The Secret Sauce (Maybe) of California’s Zoning Reform

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The gathering snowball of residential zoning reform has picked up impressive speed around the U.S. in just the past few years. It’s now scooped up the nation’s most populous state—and with an interesting twist that makes this reform worth watching and unlike laws that have passed in other places, like Oregon. 

It was just earlier this year that we were praising the local leadership of Sacramento and Berkeley for passing reforms to eliminate exclusive single-family zoning and parking minimums. In a state with a punishingly high cost of living, these regulations tend to lock wealthy and desirable neighborhoods under glass. This pushes growth outward toward costly exurban expansion (in California’s case, increasingly in deserts or wildfire zones). And it contributes to the state’s extreme economic divisions and exodus of the working class.

Now, statewide reform, which faltered in the Golden State for several years running, has passed in the form of Senate Bill 9 (SB 9), which effectively ends single-family zoning in California. The new law allows up to four homes on most single-family lots statewide. In general, an owner may build one additional home, or—here’s the interesting twist—split their lot in two and have two homes on each. Fire zones and historic districts (and a few other conditions) are exempted, and you cannot demolish or alter a home that has had a rental tenant in the past 3 years. 

Governor Gavin Newsom signed SB 9 on September 16th, along with a couple other housing bills: Senate Bill 10 (SB 10), which allows local governments exemption from a costly environmental review process if they choose to upzone lots for up to 10 homes, and SB 8, which extends the provisions of an existing housing streamlining law that does a bunch of things (it’s complicated).

The passage of SB 9 and SB 10, combined with a statewide law in Oregon, add to a growing body of evidence that there is more political momentum behind broad-but-incremental reforms like this, than highly technocratic approaches which seek to more precisely target certain locations for larger changes.

The open question is, “What now?” Will anything actually change?

Don’t Expect an Overnight Revolution

A July 2021 analysis from the Terner Center at UC Berkeley underlines that the challenge of transforming a broken housing system in California goes far beyond zoning. Researchers analyzed 7.5 million single-family lots throughout the state and concluded that, while over 80% of such lots are eligible under the provisions of SB 9, fewer than 6% of them (410,000) would actually be candidates for new housing. And a lot fewer than those will be built any time soon, because the homeowner has to choose to develop their land. Ultimately, the Terner Center estimates 97% of existing single-family homes will remain so.

The reason: market feasibility. The Terner Center evaluated the potential return on these lots using a simplified version of what a developer would do: ask “Will it pencil?” Put simply, it’s very hard to redevelop an existing lot with only a modest jump in intensity, like from one unit to two, and not lose money. Construction costs are extremely high in California, with even nonprofit, low-income housing units costing upwards of $500,000 to build. (Not to buy. To build.) In cheaper areas of the state like the Central Valley, potential proceeds are not high enough to make many SB 9 units market-feasible; meanwhile, in some of the costliest cities, like San Francisco, single-family lots are already very small, and so the physical task of accommodating a new unit or a lot split is more complex. Bottom line: The relentless math of development is often going to be prohibitive until the whole housing market adjusts.

The promise of laws like this is that they could begin to set California on that path, not that they will lead to instant transformation. Land prices, so prohibitive for small-scale development, are high in part because zoning has ensured an extreme scarcity of buildable sites for housing in California cities, and extreme demand for the homes that exist. Unlock a whole lot more sites for incremental housing development, and you hopefully create downward pressure on those land values, smoothing the market’s speculative peaks. 

To begin to unwind this, though, is going to require a lot more to change besides zoning. And it won’t be a sudden change, though it will hopefully be an accelerating one (as ADU production in California, which now comprises nearly 40% of housing permits in Los Angeles, has proven to be).

Fortunately, SB 9 has one feature that is novel thus far in the single-family zoning wars, and may well prove worth emulating by other cities and states.

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