Developers of rental housing in California had a little something extra to be thankful for Nov. 26. A recent court case — Palmer/Sixth Street Properties v. City of Los Angeles — likely invalidated certain below market rental requirements in more than 100 localities across the state, including San Francisco.
In the Palmer case, Los Angeles did something similar to what we do here in San Francisco: require that new rental developments include a certain number of units for low-income households and declare a maximum amount that can be charged to rent those units.
Palmer (a developer) sued on the grounds that the local low-rental requirement violated a state law, the Costa-Hawkins Rental Housing Act, that says landlords get to set initial rental rates. A state appellate court agreed with Palmer and struck down the Los Angeles requirement. In the court’s opinion, it did not matter that (as is the case in San Francisco) a landlord could choose to pay a fee to the city in lieu of providing the low-rate units.
(Note: The Costa-Hawkins Act only applies to rental units, not condos, and does not apply to rental developments that receive government assistance.)
The appellate court decision came down in July, but the California Supreme Court only recently refused to rehear the case. Now that we are stuck with the July ruling, freaking out may officially commence in San Francisco because our below market rental requirements are similar to (though not exactly like) the ones declared unlawful in Los Angeles.
Already, organizations like Tenants Together are calling for the state Legislature to amend the Costa-Hawkins Act to allow for low-rate rental set-asides.
One San Francisco developer, who asked not to be named, told me that no one knows how the Palmer case may affect projects currently being negotiated. His company plans to consult with its own lawyers, stay in communication with the Planning Department and see what the city attorney advises. I asked the City Attorney’s Office for a copy of anything it had written on the Palmer case and was told that there is a memorandum, but it’s confidential.
Obviously, I haven’t seen the memo, but “everything is fine” is rarely a secret worth keeping.
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