By Michael Repka, Esq.
Much of California faces a dramatic housing shortage, most certainly including the Bay Area. It is truly tragic that so many people that work in this area, including teachers, nurses, civil servants, and a multitude of others that contribute immeasurably to the area’s quality of life, can’t afford to live locally.
The California legislature’s goal of increasing the number of affordable housing units through reduced zoning restriction is undoubtedly well-intentioned and laudable, but this action may come with some unexpected consequences. This is especially true in areas with exceptionally high land values, such as prime Silicon Valley.
These potential consequences range from the demonstrable, such as strain on the area’s infrastructure, school enrollment, and traffic congestion, to less palpable changes, like altering the “feel” of various neighborhoods. Ironically, despite the legislature’s best efforts to avoid this result, we may see an increase in the number of housing units, but these new units may be on the more expensive side of the spectrum.
The basic premise of the two recently passed California laws relaxing property zoning rules (SB-9 and SB-10) is that there are too few housing units for the given amount of land available for building. By significantly restricting single-family zoning throughout most of the state, this will permit multi-family units almost everywhere, with a resultant increase to the number of housing units statewide. In other words, homeowners in single-family neighborhoods would be able to replace their primary residence with a duplex (provided they continue to live in one of the units). Or, taken a step further, they may be able to subdivide their lot and build a duplex on each side of the formerly unitary lot.
California Senate Bill-9 (“SB-9”)
The California Housing Opportunity and More Efficiency (HOME) Act, more commonly known as SB-9 or the “Duplex Bill,” which passed in September, 2021 and went into effect on January 1st of this year, is fairly straightforward in its objective and its approach. Boiled down to its essence, and somewhat simplified, SB-9 mandates that homeowners of lots previously zoned as single-family are allowed to rebuild a duplex on that lot and/or split the lot and build up to one duplex on each lot. Further, the newly enacted rules require automatic approval, without discretionary hearing or review.
As a result, it is easy to see how neighborhoods previously populated by only single-family homes may find those same lots sprouting 2 to 4 units per lot. Thus, two affluent single family homeowners may find themselves straddling what was once one lot, but which now contains four smaller units.
While it may seem like the impact of this legislative change could be dramatic, there are certain safeguards in place to prevent wide-scale application by developers or speculators. These restrictions include:
The owner of the property must sign an affidavit stating that they intend to occupy one of the units for at least three (3) years;
The lot split/development must not require demolition of any of the following:
- Affordable housing units for families of moderate, low, or very low incomes;
- Rent-controlled housing;
- Housing that has been occupied by a tenant in the last three years.
- Other building restrictions generally still apply provided they don’t thwart the intent of this new legislation.
California Senate Bill-10 (“SB-10”)
California Senate Bill-10, which Governor Gavin Newsom signed into law on September 16, 2021, is designed to allow for even more dense housing in areas near Transit Hubs or Urban Infill Sites. At the risk of oversimplification, this means lots that are located near major Transit Hubs, or in certain densely populated urban areas, can be significantly expanded.
Provided that the parcel qualifies, the owner can develop up to 10 units on the site, not including up to two Accessory Dwelling Units (“ADUs”) or Junior Accessory Dwelling Units (“JADUs”). This new legislation also provides for streamlined environmental approval of the rezoning under California Environmental Quality Act (“CEQA”).
However, the actual project will likely still require approval under CEQA so this rezoning provision may be of limited utility to the owner.
The Possible Practical Impact
The high cost of land in Silicon Valley may result in landowners developing luxury homes to fully amortize the high value of their underlying land. By way of example, someone living in a dated home on a valuable $6 million lot in Palo Alto may be contemplating a sale in 5 years. Rather than waiting to sell, they could split the lot and build a duplex on each lot and move into one. Given the high value of the lot, this homeowner may be encouraged to build four high-end units because they need to allocate approximately $1.5 million of land value to each of the units. Each of these units would have access to the fantastic local schools and neighborhood amenities, which would command high rents, thus further driving up the value of the land. Ironically, this scenario would result in four new units, but still be only attainable by the affluent.
While it is not uncommon to find neighborhoods filled with a combination of stately mansions and luxury duplexes in other parts of the country, such as New Jersey, Virginia, and affluent parts of large cities in Texas, it would represent a significant change to many upscale Silicon Valley neighborhoods.