Will the California SB 9 bill tank the market?
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
Will the California SB 9 bill tank the market?
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5yI have said for a long time that houses in California are not worth $1.5 million dollars. Many of these houses would cost under $200K in my market. The LAND holds the value. This law allows splits up to 4 units, but also requires the owner to occupy for 3 years. It is a house hackers dream. Tear down a single family home, build a nice duplex or fourplex, then sell the property in 3 years to an investor for nice profit. Or move out and rent the fourth unit.
The obvious down side is these neighborhoods will reduce in quality. A neighborhood full of single family homes is more desirable than one filled with duplex and fourplex. Density brings renters, traffic and noise. New people moving in may not care, but long term residents will not enjoy the change.
I don't see that this bill drive people out of California, not in any larger numbers than already leaving. If you are willing to sit in traffic for hours and deal with smog, you are not going to care about this. People get conditioned to their surroundings. I guess it could be the last straw for some people who considered their home a quiet oasis in the concrete jungle of California.
Either way, as I said in my first point, the LAND holds all the value. Being able to split that into 2-4 unit multifamily will only increase land value.
24 Replies
- Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes5y
@Lane Kawaoka my understanding is that this is in response to the high cost of real estate. It basically allows anyone to build an ADU on their property. Benefits both parties. Low cost rental property because you already own the land, and low rent because the numbers work.
- Member since 2020 · 35 posts · 13 votes5y
My family has property there and honestly there is a lot of In-Law style units that are already there which the gov has just looked the other way on, this is a move to make it official.. Parking is not good in many areas so we will see how that goes but just approving the in-laws, ADU and etc. additions I don't think will tank the market. If the market tanks (rents are currently in depression while prices remain at all time highs in my areas) it would be for different factors, at least in my opinion.
- 5yDylan VargasPro MemberRental Property Investor · Chico, CA · Member since 2016 · 633 posts · 336 votes
@Lane Kawaoka I do not think this will tank the market. This will create more of a rush to build. The trick will be finding enough contractors to fill the need. The rents will remain high after building but you can sell the new home and lot if you wish after a period of time I think. The issue many talk about are how the burbs and places with decent size yards will see a big change. If the size of the lot is decent you can easily do this as the lots in the new subdivisions are very small. Everything out here costs a ton and has regulations but this will be another rush to build in my opinion. People are debating how the new build and smaller lot will bring down the price of the existing house on the property so, may not be worth it in some situations.
- Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes5y
Originally posted by @Account Closed:
@Lane Kawaoka my understanding is that this is in response to the high cost of real estate. It basically allows anyone to build an ADU on their property. Benefits both parties. Low cost rental property because you already own the land, and low rent because the numbers work.
Per zoning and how jurisdictions view things, ADUs are completely different than a just allowing another unit. ADUs are usually capped in square footage and number of bedrooms. Another unit is not. Its will be adding a new, full size house to any lot as long as it meets the setbacks and other zoning restrictions. Think detached duplex...if that oxymoron makes any sense lol.
- Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes5y
Originally posted by @Lane Kawaoka:
Will this drive more people migrating to California from other states or will people shy away from living in California? Or should you go oos?
My brief understanding of the new law:
Senate Bill 9 is a bill that allows lot splits and two-unit projects in single-family zones making the single family homes and multifamily homes to coexist in the same zone.
As the population becomes denser in California, there is a continuous demand for residential property.
Multifamily homes can cater to this booming population.
However, the costs of real estate might be far from a decline.
This will do the exact opposite. It will cause prices to do the opposite of what they are intending, go even hirer. Because now every lot in the ENTIRE state can now be a MF lot. Everyone now has a parcel that, with the rise in home prices, is more than likely will be free and clear. Which means they can either sell it for cash or have the down payment already covered to secure a construction loan.
Now with the massive influx of new "lots" available to build on, you would think this would drive down prices but it wont. The reason is there isnt enough materials and labor to cover all the new demand for building. So if you thought it would be hard to get a GC to build a house now and that they are over priced....just wait when tens or hundreds of thousands of people try to rush the market and build on their new found parcel. Best case scenario (or worst case depending on how you look at it) is that the initial price reduction because the sudden influx of build lots hitting market, will be offset by the spike in material and labor prices and you see continued normal growth/appreciation in the market.
Its no different than where we are today. Housing is in such a huge demand and the main reason prices keep going up is because there is not enough material and labor to build houses fast enough. There plenty of land to build in 90% of the country. Its the fact that materials are more pricey and take longer to get to the site and labor is in a huge shortage as well.
