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A recent conference sponsored by the University of Southern California’s Gould School of Law assembled some of the most active players in the saga of the Builder’s Remedy: the provision of the Housing Accountability Act (SB 330) that strips cities of some land use controls if they do not adopt state-compliant housing elements. The panel included two developers who have pursued Builder’s Remedy Cases -- Jonathan Curtis, Managing Partner of Cedar Street Partners and former Mayor of La Cañada-Flintridge, and Leo Pustilnikov, principal of SLH Investments -- attorneys Matthew Gelfand of YIMBY Law and Dave Rand of Rand Paster Nelson. Rand served as moderator.
This transcript has been condensed and edited for clarity.
Dave Rand: The reason Builder’s Remedy caught so many people's attention is because it is so fundamentally un-California. It’s a true zoning holiday. Developers are doing whatever they feel they can do and want to do on a given piece of property. Very Houston-like, not very California-like. And it unleashed itself in this Sixth Cycle housing element.
Jonathan Curtis: La Cañada is not doing very well on the housing front, to say the least. If you go back 10 years, there was a project started that was assisted living. All they needed was a CUP for an assisted living facility. Three stories--the height was the same as adjacent residential. They spent five years on a CUP. They didn't get it. They left when they got a dead rat in the mail.
Our next project was Builder's Remedy. We went from three stories and 44 units to 80 units.
Californians for Homeownership filed suit. They won. They won on appeal. There's another appeal by CalHDF.
The State of California sued. California for Homeownership sued. CALHDF sued. I'm grateful that all these people joined in because that's the only way we sort of become Goliaths. We're at the bond hearing time where the city has to post a bond in order to continue their appeal; the tentative ruling is for $14 million. (See related CP&DR coverage.)
Rand: You mentioned litigation and the love for it. That’s a perfect segue to my friend Leo, to whom Liam Dillon of the LA Times referred as "California's most interesting developer."
Leo Pustilnikov: A lot of this started with a random call I had with Matt, who told me, “I don't know why you wouldn't do Builder's Remedy.” I found something that I think matched what he was referencing. Ultimately I decided to file for my first projects, which were in Redondo Beach and Santa Monica. Since then I’ve filed in Beverly Hills and West Hollywood.
At first, I couldn't find many attorneys that thought I hadn't lost my mind because I wanted to vest them under SB 330. And most law firms I'd call, said, “oh, no, you can't do that.” Until Dave got his memo from HCD, and then the floodgates opened up and everyone started filing.
In all cases, they were, I think, thoughtful projects, which is why I think Santa Monica was approved. And Redondo too. The irony is, people like, “oh, it's such a massive project.” It's actually the exact same project that was approved 25 years ago today. There was a fully approved EIR for a similar project that subsequently got rejected because a very vocal subset of the community did not appreciate that project.
Matt Gelfand: We started the Sixth Cycle housing element process, with an October 2021 housing element deadline. Cities were taking the attitude that this process would be the same as it had been in the past. They believed that they could drag their feet and adopt housing elements two, three, four years late.
HCD would take a quick look, approve those plans and everything would be OK. We decided to make a concerted effort to interfere with that attitude by filing a lot of lawsuits. We filed over the course of a year around 20 housing element lawsuits. Most were mere noncompliance lawsuits. Our primary goal was to establish the application of the Builder's Remedy in those cities. We targeted cities that we knew had pending Builder's Remedy applications or were likely to get them.
About half of those lawsuits settled. They always settled if they settled with an agreement by the city to a stipulated judgment that would require the city to adopt their housing element on a particular timeline and agreed that the city was subject to the Builder's Remedy. We had four merits wins at trial, including our biggest win in Beverly Hills, which opened the floodgates to the builder's remedy.
There's one feature that's helpful to cities when you lose: if you have lost a housing element lawsuit--and we believe that that includes entering into a settlement agreement for a stipulated judgment--the whole housing element process then becomes CEQA-exempt. You still have to do an environmental document, but you can't be subject to CEQA litigation over that document. It's a big deal for cities that might face neighborhood resistance to a good housing element.
Rand: You know a great lawyer when they win their lawsuits. You know an even better lawyer when they convince their opponents that it's in their own self interest to lose the lawsuit that they're bringing against you.
Rand: My question for the man on my left and the man on my right is knowing what you know today, would you still go through it?
