California Senate Bill 92 (“SB 92”), introduced in January 2025 by Senator Catherine Blakespear and having been passed by both the California State Assembly and State Senate was approved by the Governor on October 10, 2025. SB 92 amends California’s Density Bonus Law (Government Code Section 65915 et seq.) (“SDBL”) to limit a developer’s ability to apply for concessions, incentives, and waivers of development standards for mixed-use projects that include nonresidential uses.
Specifically:
- cities and counties will not be required to provide certain SDBL benefits to a hotel, motel, bed and breakfast inn or other transient lodging component of a mixed-use project, except a residential hotel (i.e., a building containing 6 or more guestrooms or efficiency units to be used as the primary residence of the guests[1]); and
- for any applications submitted after January 1, 2026, concessions or incentives granted under the SDBL shall not result in a proposed project with a commercial FAR greater than two and a half times the premises’ current allowed base zone commercial FAR. Additionally, projects that have submitted a preliminary application (under the Housing Crisis Act of 2019, or “SB 330”[2]) are not subject to this limit.
According to comments from the bill’s author, these changes address the purpose of the SDBL to create housing and not hotels and other nonresidential uses. According to its stated Legislative intent, however, the purpose of the SDBL is “to cover at least some of the financing gap of affordable housing with regulatory incentives, rather than additional public subsidy[.]”[3] A series of reforms adopted since 2020 broadened the benefits developers can receive in order to offset the cost of providing affordable units, while limiting local agencies’ ability to deny those benefits. The Legislature’s action in adopting SB 92 reveals a step-back in the flexibility afforded to developers to structure projects that include affordable housing under a law that has helped develop thousands of deed-restricted affordable units throughout the State.[4] This change could incrementally reduce the use of the SDBL to develop projects that include affordable units, especially in coastal and other high-cost areas where developers often rely on the benefits afforded by SDBL.
Existing Density Bonus Law
The SDBL is a heavily utilized tool that encourage developers to include affordable units in their project by providing economic benefits that decrease the overall cost of the project. The SDBL can be used to achieve increases above the base density of property that allows residential use without rezoning, which otherwise requires a discretionary (legislative) approval. It also permits deviations from development standards that would otherwise limit the development of the project as proposed, including the existence of affordable units, without discretionary deviations or variances. [5] In 2022, Assembly Bill (“AB”) 1551 was enacted to make clear that mixed-use developments (projects that include both residential and non-residential uses) qualify for benefits under the SDBL.[6]
Density Bonus
If a “housing development project”, including a mixed-use development, includes at least five residential units and the minimum percentage of affordable units (starting at 5% Very Low Income (i.e., households earning up to 50% of the Area Median Income (AMI)) units), the project is entitled to receive bonus density, ranging from 5% to 100%, depending on the level of affordability and percentage of affordable units in the development.
The SDBL was updated by Assembly Bill (“AB”) 1287 (2023)[7] to allow for “stacking” or combining density bonuses projects to earn between 20% and 50% percent more density (70-100% total), if the developer also agrees to restrict 5-10% of the units in the project for Very Low Income or 5-15% of the units in the project for Moderate Income (up to 120% AMI) families. With AB 1287, a project can achieve double the base density with a minimum of 20% of the base density units restricted to Very Low Income households, without discretionary rezoning.
SB 92 does not alter the requirement that if a “housing development project” includes the requisite percentage of affordable units, the project will still be eligible to receive between 5% to 100% density bonus.
