LOS ANGELES — When Gov. Gavin Newsom signed a plethora of housing bills that he believes will up the production of housing in a state in dire need of it, he touted how the new legislation will increase affordability.

The theory is boosting California's low housing supply could increase inventory into the market, thus flattening or, in some cases, lowering the cost of housing.

What You Need To Know

  • Gov. Gavin Newsom recently signed a number of housing-related bills to remove the city red tape and up the production of housing in the state

  • SB 9 would allow a homeowner or investor to subdivide their single-family zoned lot and build a pair of duplexes on the property

  • According to reports, the bill could create 700,000 housing units in the state 

  • Opponents of Newsom's housing bill say there is nothing affordable about the bills. The high cost of land and construction negates the affordability belief

“The housing affordability crisis is undermining the California Dream for families across the state and threatens our long-term growth and prosperity,” said Newsom during the signing last month. “Making a meaningful impact on this crisis will take bold investments, strong collaboration across sectors and political courage from our leaders and communities to do the right thing and build housing for all."

But multifamily experts, investors and opponents of the housing bills that Newsom signed say the exact opposite.

"If you add more supply, it does create more affordability," said Scott Collier, a managing director of asset management for TruAmerica Multifamily. "But [the new housing bills] are not going to add supply quickly enough to keep up with the state's population growth and the cost of land and construction."

Redondo Beach Mayor Bill Brand is heading a coalition to stop the recently signed housing bills: Senate Bill 9, Senate Bill 10 and Assembly Bill 1401.

"These do nothing for affordable housing," said Brand, who is the co-proponent of the Stop the Sacramento Land Grab Initiative. "This is only going to create market-rate housing. All of the bills out of Sacramento don't address affordable housing and could actually displace residents of affordable housing."

Nearly a month after signing the housing bills into law, opponents are mobilizing against it. Meanwhile, multifamily investors are looking closely to see if buying homes on large lots and building fourplexes or small apartments are worth buying and developing.

Last month, Newsom signed several new housing bills, including SB 8, SB 9 and SB 10, as part of a sweeping effort to remove the local red tape and boost housing production in a state that is in a housing and affordability crisis. 

According to the LA Times, the median price of a home in Orange County is $900,000, increasing 12.5% from the previous year. In Los Angeles, the median price jumped 13% year over year to $785,000.

While SB 8 streamlines the approval process, many residents are most concerned about SB 9 and SB 10, said Brand, adding AB 1401, which removes parking requirements, is also a concern.

SB 9 allows a homeowner to subdivide their single-family home and build two duplexes or one duplex on each subdivided lot. What remains unclear is whether, on top of the building of duplexes, each parcel could also have an accessory dwelling unit and junior accessory dwelling unit.

If that is the case, a homeowner could theoretically build up to eight units on a single parcel.

"We're awaiting greater clarity from the state on this matter and hope to see some answers before the law goes into effect in 2022," an Anaheim spokesperson told Spectrum News.

SB 10 allows cities to approve zoning changes of single-family residential lots near a transit area (within a mile) for small 10-unit apartments.

According to UC Berkeley's Terner Center for Housing Innovation, SB 9 could create an estimated 700,000 more units in the state.

Pro-housing advocates praised the governor's signing.

"The end of exclusionary, single-unit zoning in California is a historic moment — we've taken a huge step toward making California a more affordable, equitable and inclusive state," said Brian Hanlon, CEO of California YIMBY, in a statement.

However, opponents said the new housing bills would end residential neighborhoods and do nothing to make homes affordable.

"It's going to be a disaster for affordable housing and our quality of life," said Brand, whose coalition is raising money to their ballot initiative to next year's election cycle.  

Housing experts say people should tone down on the end of single-family zoning rhetoric.

Bryan LeRoy, a partner at Nixon Peabody's real estate group, said there are a lot of exceptions to SB 9.

Under the legislation, the lot can't be in a rural area or within a designated historic district. Proposed units can't be more than 800 square feet. And the owner or applicant has to live in one of the units for three years.

"There's a number of these exceptions that limit its applicability," said LeRoy. "So single-family zoning isn't going to go away soon."

He added only 1.5% of single-family lots could apply for SB 9.

But LeRoy said housing affordability is an issue with the new housing bills. If anything, he said, at least in the short-term, the bill could increase the price of land as multifamily developers and investors begin to scout sites.

"I think you're going to see a lot of activity early on, but there's a lot of uncertainty with how cities are going to implement this," he said.

As for SB 10, the new legislation only gives cities the ability to change the zoning of a single-family residential area near transit, not mandate it.

Collier, the TruAmerica executive, said investors he's spoken with are shying away from SB 9 — for now.

TruAmerica, which has a portfolio of about 20,000 units in the state, specializes in workforce and middle-income housing.

But Collier said the high cost of land and construction in the state makes it hard for investors to profit.

Collier said only a few parcels would be financially feasible to take a single-family home, divide it into two lots and put up a couple of duplexes. There are a lot of market conditions to consider, he said.

"Given the high cost of single-family homes in California, it doesn't make any financial sense to buy a $700,000 or $1 million residence, tear it down and build a fourplex," said Collier.

Under that scenario, Collier said, an investor or homeowner would need to shell out more than $3 million to build a fourplex on a single subdivided lot.

"It doesn't pencil out because the cost of construction is still greater than the actual value of the real estate unless you get the rents up to $2,500 or $3,000 a unit," said Collier. "But if you do that, then [the housing bills] don't meet the real need which is closing the affordable housing gap."

Still, Newsom's housing bills are seen as one part of a jigsaw puzzle in California's housing crisis.

"I think the author of these bills would tell you this is not a panacea or a single solution [to the state's housing problems]," said LeRoy. "They have to attack the housing problem on multiple levels. This is just one part of that."

"If in SB 9's case, this can only create 700,000 homes and California is 1.8 million units in deficit, then we have a long way to go before we reach that equilibrium," LeRoy said. "This is just a piece of the puzzle, but we have a long way to go."