John Curtis: I believe that if we don't solve the housing crisis, California is going to go down even further. I'm on a mission from God right now. Absolutely. I would do it again, because it's wrong what the city's doing. Things like this need to change. That being said, it's been extremely painful, it's been expensive, but it's going to be worth it at the end of the day.
Pustilnikov: I would do it again because I believe, as John said, we are in a housing crisis. Everyone needs a roof over their head. I am a strong believer in housing for all and I worry that not everyone would go through the headache and worry about the reputational risk of working with the cities again and again if I don't do it.
But I believe in the little guy. I came to this country 35 years ago today and every day is a blessing. I want to make sure that others are able to succeed when they're fighting against these municipalities. I think this is a way to achieve that.
Most people that have these projects can't afford to fight these municipalities. I actually wasn't the first person that submitted Builder's Remedy. There's a lady that submitted a builder's remedy 20, 30 years prior (in the City of Antioch). It was for, I think, an ADU, and she gave up because of the cost. If I don't do it, I don't think many others will.
Rand: What these gentlemen are challenging is the bedrock of land use and the regulatory system around development in California. It is not 80 units here and 50 units in West Hollywood. It is a dagger in the heart of local control. And that's why this issue has been so galvanizing and so interesting and so expensive and so time consuming.
AB 1893, signed last year, was designed to put some guardrails around the process. Matt, is AB 1893 a net positive or negative, or is it a big nothingburger?
Gelfand: It is kind of a nothingburger for the moment because most cities have come into compliance. Then the question becomes, are there cities that believe they're in compliance but are actually not in compliance and need some help reopening the Builder's Remedy? We are going to attempt to do that in Beverly Hills.
Rand: What's your take on whether this is helpful or or not?
Curtis: We went from 44 units to 80 units. We thought that was reasonable and fit within the community. If we were to analyze it under AB 1893 we could build 144 units and go way up high. So with respect to 1893, it shows that we're very reasonable.
There is a provision in 1893 that says you can drop your affordability requirement from 20% to 10% or even lower depending upon the type of income you have. It'll help the pro forma quite a bit. The other thing that's interesting is you can opt in to the provisions you want now. Sort of interesting for a statute. I've never seen one like that before, but you can opt in. I don't know if that's a litigator's dream or nightmare, but it's an interesting issue.
Rand: AB 1893 does a whole lot of things other than just create some clarity. It essentially wrote out of the law a lot of the cities’ playbook who were fighting Builder's Remedy projects. So many of the tactics that were being employed by cities to stop Builder's Remedy projects, like asking for applicants to go through general plan amendment zone change processes for Builder's Remedy projects, which is completely antithetical to the Housing Accountability act.
Cities were deeming applications incomplete on a serial basis. Ticky-tack stuff over and over and over again. The new law includes some language that says if you have deemed an application incomplete three times, there's a presumption that you're up to no good as a municipality.
Rand: Matt, you just filed a high profile lawsuit against the city of Los Angeles challenging the city's rezoning effort. How could that affect Builder's Remedy if you convince a judge that in fact the city's rezoning process didn't comport with state housing law?
Gelfand: I understand the law to be that if you fail to complete the rezoning step, which is generally due either one year or three years after your housing element is complete, that you then become subject to the Builder's Remedy.
I think the better argument is that it does apply, but cities are likely to argue that the Builder's Remedy does not apply merely because you have failed to rezone. So I think that's a little bit up in the air. That said, I'm telling people to go to Dave and say, “I want to file an SB330 application today in the city of Los Angeles because I think they're out of compliance.”
Our lawsuit against LA, which is joined by YIMBY Law, is aimed at their rezoning. During the housing element process, like I said, you have to come up with a number of units you can currently accommodate. You get a number of units assigned to you, and the delta between those two numbers is the number of additional units you need to zone for. The city said that in order to accomplish that goal, we must do three things: we need to adopt two specific plans; adopt 16 community plan updates; and do a citywide affordable housing incentive program. They did the community the specific plans, they did the CHIP program, which is the incentive program, but they only did two or three out of the 16 community plans.
Our lawsuit is actually not that complicated: do the rest of the rezoning. It is going to get more complicated, though, because the city claims that through those, that fraction of what the city said they were going to do, they've managed to accommodate the right number of units.
They do that with a little magical thinking. When they did their housing element, they said given the likelihood of development for each parcel in our city, which they estimated at around 1% across the city, we can only accommodate 50,000 units of housing with our current zoning. But when they did their rezoning, they assumed every parcel had a 50% chance of likelihood of development. They multiplied by 50 the number of additional units that they enabled with their incentive program. they haven't done much more than a math trick. That's what we're going to tell the court.