I mean, I think make the entire state anti single family is taking it a bit too far but the idea is sound for most the state. It will have a long term impact on housing but definitely nothing short term. Especially if the material and labor shortage continue. - Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
I have said for a long time that houses in California are not worth $1.5 million dollars. Many of these houses would cost under $200K in my market. The LAND holds the value. This law allows splits up to 4 units, but also requires the owner to occupy for 3 years. It is a house hackers dream. Tear down a single family home, build a nice duplex or fourplex, then sell the property in 3 years to an investor for nice profit. Or move out and rent the fourth unit.
The obvious down side is these neighborhoods will reduce in quality. A neighborhood full of single family homes is more desirable than one filled with duplex and fourplex. Density brings renters, traffic and noise. New people moving in may not care, but long term residents will not enjoy the change.
I don't see that this bill drive people out of California, not in any larger numbers than already leaving. If you are willing to sit in traffic for hours and deal with smog, you are not going to care about this. People get conditioned to their surroundings. I guess it could be the last straw for some people who considered their home a quiet oasis in the concrete jungle of California.
Either way, as I said in my first point, the LAND holds all the value. Being able to split that into 2-4 unit multifamily will only increase land value.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Account Closed:
@Lane Kawaoka my understanding is that this is in response to the high cost of real estate. It basically allows anyone to build an ADU on their property. Benefits both parties. Low cost rental property because you already own the land, and low rent because the numbers work.
in reality or in practice neither of those things will be real.. it wont be low cost to build and rents wont be low.. it will takes years and years and years before this see's any major amount of volume. Not very sfr owner wants a rental in their yard.. matter of fact very few.
- Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes5y
There are a lot of things here.
First, my read on SB9 is that you can build a duplex (either attached or detached) without owner occupancy.
Because you can't tear down most SFRs, this is similar to adding an ADU, but it will have difference building code requirements (sprinklers) and be valued as a duplex.
If you split the lot there is an owner occupancy requirement. The lots that I've found will generally work best if the owner splits the lot in half, keeps the SFR at the front and adds a duplex to the rear. Younger investors, or older ones without kids and parents and dogs and other such things can certainly choose to live in a duplex unit.
I don't expect this to be a game changer, although I do expect that it will change the way ADUs are appraised. - Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes5y
Originally posted by @Lane Kawaoka:
Will this drive more people migrating to California from other states or will people shy away from living in California? Or should you go oos?
My brief understanding of the new law:
Senate Bill 9 is a bill that allows lot splits and two-unit projects in single-family zones making the single family homes and multifamily homes to coexist in the same zone.
As the population becomes denser in California, there is a continuous demand for residential property.
Multifamily homes can cater to this booming population.
However, the costs of real estate might be far from a decline.
It's not going to move the market even an inch. The sheer amount of time, effort and cost it takes to split your lot and turn your SFR into a split lot with an additional building is staggering. Even if everyone in LA wanted to do it, it would still be an incredibly slow process.
Also, anyone who thinks zoning rules are the main reason for the skyrocketing RE in CA is being fooled by politicians. Just drive through Montana Ave in SM. This street is lined with some of the most expensive property values in the state but the street is lined with miles and miles of multi-unit apts which go a few blocks deep. And on a totally unrelated and gratuitous note, I had breakfast with Don Cheadle last weekend on that street at a side-walk cafe (well, he sat in the table next to me).
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Splitrock:
I have said for a long time that houses in California are not worth $1.5 million dollars. Many of these houses would cost under $200K in my market. The LAND holds the value. This law allows splits up to 4 units, but also requires the owner to occupy for 3 years. It is a house hackers dream. Tear down a single family home, build a nice duplex or fourplex, then sell the property in 3 years to an investor for nice profit. Or move out and rent the fourth unit.
The obvious down side is these neighborhoods will reduce in quality. A neighborhood full of single family homes is more desirable than one filled with duplex and fourplex. Density brings renters, traffic and noise. New people moving in may not care, but long term residents will not enjoy the change.
I don't see that this bill drive people out of California, not in any larger numbers than already leaving. If you are willing to sit in traffic for hours and deal with smog, you are not going to care about this. People get conditioned to their surroundings. I guess it could be the last straw for some people who considered their home a quiet oasis in the concrete jungle of California.
Either way, as I said in my first point, the LAND holds all the value. Being able to split that into 2-4 unit multifamily will only increase land value.
Joe do keep in mind in many of the nicer neighborhoods a cash flowing 4 plex is NOT worth what the SFR is worth so they would be going backwards in values..
- Member since 2020 · 58 posts · 10 votes5y
My two questions on this will affect the market relate to
Vacation Homes: If you haven't had renters there then could you split the lot and build accordingly? Or even just build one more unit and rent it?
SFR - MFR: After you split the lot and build, can you immediately sell the non-owner occupied lot? How hard will the city be able to fight this with the exemptions they have? Meaning if you bought a house on a large lot in anticipation of doing this what legal hurdles will you face?
