HCD letter of technical assistance — Los Gatos (North 40 Phase II) — SDBL phased-development concession

STATE OF CALIFORNIA - BUSINESS, CONSUMER SERVICES AND HOUSING AGENCY

GAVIN NEWSOM, Governor

DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT DIVISION OF HOUSING POLICY DEVELOPMENT 651 Bannon Street, Suite 400 Sacramento, CA 95811 (916) 263-2911 / FAX (916) 263-7453 www.hcd.ca.gov

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January 12, 2026

Gabrielle Whelan, Town Attorney Town of Los Gatos 110 E. Main Street Los Gatos, CA 95030

Dear Gabrielle Whelan:

The California Department of Housing and Community Development (HCD) received a request for technical assistance on November 20, 2025, regarding the application of the State Density Bonus Law (SDBL)[1] to the North 40 Phase II housing development project (Project). Among other provisions, the SDBL allows qualifying housing developments to obtain relief from development standards by providing affordable housing. This letter provides technical assistance to the Town of Los Gatos (Town) regarding the ability of the Project to obtain a concession for phased development of the site.

HCD understands that the Project proposes to construct 450 units on a site identified in the Town’s certified sixth cycle housing element.[2] Of the 450 units, 127 of the units would be market-rate townhouses, 255 would be in a mixed-income multifamily building,[3] and 67 would be in a 100 percent affordable multifamily building, which the applicant intends to have built by a specified non-profit partner. Seventeen percent of the total units[4] would be affordable to lower-income households, entitling the Project to two concessions under the SDBL.[5]

1 Gov. Code, § 65915.

2 Town of Los Gatos Sixth Cycle Housing Element Appendix D, May 2024, available at https://www.losgatosca.gov/DocumentCenter/View/39117/5_Appendix-D, page D-33. 3 Ten of the 255 units would be deed-restricted affordable to lower-income households. 4 “Total units” as defined in the SDBL (Gov. Code § 65915, subd. (o)(9)(A)), which excludes bonus units.

5 Gov. Code, § 65915, subd. (d)(2)(B).

Gabrielle Whelan, Town Attorney Page 2

The applicant has requested a concession to enable the construction of the building types in phases. Initially, the applicant would build 127 townhouses and supporting infrastructure for the entire site, with the proceeds from the townhouses’ sale being used to finance the other two buildings. If the 255-unit apartment building is built prior to the 100 percent affordable 67-unit building, the applicant has offered to have the 255unit building contain all required deed-restricted units until the 100 percent affordable building is completed.

Because the first phase of the development (i.e., the townhouses) does not contain deed-restricted affordable units, the Town has expressed concern that if, for some reason, the subsequent phases of the project (i.e., the 255-unit apartment building and the 100 percent affordable 67-unit building) are not built, then the required deedrestricted units may never be constructed. To allay these concerns, the applicant has proposed a condition of approval that would allow the Town to issue no more than 127 certificates of occupancy prior to the completion of the deed-restricted affordable units. This would represent 28 percent completion of the project, by unit count.

In its request to HCD, the Town requested clarification on whether such an arrangement satisfies the requirement in the SDBL that an applicant for an eligible housing development “seeks and agrees to construct” the qualifying deed-restricted affordable units in the project.[6] HCD also understands that the applicant had previously offered to transfer the land to the Town for the 100 percent affordable building should their nonprofit partner be unable to deliver the building.

HCD has previously commented on the “seeks and agrees to construct” language in the SDBL. In a Technical Assistance Letter to the Town of Loomis dated February 2, 2024, HCD discussed the inability of a proposed project to qualify for the SDBL because the submitted application materials did not indicate that the applicant sought and agreed to construct the affordable housing required by the statute.[7] However, the Loomis project differed in significant ways from the Los Gatos Project. For example, the Loomis project proposed a combination of single-family lots, a mixed-use lot, and a multifamily lot, but the project submittal did not specify the total number of units nor the number or income level(s) of deed-restricted affordable units.[8] Additionally, the project applicant intended to only develop the single-family portion of the site and a finished pad with roadways and stubbed utilities for other portions; the deed-restricted portion of the site would be sold to an as-yet unidentified affordable housing developer.[9] By the Loomis project applicant’s own acknowledgment, this could “yield a condition where 75% of the market rate housing units are built while the affordable housing site is unable to proceed.”[10]

6 Id. at subd. (b)(1).

7 Letter of Technical Assistance to the Town of Loomis, February 2, 2024, available at https://www.hcd.ca.gov/sites/default/files/docs/planning-and-community/HAU/loomishau22-227-ta-02022024.pdf, page 3.

8 Id.

9 Id. at pages 2-3.

10 Id. at page 3.

Gabrielle Whelan, Town Attorney Page 3

None of these concerns appear in the Los Gatos Project. While the Project proposes a mix of unit types, the location, number, and affordability levels of affordable units are identified in the application. Additionally, unlike the Loomis project, the market-rate and deed-restricted affordable units of the Project would be entitled as part of a single development application, as required by the SDBL. The non-profit affordable housing developer partner applicant is known, experienced, and actively engaged in the entitlement process. Finally, a much smaller proportion of the Los Gatos Project’s overall unit count (28 percent) would proceed prior to the construction of deed-restricted units. The applicant has proposed sureties to mitigate risks associated with constructing a multi-phase project whose initial phase does not contain affordable units. Cumulatively, this indicates that the applicant is seeking and agreeing to construct a housing development that provides the required percentage of deed-restricted affordable housing pursuant to the SDBL.

Additionally, HCD is optimistic about partnerships between market-rate developers and non-profit affordable housing developers. Such partnerships have the potential to deliver more deed-restricted units at deeper levels of affordability. Enabling this collaboration through the SDBL, as in the North 40 Phase II project, advances the statutory intent that the SDBL be “interpreted liberally in favor of producing the maximum number of total housing units.”[11]

As proposed, the North 40 Phase II project would seek and agree to construct affordable housing for the purposes of SDBL eligibility. HCD remains committed to supporting the Town of Los Gatos in facilitating housing at all income levels and hopes the Town finds this clarification helpful. If you have questions or need additional information, please contact David Ying at david.ying@hcd.ca.gov.

Sincerely,

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David Zisser Assistant Deputy Director Local Government Relations and Accountability

11 Gov. Code, § 65915, subd. (r).