Rand: Let's say you win. What does that mean for the Builder’s Remedy?
Gelfand: My position would be that the Builder's Remedy began to apply in the city of Los Angeles on February 13th, which was the day after their rezoning deadline. I think it becomes clearer to the extent that it does apply when we win. I think it becomes even clearer when the city inevitably fails to comply with the 60-day order.
It's just a question of risk tolerance for any given developer, whether they want to put in an application. It's not free to do an SB 330 application, but it's also not tremendously expensive. I think that there would be some value in at least lobbing in Builder’s remedy applications to the city to preserve their rights.
Pustilnikov: Based on that logic, wouldn't you then think that the builder's remedy only applies in the 13 to 14 jurisdictions that don't have community plans and not the entire city?
Gelfand: This is actually an interesting issue. Housing element is done citywide.
Traditionally, small jurisdictions believed that by forming an independent city, they could protect themselves. But it turns out that in this new regime we find ourselves in, neighborhoods like Brentwood in Los Angeles-- or whatever you want to pick--can insulate themselves from development because other neighborhoods in the city take the brunt of the development. Whereas if you are a small city like Bradbury, you are stuck with RHNA obligation, that you have to find some way of accommodating within your city.
It's actually kind of flipped the old script where now smaller cities are stuck figuring out how to accommodate housing, whereas neighborhoods in Los Angeles can continue living their lives.
Rand: But it's not supposed to be that way. One, as you know, better than anybody, one of the fundamental tenets of housing element law is the obligation to affirmatively further fair housing to spread equitably the RHNA units, particularly below market rate units across a a city, concentrated more heavily and historically red lined areas, um, where there has been that historic anti-housing bias.
Rand: Builder’s Remedy is going to yield some units, but why is it so interesting? Because it has shaken the foundation of local landings. It will ultimately be, I think, the most significant factor in cities adopting more aggressive or legally compliant housing elements than ever before, when housing elements were thought of more as a joke.
Audience: When will the first Builder’s Remedy Projects be built?
Pustilnikov: I actually think that the first ones will be built in West Hollywood. Santa Monica is more complicated with, um transfer tax and things like that. So it's harder to see so Beverly Hills and West Hollywood will likely be, and if Redondo ever gets approved, it will be the earlier ones.
Rand: There's also a hidden success in the Builder's Remedy talking all about today, and that is the units that will be built and are have being approved now and that are taking the next steps to getting the plan check actually starting to to to go construction that resulted from settlement agreements, leveraged from the builders's remedy.
We worked on 14 of them in Santa Monica. It resulted in a global settlement that parlayed those projects into a fast track approval process using special incentives and rights. Those are getting approved. Those are on track, some of them could be financed. So, there's projects that get approved, and then there's the Builder's Remedy strategic pivot projects that will be approved in a way that they may not have been absent the builder’s remedy.
Gelfand: Most cities don't publish preliminary applications, so we do not know how many Builder's Remedy applications there are. Most people believed it to be like a dozen, and then folks like Holland & Knight started saying we have 50. It turns out there's probably like a 100 or 200 Builder's Remedy applications that it's were at some stage, so there has been a lot of leveraging builders' remedy applications into better approvals that are not ultimately Builder’s Remedy projects.
Audience: How does this affect local infrastructure?
Curtis: Before we filed the Builder's Remedy application, we ensured that we had all the infrastructure that was needed for the project. So we didn't really have to face that particular issue directly, but you will have the normal approval process which if you want to get an exemption or something else like that you try to get the infrastructure in place in some fashion. Otherwise, somewhere along the process, it's going to come into play.
Rand: It doesn't get you out of CEQA, so oftentimes you have to look at those issues and CEQA process, even if you're lucky enough to get an exemption in connection with the builder's remedy project, none of this waives you out of the traditional plan-check process. If it is the case that a sewer line or water line needs to be upgraded, it's on the developers to make those improvements.
I categorically reject the opponents of the Builder's Remedy who say, this is just a disaster because it will lead to all kinds of strains on infrastructure. That's just not the case.
That being said, I've always told my clients that the more successful places for Builder's Remedy projects are infill where you have existing infrastructure.I don't think this is a tremendous tool for suburban development where you don't have existing infrastructure in place.