Would be nice to see some precedence set for this to see playbook and potential legal pitfalls.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes5y
The only winner will be the government collecting the property taxes
- Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes5y
@Lane Kawaoka, I think not a big game changer due to the owner occupancy requirements, lots of loopholes for cities to push back, and high construction costs.
Also, people here seem to be confusing SB9 urban lot splitting with the ADU law. My reading of SB9 seems to show you need to choose one or the other.
If there is a larger impact than I predict, then it’s like any of the other regulations here, where there will be winners and losers. For example, certain neighborhoods may be more conducive to speculation and drive down single family home prices there. Meanwhile solidly high end neighborhoods where nobody wants to split lots may go up even more in value.
Whatever the case it's going to be awhile to see how this pans out on the local level. And as with the ADU law, I suspect the state will have to modify SB9 later to try and enforce it better.
Anyone look at AB345 yet?? Now that looks like you might start selling your ADU's! One thing is certain - CA is feverishly changing zoning at the state level and there will be money to be made if you pay attention and react faster than the rest.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Before I left Cali in 2019, San Diego County adopted the more lax ADU rules. I got tons of calls for bids. Almost every day. Guess how many jobs I got out of it.....none. (Now I am a higher priced builder but still.....)
These ADUs cost more per SF to build for those who haven't done it yet. They require additional insulation, only tankless water heaters, only mini-split HVAC, Etc, Etc. So people balked at the price, thinking it would be easier and cheaper... Maybe that was just then and they have changed the requirements, but I don't think so.
There will be a lot of people getting bids and getting all hot and bothered, but not everyone in the state will rush to build these once reality hits.
- Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes5y
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Splitrock:
I have said for a long time that houses in California are not worth $1.5 million dollars. Many of these houses would cost under $200K in my market. The LAND holds the value. This law allows splits up to 4 units, but also requires the owner to occupy for 3 years. It is a house hackers dream. Tear down a single family home, build a nice duplex or fourplex, then sell the property in 3 years to an investor for nice profit. Or move out and rent the fourth unit.
The obvious down side is these neighborhoods will reduce in quality. A neighborhood full of single family homes is more desirable than one filled with duplex and fourplex. Density brings renters, traffic and noise. New people moving in may not care, but long term residents will not enjoy the change.
I don't see that this bill drive people out of California, not in any larger numbers than already leaving. If you are willing to sit in traffic for hours and deal with smog, you are not going to care about this. People get conditioned to their surroundings. I guess it could be the last straw for some people who considered their home a quiet oasis in the concrete jungle of California.
Either way, as I said in my first point, the LAND holds all the value. Being able to split that into 2-4 unit multifamily will only increase land value.
Joe do keep in mind in many of the nicer neighborhoods a cash flowing 4 plex is NOT worth what the SFR is worth so they would be going backwards in values..
Yes. I'll put my prediction in writing: this will have no meaningful impact on *existing* neighborhoods. Builders of new subdivisions will have the option to build at 2x density (which is probably a good thing). But existing housing stock? Nothing. Sure, a few owners or investors will do something on the edges ... or a few odd parcels will be split up. But it's not going to change existing neighborhoods in mass. In general (at least in urban San Diego) it is infeasible to evenly split existing urban lots (as required by these bills) and it makes NO FINANCIAL SENSE to mass tear down existing SFRs to split the land and build more units. The cost to build onesies and twosies is too high for that.
In short, lots of smoke, no fire.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Justin R.:
How is doubling population density a good thing?
- Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes5y
Originally posted by @Bruce Woodruff:
Originally posted by @Justin R.:
How is doubling population density a good thing?
It's a good thing because people have to live somewhere. Would you rather they live in Los Angeles, or Prescott?
- Rental Property Investor · Phoenix, AZ · Member since 2016 · 553 posts · 314 votes5y
Originally posted by @Bruce Woodruff:
Before I left Cali in 2019, San Diego County adopted the more lax ADU rules. I got tons of calls for bids. Almost every day. Guess how many jobs I got out of it.....none. (Now I am a higher priced builder but still.....)
These ADUs cost more per SF to build for those who haven't done it yet. They require additional insulation, only tankless water heaters, only mini-split HVAC, Etc, Etc. So people balked at the price, thinking it would be easier and cheaper... Maybe that was just then and they have changed the requirements, but I don't think so.
There will be a lot of people getting bids and getting all hot and bothered, but not everyone in the state will rush to build these once reality hits.
Off the top of my head around 15% of all new homes in California are ADUs, and it's increasing every year.
- Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes5y
Originally posted by @Seth Borman:
Originally posted by @Bruce Woodruff:
Before I left Cali in 2019, San Diego County adopted the more lax ADU rules. I got tons of calls for bids. Almost every day. Guess how many jobs I got out of it.....none. (Now I am a higher priced builder but still.....)