Concessions or Incentives and Waivers
In addition to bonus density, under current law, a project meeting the minimum criteria is entitled to “concessions” and “incentives” which include:
- A reduction in site development standards or a modification of zoning code requirements or architectural design requirements that exceed the minimum building standards can result in identifiable and actual cost reductions such as a reduction in setback and square footage requirements or the ratio of vehicular parking spaces that would otherwise be required. These cost reductions help result in an incentive for more affordable housing and lower rents for targeted units.[8]
- Approval of mixed-use zoning in conjunction with a housing project if commercial, office, industrial, or other land uses will reduce the cost of the housing development and if the commercial, office, industrial, or other land uses are compatible with the housing project and the existing or planned development in the area where the proposed housing project will be located. [9]
- Other regulatory incentives or concessions proposed by the developer or the city or county that result in identifiable and actual cost reductions to provide for affordable housing costs, or for lower rents for targeted units. [10]
The number of concessions or incentives a project qualifies for, like the density bonus, depends on how many affordable units are proposed and the level of affordability the project includes. Local agencies bear the burden of proof to deny a requested concession or incentive.[11]
In addition to concessions or incentives, the SDBL provides that an applicant may submit a proposal for the waiver or reduction of development standards that have the effect of “physically precluding” the construction of the project at the densities or with the concessions or incentives permitted under the SDBL.[12] While the number of concessions or incentives is limited and based on the percentage and affordability level of the affordable units in the project, there is no limit on the number of waivers a project can receive.
SB 92
SB 92 includes the following text in Section 65915 of the Government Code:
- “(l) (1) (A) A concession or incentive shall not result in a proposed project with a commercial floor area ratio that is greater than two and a half times the premises’ current allowed base zone commercial floor area ratio.
- (B) This paragraph shall not apply to proposed projects that have submitted a preliminary application or an entitlement application prior to January 1, 2026.
- (2) Subdivision (e) and subdivision (k) do not require a city, county, or city and county to approve, to grant a concession or incentive requiring approval of, or to waive or reduce development standards otherwise applicable to, a hotel, motel, bed and breakfast inn, or other transient lodging, other than a residential hotel, as defined in Section 50519 of the Health and Safety Code, as part of a housing development subject to this section. For purposes of this paragraph, ‘other transient lodging’ does not include a resident’s use or marketing of their unit as short-term lodging, as defined in Section 17568.8 of the Business and Professions Code, subsequent to the issuance of a certificate of occupancy in a manner otherwise consistent with local law.”
Floor Area Ratio Cannot Exceed Two and a Half Times
As discussed above, the SDBL is applicable to mixed-use developments that include five or more residential units and the requisite percentage of affordable units to be eligible for a density bonus, concessions or incentives and waivers of development standards. Generally, FAR is a development standard that measures the ratio of floor area in the development to the lot area of the premises.[13] Through use of the SDBL, reductions in setbacks, increases in development square footage and reduced parking requirements (as parking is often excluded from FAR) can result in a project’s FAR increasing by more than two and a half times that permitted by the base zone.
Under SB 92, a concession or incentive would no longer permit an “unlimited” increase in FAR, as applied to the commercial component of a mixed use development. Previously, a city or county would have been required to grant a concession or incentive to an eligible project regardless of whether it would result in the commercial portion of the project exceeding the allowed FAR for commercial space on the premises by more than two and a half times. While SB 92 continues to allow an increase in commercial FAR that would otherwise be allowed on the site subject to this limit, it constrains developers’ flexibility to leverage commercial uses to make residential development with affordable units feasible.
Timing
This provision of SB 92 does not apply to proposed projects that have submitted a preliminary application or an entitlement application prior to January 1, 2026. Accordingly, pending projects that propose to exceed the limit but have not filed an entitlement application should consider filing a preliminary application before SB 92 takes effect to be eligible to receive a commercial FAR greater than two and a half times the premises’ current allowed base zone commercial floor area ratio.
A preliminary application under SB 330 requires only high-level project information and permits applicants for a housing development project that includes a mix of commercial and residential uses with two-thirds of the project’s square footage used for residential purposes to proceed under the law in place as of the time of submission and payment of the permit processing fee to the agency from which approval for the project is being sought, provided that a full application for development is thereafter filed within 180 days.[14]
Hotels Eliminated
In addition to the limit on commercial FAR in a housing development project, SB 92 also expressly states that local agencies are not required to grant incentives or concessions that require approval of, or waive or reduce development standards otherwise applicable to a proposed hotel component of a mixed use development, including a hotel, motel, bed and breakfast inn or other transient lodging, except for a residential hotel.[15]
Accordingly, a city or county could deny any such concession, incentive or waiver relating to a hotel component of a housing development project subject to the SDBL (even if it does not increase commercial FAR by more than two and a half times the base commercial FAR).
