The way this worked, historically, was that a developer would first propose a project that complied with all existing rules. After the city determined the project checked all the boxes, it would still spend years being reviewed by the planning commission, city council and members of the public.
Recent reforms, though, have created alternative processes. If a project meets specific criteria, it's able to jump tracks and avoid the yearslong public debate. Developers demonstrate compliance with the rules and then get to start building, no further discussion required.
In the case of Costco, building ~400,000 square feet of housing to qualify for the alternative track was easier than dealing with the legacy process.
But Wait, There’s More
Costco’s current plans show modular housing, and the reason for that is kind of interesting. AB2011 — the specific legislation Costco is invoking — has a prevailing wage requirement. This sets a minimum for construction worker pay and ensures union labor remains cost-competitive. If developers aren’t allowed to pay less than what union labor costs, nonunion workers can't undercut them.
The rub here is that, for AB2011, this requirement only applies to on-site labor. Work done off-site can be paid at whatever rates the developer can negotiate. Costco seems to be planning to buy prefab modular units that are built at a factory somewhere else. This will let them save on labor costs. It will also result in housing that looks like a stack of shipping containers.