💼 SB9: Upzoning Groaning

briefcase | invest smarter | issue #44

We wanted to cover SB9 earlier, but with the Evergrande with two shots of WTF and the insane NIMBYism surrounding Pacaso and fractional homership, we had to postpone this discussion. Until now.

Was only a matter of SB9

Last month, the California legislature passed Senate Bill 9 (SB9) which effectively banned single-family zoning from the state. By legal right, owners now can do the following without having to rezone.

Sever an R1 (residential 1 unit) property into two plots.
Add a legal duplex to any single-family unit.
If you sever, can create up to 4 units on what was previously one single-family lot.

👏🏽👏👏🏾👏🏿🎉🍾🥂🥳

After hearing about the announcement, Peter the Intern couldn't help himself...

It was only a matter of time before governments began to realize that one of the only ways to improve affordability and supply without giving handouts is to revamp the damaging (and racist) regime of single-family zoning.

But, there were a lot of groaners...

Upzoning groaning 😠

😭 SB9: The absolute wrong way to solve California’s affordable housing crisis — LA Times

😭 SB 9 is not, as misreported by media outlets, a “duplex” bill. It is a radical density experiment, unheard of in the U.S. — Park Mesa Heights

😭 Developers are likely to target Black and Latino communities in areas where land is cheaper, and demolish houses to build high-cost rentals that would limit the ability of people of color to build wealth. — LA Times

😭 SB 9 would eliminate requirements that onsite parking be provided, putting more cars on already crowded streets in existing neighborhoods. — Davis Vanguard

😭 SB 9: Let’s End Homeownership...SB 9 is a senseless gamble against 21M people living in homes they own. — Livable California

😭 State Legislature may soon destroy California as we know it. — Pleasanton Weekly

Wow, that last one is harsh. There's not enough time to discuss all these points, but you get the picture, people feel strongly about this bill. And for the most part, they're self-serving.

SB9: Just what the doctor ordered

Affordability is directly linked to our ability to build more housing. With restrictive single-family zoning laws, developers are largely limited in where and how they can build. Upzoning changes that.

SB9 is basically an upzoning move, where a city (the state in SB9's case) will pass a law saying by legal right landowners now have to adhere to zoning laws one densification level higher. Typically, we see this done piecemeal, such as near public transit hubs.

This is why we have always argued that affordable housing has been made illegal by exclusion in most jurisdictions.

The latest move by California (Oregon is the OG of this) pits affordability-seeking millennials against NIMBY baby boomers, the latter of which correctly see upzoning as eating away at property values.

They're not wrong, the laws of supply and demand dictate that the more supply you put into the system, downward pressure is placed on price. But that's not the point here. We need more housing, and it needs to be affordable. Our equity may suffer a bit 😢, so what.

Jobs are increasing, and so is the population, so the housing issue will only get more acute if not addressed soon. See California for instance:

It also takes time to build, so there will be a lagging effect to any upzoning move.

So, what are the experts saying about SB9? According to UC Berkeley's Terner Center for Housing Innovation:

🚧 SB 9 could enable the creation of over 700,000 new homes that would otherwise not be market feasible...representing a 40 percent increase in existing development potential across California’s single-family housing parcels.
💥 SB 9 is unlikely to lead to significant demolition of the existing stock.
🤩 While SB 9 would provide a boost in three- and four-unit feasibility, duplexes would be the most dominant form of financially-feasible development.
🏡 While many cities in California—including Los Angeles, San Diego, San Jose, Sacramento, Berkeley, and Oakland—are exploring similar options, SB 9 could play an important role in enabling the construction of a significant amount of new house options that are smaller-scale, more cost-effective, more varied, and inclusive across the urban areas of the state.

Since Ben Winck and Andy Kiersz of Business Insider said it best, we will end on this:

Before SB9, the millennial YIMBYs have taken L after L, as NIMBYs have protected their property values at the expense of nearly anyone trying to find an affordable home. Maybe the next generation of American housing could look very different.

So What? More SB9. Upzoning is one way to solve the affordability and supply issues we are currently facing in North America. These moves should be applauded and supported, as they ultimately benefit tenants, homebuyers, owners, and investors alike.

TLDR: Top Stories

👵🏽 New York Assembly debating the allowance of "granny flats" or accessory dwelling units in the state — The Real Deal

😯 Goldman Sachs: Home prices will rise another 16% in 2022 — Housing Wire

😬 Consumer prices rose 5.4% in September compared to 5.3% in August and 5.4% in July — Realtor.com

📈 Next Stop: Inflation Station? 📈

😒 Would you let someone do a self-guided tour through your home for sale? Redfin trying to make that happen — Inman

📊 Freddie Mac found that 60% of single female heads of household renters don’t think they can ever afford a home — Housing Wire

👩🏻‍🤝‍🧑🏼 The number of co-buyers with different last names jumped 771% between 2014 and 2021 — Realtor Magazine

💦 Nearly 14 million homes at risk of flooding in next 30 years — Housing Wire

📉 78% of community bank executives expect the housing market to crash by 2026 — Business Insider

#Proptech Funding

Plume / USA / Series F / $300,000,000
LandTech / UK / Series A / $57,228,115
Sensorberg / Germany / Venture - Series Unknown / $6,935,703
Bigle Legal / Spain / Seed / $2,312,299
Spotahome / Spain / Venture - Series Unknown / $28,903,739

Share, and get free stuff!

Which two of your friends would like this newsletter the most? Share briefcase using the URL below and get some sweet swag. You've got referrals so far!

Your Link:

Your Referral Hub

Up next, on briefcase...

...The port thickens: Supply shortages lead humans to uncover the true meaning of Christmas.

Read the most-shared newsletters:

😵 Evergrande Finale
😱 Surrealestate
👮🏽‍♂️ Yes, Affordable Housing is Illegal
📊 Big Short 2: Supply Crunch
💉 Vaxications

Written By Brad Cartier