Implications – Less offset for the additional cost of building affordable units
Although SB 92 purports to align with the policy goals of the SDBL to create more affordable housing, without the benefits developers receive under SDBL to offset the cost of including affordable units in the development, the effect of SB 92 could be a reduced number of affordable units, especially in planned mixed-use developments in more expensive locations throughout the state.
With the cost of developing affordable units being offset by the ability to develop certain uses, such as hotel rooms, SDBL concessions and incentives allow for the development of affordable units in areas that would otherwise be too expensive for a developer’s project to be financially feasible. For example, coastal development is the most expensive development due to, among other contributing factors, the price of land and additional regulatory requirements such as obtaining a Coastal Development Permit from the Coastal Commission. Thus, SDBL is a tool that developers can use to include affordable units in a project near the coast while pursuing a financially feasible development.
SDBL concessions and incentives, such as removal of height restrictions or parking requirements, for the development of a project that includes hotel use and five or more residential units with the requisite amount deed restricted as affordable is a tool for developers to pursue a mixed use project in an area, such as the coast, that would otherwise be too expensive.
Accordingly, by eliminating hotels, motels, and other transient lodging uses from being eligible for concessions and incentives that offset the additional costs of building affordable units, SB 92 creates another barrier making the already expensive development of affordable units near the coast even less financial viable.
Developers Rowing Against Policy
As the bill’s author Senator Blakespear noted, “The California Legislature created the density bonus law to encourage private market developers to include deed-restricted affordable housing in their projects in exchange for zoning waivers and concessions. Legislators carefully constructed this law to require a fair exchange between developers and the communities they were building in. … SB 92 will close [a] loophole brought to light … and ensure density bonus law provides the fair bargain it was designed to deliver.”[16]
SB 92 is an example of a legislative reaction to developers using a law aimed at encouraging the development of affordable units for other types of development, even where the law allowed flexibility to include such other uses as a means of making affordable units feasible. This serves as a cautionary tale when utilizing the benefits of a law to achieve what may be viewed as a different outcome than is intended. Certain lawmakers view the practice of developing the requisite amount of affordable units in order to increase commercial FAR or to obtain other concessions and incentives for hotel development, as a “loophole” and as a result, drafted SB 92 to close it.
Sheppard Mullin’s Real Estate, Energy, Land Use & Environmental Practice Group will continue to monitor and report on recent housing laws and their impact on development.
FOOTNOTES
[1] Health and Safety Code Section 50519
[2] Government Code Section 65941.1.
[3] Government Code Section 65915(u).
[4] https://shou.senate.ca.gov/system/files/2025-02/recent-leg-actions-factsheet-updated-feb-2025_0.pdf
[5] Government Code Section 65915(b)(1)(G).
[6] Government Code Section 65915(i).
[7] Government Code Section 65915(v). Sheppard Mullin’s Land Use Team Authors New California Law Expanding Affordable Housing Incentives | Sheppard Mullin (San Diego Land Use partner Jeff Forrest drafted the bill pro bono for Circulate San Diego).
[8] Government Code Section 65915(k)(1).
[9] Government Code Section 65915(k)(2).
[10] Government Code Section 65915(k)(3).
[11] Government Code Section 65915(d)(4).
[12] Government Code Section 65915(e)(1).
[13] “Floor area ratio” means the ratio of gross building area of the eligible housing development, excluding structured parking areas, proposed for the project divided by the net lot area. Government Code Section 65917.2(a)(2).
[14] Government Code Section 65941.4.
[15] Health & Safety Code Section 50519.