aware of everything. All you need is one lawsuit on the most egregious activity that is that the cities have done in saying they will be the ones to issue these permits. They will show their backlog and say they will issue the permits themselves. If they go through with this, they will sue you and fine you for your obstinance. That’s a beautiful presentation in the area of legality. They thought they could get away with it, and that’s not happening.

They started this with the Huntington Beach conversation, and you think, “Ok, bad actors. Here’s the first suit. We know there’s 27 of you, so what’s going to happen here?” Aaron said this is a really important move, and he knows a lot of real estate investors are excited. The Norris Group going to create a second program since they have a lot of investors with 30-year mortgages on rentals that start with a four, and they’re not going to refi under normal circumstances. They’re going to create product to help them build more. He also thinks it’s the right audience. They’re used to being landlords, and they know about construction. These are professionals that can get it done quickly. The link to his office is available here as well as on his bio page if you want to send case studies of examples of bad actors. He is not suggesting anybody get into lawsuits with the city since that could be very drawn out and very expensive. But do what you can.

Cities and neighbords see it when they see what an ADU looks like and want one of those in their backyard too. This could really help, for example, their grandma who may not be doing so well and is being moved back from Wisconsin. Everybody sees it, including the city planners and the city council people. It should have a happy ending.

Aaron asked when this goes up for a vote. Bob said it’s on the suspense calendar for appropriations on May 16th. It would then be eligible for the Senate floor if it gets through appropriations the following week right before Memorial Day. After that, it goes over to the Assembly to start all over. They go to local government and Housing and Community Development. Aaron asked if he is fairly positive that this will make it through this time, which Bob said yes. He has made some changes to the bill. He is still staying with the three core, but he is skinning it up. It helps having advocates like Aaron and other investors talk with folks about it. Other members from other cities are going in modernizing the ADU program. Homeowners are excited, and there’s a little bustle going on with some development in the city that otherwise is rather meager on new home development. Aaron said this is filling a needed gap, and Bob is much more optimistic this year.

The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

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