The Ralph and Goldy Lewis Center for Regional Policy Studies

California is currently facing an affordable housing crisis, despite recent legislative efforts to spur housing development. Much of this shortage can be attributed to restrictive land use policies, such as zoning, that limit the amount of housing allowed. In 2021, Senate Bill 9 (SB 9) passed allowing for the development of up to four units on single-family zoned parcels. However, housing professionals and recent studies indicate that the rules of SB 9 do not allow for financially feasible development. This research explores whether larger developments, with 5-to-10 units, are more financially feasible on single-family zoned parcels in California and whether opportunities exist to improve the feasibility of small multi-family housing development. This research presents findings from semi-structured interviews with housing professionals and a financial analysis using a pro forma model for various 5-to-10-unit project scenarios. I find that limited financial feasibility exists for new 5-to-10-unit projects in primarily single-family zoned areas in San Francisco and Los Angeles under existing economic and design conditions. None of the modeled 5-unit projects would be financially feasible. Most 10-unit rental projects are not viable and would require reduced city fees, a partial property tax abatement, or a per-unit subsidy to be financially feasible and meet industry standard profit expectations in San Francisco or Los Angeles. I recommend several actions for the State and San Francisco Planning Department to consider, including increasing allowable density on single-family zoned lots in high-opportunity areas to 10 units, allowing single-stair/vertical shared access buildings, and revising local development design regulations.