Property owners likely to reap benefits of SB9
Everybody knows the price of residential real estate in California is astronomical. The recently passed Senate Bill 9 tries to do something about it.
SB9 allows single family parcels in urban areas to be divided into two lots. It also allows two houses to be built on a parcel currently zoned for one house. In theory, this could turn a property with one house into a four-plex.
These rights are not unrestricted. Property owners must state that they will occupy one of the housing units for three years after splitting the property or adding units. The new lots must be at least 1,200 square feet. Local agencies may require that parcels further than a half mile of a public transit stop have one off-street parking space per unit. Units cannot be used for shortterm rentals.
How much of an impact will SB9 have?
According to the
Terner Center, there are 7.5 million existing single-family parcels in California. Of these, 1.8 million are “market-feasible” for new accessible dwelling units. These are additions already allowed on single family parcels. From 2018 to 2020, just 34,000 ADU permits were issued with 23,000 actually built. The gap between the theoretical and the actual is gargantuan.
Terner estimates that 5.4% of current singlefamily parcels have SB9 potential. If built to maximum feasibility, this would create approximately 700,000 new housing units. If the ADU precedent holds, very few new units will actually be built.
Whether additional supply will reduce prices is an interesting question. Residential real estate values are based on both the value of the land and the value of the building. SB9 makes land more valuable since two buildable lots are worth more than one. No one can say exactly how much more since larger lots are worth more than smaller lots. Nor can anyone predict whether properties in “densified” neighborhoods will generally decline in value due to perceived crowding.
In any case, the immediate outcome of SB9 is a potential windfall to current property owners.
What about potential buyers?
Units with less associated land should be less expensive and more affordable than existing units with more land.
On the other hand, SB9 sets up a dynamic where those who do not want to split a lot or add a second unit on an existing lot must compete against buyers who are willing to develop. Those who prefer more space may find prices even further out of reach.
Regarding Santa Cruz County in particular, Terner estimates that 43,000 of the single family lots are SB9 eligible with 8,000 feasible new units. This is one of the highest ratios in the state.
Ultimately, the effect on affordability may depend on the speed of any market adjustment. If buyers pay extra for development potential faster than prices fall due to actual development, housing will become less affordable. If the opposite occurs, affordability will improve.