These ADUs cost more per SF to build for those who haven't done it yet. They require additional insulation, only tankless water heaters, only mini-split HVAC, Etc, Etc. So people balked at the price, thinking it would be easier and cheaper... Maybe that was just then and they have changed the requirements, but I don't think so.
There will be a lot of people getting bids and getting all hot and bothered, but not everyone in the state will rush to build these once reality hits.
Off the top of my head around 15% of all new homes in California are ADUs, and it's increasing every year.
I'd be curious to see how many of those permitted ADUs were existing housing units, just legalized.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Seth Borman:
Originally posted by @Bruce Woodruff:
Originally posted by @Justin R.:
How is doubling population density a good thing?
It's a good thing because people have to live somewhere. Would you rather they live in Los Angeles, or Prescott?
Still doesn't make it a good thing. But yes, keep 'em in LA ;-)
- Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes5y
Originally posted by @Bruce Woodruff:
Originally posted by @Justin R.:
How is doubling population density a good thing?
Without trying to comment on population density in general, I meant "probably a good thing" as in it's a good thing that it would impact newly built neighborhoods more than it will impact existing neighborhoods. When the residents move into the new neighborhood, they know exactly what they're buying into and are more likely to be happy with it.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Justin R.:
Originally posted by @Bruce Woodruff:
Originally posted by @Justin R.:
How is doubling population density a good thing?
Without trying to comment on population density in general, I meant "probably a good thing" as in it's a good thing that it would impact newly built neighborhoods more than it will impact existing neighborhoods. When the residents move into the new neighborhood, they know exactly what they're buying into and are more likely to be happy with it.
Gotcha. It seemed you might be saying that more people crammed into an area was good. I've seen too many places ruined by that....
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes4y
SB9 is yet another failed attempt of CA politicians to "fix" a problem. This is Newsome's idea of showing how he beat the recall and that he is doing something for CA (what a joke). Gascon's idea to fix prison overcrowding is to just let them out. Wow, deep thinker.
To perform a lot split on an existing lot with an already built home, the new bill allows requirements from individual municipalities to set minimum lot SF and layouts, there are utility easement issues, and most existing homeowners will not want to split their SF lot on their primary residence. As builders/investors, sure this may open the door for additional opportunities, but in the long game, this bill will do little to nothing to resolve CA housing/homeless issues.
The SB and AB's that were passed for ADU's were much more effective in creating additional housing, but still just a drop in the bucket for what is needed and the costs to build the ADU's are skyrocketing each month due to labor and materials costs, not to mention material shortages due to supply chain issues which are getting worse, not better (that's across the board for all states, not just CA, but more heavily felt here as Long beach is a HUGE port not currently even close to full operations.)
- Architect · San Diego, CA · Member since 2013 · 244 posts · 101 votes4y
Originally posted by @Justin R.:Originally posted by @Jay Hinrichs:
Originally posted by @Joe Splitrock:
I have said for a long time that houses in California are not worth $1.5 million dollars. Many of these houses would cost under $200K in my market. The LAND holds the value. This law allows splits up to 4 units, but also requires the owner to occupy for 3 years. It is a house hackers dream. Tear down a single family home, build a nice duplex or fourplex, then sell the property in 3 years to an investor for nice profit. Or move out and rent the fourth unit.
The obvious down side is these neighborhoods will reduce in quality. A neighborhood full of single family homes is more desirable than one filled with duplex and fourplex. Density brings renters, traffic and noise. New people moving in may not care, but long term residents will not enjoy the change.
I don't see that this bill drive people out of California, not in any larger numbers than already leaving. If you are willing to sit in traffic for hours and deal with smog, you are not going to care about this. People get conditioned to their surroundings. I guess it could be the last straw for some people who considered their home a quiet oasis in the concrete jungle of California.
Either way, as I said in my first point, the LAND holds all the value. Being able to split that into 2-4 unit multifamily will only increase land value.
Joe do keep in mind in many of the nicer neighborhoods a cash flowing 4 plex is NOT worth what the SFR is worth so they would be going backwards in values..
Yes. I'll put my prediction in writing: this will have no meaningful impact on *existing* neighborhoods. Builders of new subdivisions will have the option to build at 2x density (which is probably a good thing). But existing housing stock? Nothing. Sure, a few owners or investors will do something on the edges ... or a few odd parcels will be split up. But it's not going to change existing neighborhoods in mass. In general (at least in urban San Diego) it is infeasible to evenly split existing urban lots (as required by these bills) and it makes NO FINANCIAL SENSE to mass tear down existing SFRs to split the land and build more units. The cost to build onesies and twosies is too high for that.
In short, lots of smoke, no fire.
Totally agree with this, especially when an ADU/JADU is going to be much more cost effective.
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