Has Statewide Upzoning Failed To Unlock Housing Production in California?

(Source: Flickr/Kansas Sebastian.)

In 2021, California passed Senate Bill 9 (SB9), effectively ending exclusive single-family zoning statewide, by allowing up to four homes on millions of residential lots statewide that were previously zoned for only one single-family home. The first numbers are in quantifying the impact, so far, of this new law.

…They are, um, not large numbers.

According to an analysis by the Terner Center for Housing Innovation at UC Berkeley, the first year of SB9 resulted in extremely underwhelming permitting numbers from a sampling of California cities. Los Angeles saw just 211 applications for new units under SB9 in 2022, out of 20,000 housing permits issued in the entire city. San Diego, which permitted 5,000 new homes, had only seven SB9 applications all year.

If you’re an incremental housing advocate like me, this would be a good time to not freak out. I’m going to be a contrarian here and say that this actually should not lead you to the obvious conclusion that SB9 is a failure, or perhaps more damning, that this kind of small-scale but universal upzoning is not a viable way out of California’s housing crisis. SB9, or some future evolution of it, may yet have its day in the sun. But it’s important to understand what’s going on here and why.

First of all, let’s acknowledge that we’ve been here before. Minneapolis drew national headlines in 2018 for legalizing triplexes on single-family lots citywide. By 2020, the number of actual triplex applications failed to escape single digits. It’s actually a depressingly normal experience that you pass a major reform like this and then… not much happens.

Why? Think of housing reform as a series of parallel deadbolts on a heavy door—like a bank safe. Unlocking any one lock doesn’t allow the door to open. It’s only when they’re all unlocked that things can proceed.

On our metaphorical door, only one of those deadbolts is labeled “single-family zoning.” The others have different names. “Built form regulations.” “Development fees.” “Development delays.” “Access to financing.” “Cost of construction.” “Skilled labor shortage.” “Development culture and support networks.” I could go on.

The project of a law like SB9 is actually extremely radical—in the sense of getting to the root of something. It’s much more so than, for example, rezoning parking lots or strip malls for mixed-use redevelopment, or removing procedural veto points that tie up projects in appeals and delays. Those latter things are tweaks that allow the existing players in our development ecosystem—large, corporate developers with institutional finance and streamlined business models—to keep doing what they do best, just do a little more of it. Build a little bigger and a little taller.

And those latter tweaks, where implemented, have been quite successful. In Minneapolis, for example, housing advocates have pointed out that the most impactful piece of the much-ballyhooed 2040 Comprehensive Plan—so far—has been the zoning changes applying to multi-story apartment buildings on major transit corridors. Those escaped a lot of notice amid the political controversy surrounding triplexes, but they have resulted in a steady stream of new 4–6 story apartment buildings.

But a blanket upzoning applied to single-family lots is trying to do something different. Its goal is to unlock the incremental evolution of neighborhoods over time, the way our cities used to grow and change. This change, if it succeeds, will be undertaken by a very large number of small-scale, semi-professional developers, many of whom are the neighborhood’s own residents. This is a whole different class of would-be builders that used to operate in every city in America, but these days there are precious few doing this kind of work.

The Lennars and D.R. Hortons of the world aren’t interested in the grinding work of infilling one backyard here, one over there. It can’t be streamlined and replicated in a way that fits their business model, which is all about economies of scale.

The world that SB9 allows on paper would represent a significant break from the prevailing model of development that built postwar California, and America. That’s not just going to emerge overnight. But SB9 or something like it is a necessary prerequisite.

A few other observations that should temper your pessimism about the meager results so far in California:

Housing markets are slow to respond to changes in the law.

Compare them to the market for almost any other product, where changes in production can put a product on store shelves in weeks or months. Someone building a home is undertaking a multi-year process, and they’re going to want all their ducks in a row first. They will need to secure financing, and navigate no small amount of bureaucratic uncertainty. Although SB9 is law, cities in California are still wrangling over how to implement it into their own zoning codes and development approval procedures. Many are dragging their heels, some in impressively creative ways.

A lot of other regulations still interact with SB9 in complicated ways.

Cities have rules around how big a lot can be. They have rules regarding setbacks: how far a building must be from the property lines on each side. They have rules around access to the street, and sewer and water hookups. Unlike in other parts of the country, like New England or the Southeast, lots in California tend to be small, so the geometry of squeezing an SB9 project in or figuring out a way to split an existing lot into two is not a small problem. This is true even where demand and rents are high enough to justify the construction cost, itself. (This is the biggest reason triplexes haven’t materialized in Minneapolis, as well: other regulations around what a building can look like and how big it can be combine to make them functionally non-viable on most lots.)

The Terner Center identifies a few avenues for regulatory reform that might remove some of the hurdles to actually using SB9. These include more prescriptive state standards to prevent localities from functionally blocking most SB9 projects with things like lot size, height standards, or onerous development impact fees. It also includes, perhaps counterintuitively, allowing cities more flexibility in other respects, such as identifying development types that will be viable in a particular local context and creating local design standards for them. Other housing advocates have taken to Twitter with similar reactions, identifying some of the common local barriers that severely limit the form an SB9 project can legally take.

It’s been a weird couple of years.

The pandemic affected the housing market in some jarring ways, and this certainly extends to the finances and personal circumstances of individual homeowners. Combine that with the rise in interest rates in 2022, and this is probably not a time when you’d expect hordes of homeowners to leap into the unknown.

California’s biggest small-housing success story is probably contributing to the underwhelming SB9 result.

What is that success story? Accessory dwelling units, or ADUs. A 2017 state law, SB 1069, overrode many local barriers to ADU production, including rules around square footage, setbacks, and parking. Since then, ADU permitting has exploded in some California cities. The most notable is Los Angeles, where applications to build a backyard ADU have gone from a couple hundred per year to thousands. ADUs are consistently now over 20% of all new housing units permitted in Los Angeles. And the tsunami of interest is hardly limited to LA.

As the Terner Center observes, ADUs are probably the path of least resistance for many homeowners wishing to add an additional unit on their property, thus depressing interest in using SB9’s more expansive but more complicated provisions.

The owner-occupancy requirement will likely continue to be a drag on SB9’s potential.

The reality is that most single-family homes in California, especially in the most expensive cities near the coast, sit in the center of a modest-sized lot. This layout might accommodate an accessory unit, perhaps above a garage or in a basement, but it’s unlikely to accommodate splitting the lot and turning one unit into four, unless the original house is demolished. Combine this observation with SB9’s requirement that a property using its provisions be owner-occupied for three years, and you can see why interest is limited.

The owner-occupancy requirement was a political selling point for the law, and may have been necessary for its passage. But it would be a pretty unambiguous policy win for affordability in California if, in neighborhoods where single homes are already being torn down and replaced with larger, more expensive single homes, the replacement were instead four homes on two small lots. The current structure of SB9 doesn’t allow this in a way that is very replicable.

It takes a small-development ecosystem for small development to scale.

Even if the state changes the owner-occupancy requirement and cracks down on cities’ creative evasions of the law, SB9 might take a long time to produce measurable results. Building new housing is not for the faint of heart, and if we are to have 10 or 100 times as many small builders doing it—the way we once did—then a whole ecosystem will need to arise to support that. This is the story I’ve been chronicling in places like South Bend, Indiana, where small developers can plug into a support network of people who will help them learn the ropes and connect with a lender, an attorney, a property manager, a plumber, a carpenter. This is what California’s cities will need if SB9 is to take off. And it has to be grown from the ground up. A lot of it simply isn’t about the zoning code, at all.

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