As new California housing law hits Bay Area, developers wade in

PALO ALTO, CALIFORNIA – JANUARY 6: Architect Randy Popp visits an empty single family home in Palo Alto, Calif., Thursday, Jan. 6, 2022, after submitting plans to replace it with three new homes and an accessory unit on the property’s roughly one-acre lot size. The development proposal is one of the city’s first under the state’s new SB 9 law enacted Jan. 1, allowing some homeowners to divide and redevelop their properties, producing more homes and apartments. (Karl Mondon/Bay Area News Group)

Minutes after Palo Alto City Hall reopened for the new year, architect Randy Popp emailed city planners a client’s proposal to replace an aging single-family home on a large lot with three new houses and an accessory unit.

With that, the first round of proposals from Senate Bill 9 — the state’s latest effort to boost housing in established, single-family home neighborhoods — hit the Bay Area. But so far, city planners say the measure is producing more of a light sprinkle than a hurricane of proposed development.

“All of these new regulations, combined, will allow an increase in housing,” said Popp, who has three decades of experience building in Palo Alto and other Bay Area cities with rigorous development standards. The new law, he added, gives cities an opportunity to create housing “in a very reasonable way.”

Planning officials in San Jose and San Francisco said they have not received any SB 9 proposals yet but are expecting them in the coming weeks. A handful of property owners in Concord have asked about the new law, which took effect Jan. 1, and the city received its first application Wednesday, the city planning manager said.

SB9 streamlines the process for property owners to split large lots and build additional homes without a gauntlet of public hearings and neighborhood rebukes. Developers are eager to take up the challenge, even as Bay Area cities figure out how to implement new regulations governing what can be added.

The law allows many homeowners to build duplexes or divide their property, as long as the development meets environmental standards and basic city design guidelines. As many as two duplexes can be built on a lot.

Several Bay Area cities, including San Jose, have embraced the new measure and are putting together guidance for small developers. But some affluent suburban communities are seeking to curb the law’s impact with new local regulations.

Critics say the efforts will spoil established communities, bringing traffic and an unsupportable demand for services. A handful of Bay Area cities, including Cupertino, Saratoga and Monte Sereno, have backed a nascent ballot measure effort to overturn the law.

Despite the controversies, housing experts doubt the new law will have a sweeping effect on communities. Terner Center researchers at UC Berkeley estimate that it could create as many as 700,000 new homes on the state’s 7.5 million single-family lots. But researchers believe actual construction will be far less.

San Jose City Councilwoman Dev Davis has seized on the issue of local control in her run for mayor and serves as a leader in the statewide effort to nullify the law. “It’s a state overreach,” said Davis, who disagrees with her city’s approach. Allowing development in established neighborhoods with limited public input, she said, “is a recipe for disaster.”

Matt Regan, senior vice president of public policy at the Bay Area Council, said change is likely to come slowly, as homeowners, city planners and developers figure out how to make projects work. “It’ll take a little while to percolate,” he said.

The new regulations could create a whole new sector of small developers specializing in SB 9 redevelopments, much like ADU builders sprouted up after the state loosened requirements, he said. “I hope we see something similar with lot splits,” he said.

Already, several developers specializing in accessory dwelling units and pre-fabricated, in-fill housing are expecting to expand their businesses to help homeowners redevelop their properties.

Homestead, a Los Angeles-based developer, has focused on developing ADUs in wealthy suburban enclaves. But with the passage of SB 9, the company has designed software so homeowners can determine whether their property is eligible for new development.

Co-founder Sam Schneider said the company had commitments in December from a dozen property owners, including projects in Berkeley and Sunnyvale, although planners in those cities say they have not received any formal SB 9 applications so far.

Homestead fronts the investment, paying for administrative and construction costs, and serves as project manager. The developer recoups its costs, plus 20% of a homeowner’s profit, when the new construction is sold. That structure is geared toward house-rich but cash-poor homeowners, who could reap a windfall by developing their property. Nearly 2 in 5 Los Angeles residents own homes worth more than $1 million but earn less than $99,000, according to company research.

“It’s kind of ‘golden handcuffs’ for a lot of Californians,” Schneider said.

In the Barron Park neighborhood of Palo Alto, the buzz of home builders now fills the 900 block of Matadero Ave. A client was considering buying a single-story brick home on Matadero and asked Popp if the nearly one-acre lot could be split and redeveloped. Popp did the research.

Under old laws, the site could have been redeveloped with a home, a small attached apartment and a backyard unit. The new law allows three single-family homes.

Popp pitched an initial design: the front of the lot would hold a 6,000-square-foot mansion and an 800-square-foot auxiliary unit; behind it would be two, 3,800-square-foot homes. Most homes in Palo Alto sit on lots smaller than the proposed subdivided parcels, Popp said. “It’s not a dense project by any means.”

The prospective owners expect to close on the property this month, Popp said. They intend to live in the big house and sell or rent the back two homes.

But it’s unlikely to be a seamless process. Popp met with city planners last week, and said the two sides differed on what can be allowed on the lot. City officials did not return a message seeking comment.

Popp has a client base in Silicon Valley and expects some give and take with Palo Alto planners. City guidelines are strict, he said, but are fair and clearly outlined.