Entitlement Activity Whispers of Recovery in California's Multifamily Market

New entitlements for multifamily development in California could be an indicator that apartment construction is bouncing back. While new apartment deliveries and new starts decreased during the pandemic, Allen Matkins’ John Condas says that new entitlement deals are getting done. Interest rates and new regulations are encouraging more housing production in California.

“I do think multifamily will rebound quickly, and this is due to both SB330 and the new Regional Housing Needs Assessment (RHNA), which was recently approved by the Southern California Association of Governments (SCAG),” Condas tells GlobeSt.com.

SB330 limits local jurisdictions from imposing on housing developments through restrictive laws—so long as the developer can submit a preliminary application. RHNA supports new development by requiring local governments to establish an entity that will oversee RHNA allocation. Condas calls this a acreage and density exercise because it will require nearly all of Southern California to update zoning to meet the assigned number of units under RHNA.

“There are going to be challenges for many cities because they’ve been assigned high RHNA numbers that they are required to meet,” adds Condas. “Due to this, there are going to be great opportunities for developers to help cities comply with state law by proposing developments on properties that today may not be zoned at the appropriate density or the appropriate use. These projects will be allowed to move forward though, because the cities will have to comply with their RHNA obligation.”

Of course, these rules are not new, but the increase in entitlement activity shows that the are working, especially considering the current market conditions. “In our experience, clients really aren’t that worried about the pandemic, at least in terms of proposing new developments,” says Condas. “The pandemic has led to some challenges from a processing standpoint because most local governments have been working remotely, and it’s been difficult for a lot of our clients to get plans approved. We’re starting to return to a pre-COVID situation in many jurisdictions.”

Condas says these deals are happening throughout California, but the Inland Empire has been especially active for new multifamily entitlements. “We’re seeing a lot of activity in the Inland Empire, which is something relatively new,” he explains. “The major development activity for the last decade or so in the Inland Empire has been logistics/warehouses, which has created a lot of jobs, and housing is starting to follow.”