May 7, 2022
California SB9: What is this Controversial Bill?
California needs more housing. In January, the state senate passed a new bill in hopes of generating millions of homes. What is SB9, and will it work? Let's talk about it.
- California SB9 allows more residences on single-family lots, a response to the state's severe housing shortage.
- The bill has received significant pushback from citizens and municipalities alike. SB9 is projected to have an underwhelming impact, and it could intensify existing infrastructure and equity issues.
- With small adjustments to the legislation over the coming months, SB9 has the potential to create much-needed high-density housing.
What is SB9?
Right now, California is facing a housing crisis. There is a shortage of living space, and rental rates are extremely high. Since 1980, the state has not produced enough homes, and the total deficit is estimated to be 3.5 million units.
In order to jumpstart the real estate industry, California legislators wrote Senate Bill 9. SB9 is part of the Home Opportunity and More Efficiency (HOME) Act, which was passed on September 16, 2021, and went into effect on January 1, 2022. The bill aims to create more housing and rental spaces in high-density areas, with an emphasis on building intergenerational wealth.
After 5 months of SB9 in California, here are 5 key takeaways…
Single-family lots can now be divided
The primary reform of SB9 involves single-family lots. Under the new zoning laws, these properties can be divided into two lots, with two residences on each lot. Essentially SB9 allows up to four units on an existing single-family lot. Given that 66% of California's property is classified as single-family housing, this legislation theoretically allows for exponential growth in the number of available units.
In order to facilitate more efficient construction, California is also changing its administrative processes. The approval of housing projects is switching from a discretionary model to a ministerial model. Replacing the case-by-case review, there is now an objective set of qualifications that will guarantee approval:
- The bill only applies to R1 and OP1 housing zones
- The bill does not apply in hazard, historic, or environmentally protected zones
- Additional units may not be used for rentals shorter than 30 days
- Homeowners need to live on the property for 3 years before and 3 years after the split
- The split of two lots cannot affect rent-controlled housing
- The split of two lots must comply with other zoning standards
SB9 is unlikely to cause a transformation
SB9 was designed to fundamentally increase the scale and the equity of the California housing sector. Here's why it probably won't.
The HOME Act is unlikely to slow down the state's housing crisis simply because it won't produce enough homes. California needs at least 1.3 million units in order to stop the inflation of rent prices, but a UC Berkeley analysis found that SB9 will produce a maximum of 700,000 units. These underwhelming numbers reveal a crucial flaw of the bill: it puts the burden on the citizens to decide to build more homes. Historically, elective construction policies have produced weak results. One bill in Minnesota saw very few permit requests after one year in practice. So far, California seems like no exception to this trend. As of June 2022, a regional article found that "very few residents utilized" SB9 in Berkeley.
The legislation also targeted certain inequities in the housing market by promoting asset building and intergenerational wealth. However, policymakers seemingly overlooked the fact that the existing wealth distribution may neutralize the intended effects. Building an additional unit on a property brings significant upfront costs. Official projections indicate that most SB9 projects will most likely happen in wealthy neighborhoods, meaning that the new legislation will contribute to a rising wealth gap in California.
Will SB9 create opportunities for developers?
The bill is projected to generate thousands of units, so you may be anticipating California developers to reap the benefits. But the HOME Act isn't focused on this type of real estate, because it holds unique restrictions that will limit widespread construction.
Firstly, SB9 states that you can only demolish one existing wall of a structure during the redevelopment of a unit. While this provision will definitely allow for some significant changes to California homes, it will also stop developers from completely redesigning entire properties. Most construction on single-family lots will be minor.
Next, the law has specific occupancy rules that will limit widespread development. For example, once you split a lot using SB9, you have to occupy the property as a primary residence for at least 3 years. This commitment ensures that the homeowner is personally invested in the construction and that they can't vacate the property during large projects.
SB9 will probably create some opportunities for developers, especially for smaller renovations or ADU installations. However, the law works hard to make sure that developers cannot transform entire Californian neighborhoods.
SB9 could harm certain neighborhoods
The vision behind SB9 was to create high-density housing standardized across California. The state wants to build thousands of affordable units, but legislators have clearly forgotten about infrastructure. Parking, sewer, and power systems will all become more congested as more buildings go up. California is already suffering from a drought, and some officials fear that this extra burden could lead to disaster.
SB9 projects are generally labeled as small developments, so homeowners don't have to pay various community fees. Park and school payments are often made by developers when they bring construction into a neighborhood, but this won't happen under SB9. Some residents are worried that the increase in population will be a burden, especially without the typical community benefits that come with real estate development.
There is widespread opposition among Californians
Given some of SB9's flaws, it should come as no surprise that the legislation received significant pushback. Shortly before Gov. Newsom signed the bill in September, a poll found that 71% of California residents opposed the bill.
Since then, municipalities and organizations have continued to fight against the HOME Act. For example, Our Neighborhood Voices is a group of residents advocating for an initiative on November's ballot. This electoral provision would allow local governments to override SB9.
Notable city governments have also resisted the legislation. Cupertino, Inglewood, and Santa Clara have obstructed SB9 through:
- Restrictive affordability ordinances for SB9 units only
- Restrictive objective standards like design matching
- Upzoning that creates multifamily conditions, eliminating SB9 eligibility
There is hope: Policies to Improve SB9
As with any state senate bill, the HOME Act will likely be modified during its first year in effect, meaning that the rest of 2022 could see SB9 optimized to address the housing shortage and market inequities.
Reducing the strict requirements of size and occupancy would undoubtedly lead to more unit production. For instance, one UC Berkeley report concluded that the commitment to 6 years of occupancy associated with SB 9 was a serious deterrent. Approximately 40,000 additional units, or 6% of expected totals, were cut by this qualification. Increasing size ranges would go a long way to encourage SB9 construction, but this change would need to include infrastructure support.
Shared equity models and neighborhood-based direct investments could be crucial to the success of SB9 in low-income areas. Community Land Trusts have been historically effective in low-income districts when new construction is necessary. These non-profit organizations help finance and monitor projects with high upfront costs. In the long term, this method can bring in more money than traditional rent, along with increased security and convenience. Shared equity models could be seamlessly integrated into SB9 policy, allowing for more flexibility in low-income communities and hopefully continuing the growth of intergenerational wealth.