How SB 684 Will Unlock Small Community Development in California*

Sean Roberts, CEO of Villa
April 15th 2024

There is an interesting piece of housing legislation that will become effective in California on July 1, 2024. We’ve been following and studying this legislation, and we’re excited to see the on-the-ground impact that it has on infill homebuilding in our state.

 

The new law creates a ministerial pathway for infill development of up to 10 homes on qualified multifamily sites, but many developers and property owners that we speak to aren’t yet familiar with the bill or how to best apply it in practice.

Here’s a rundown of what developers and owners of multifamily-zoned land should know:

What is CA SB 684?1 

California’s Senate Bill (SB) 684 is a law that streamlines approvals for certain kinds of developments of smaller homes. It applies to infill developments of up to 10 homes on qualifying lots zoned for multifamily. 

 

Key elements of CA SB 684

  • SB 684 requires CEQA-exempt ministerial approval for up to 10 units of housing on qualified multifamily zoned infill sites (no discretionary review or hearing), subject to certain criteria.
  • The lot must be no more than 5 acres and substantially surrounded by qualified urban uses.
  • The lot must be served by a public water system and a municipal sewer system.
  • Maximum average total area of floorspace for new homes (to be built on the subdivided lots) cannot exceed 1,750 SF.  
  • Minimum parcel size for subdivided parcels is 600 SF.  Subdivided parcels are exempt from having to comply with any minimum requirements on width, depth, or dimensions of the parcel (so long as the 600 SF minimum parcel size is achieved).  There are also certain exemptions for FAR and design/development standards for developments under SB 684, as detailed in the bill.
  • The subdivided housing units can be constructed on fee-simple ownership lots, part of a common interest development, part of a housing cooperative, or owned by a community land trust. (Note: Here at Villa, we’ve worked with various community land trusts in the past and believe they should be able to do some creative and impactful homebuilding projects using SB 684 – we’re excited to see what is going to be possible.)
  • The local authority having jurisdiction (“AHJ”) must approve (on a ministerial basis) the application for a housing development project on a lot subdivided by this law and then issue the building permit (on a ministerial basis).
    • The local AHJ has 60 days from the date it receives a completed application to approve or deny the parcel map or tentative map; if the AHJ does not approve or deny the completed application in 60 days, it is deemed approved.  (Note: ADU laws in California have a similar approval timeline.  At Villa, we have seen firsthand the accelerative impact of approval timelines driving a massive increase in ADU construction in recent years.)
  • The local AHJ may not apply any standards that would prevent development at densities deemed naturally suitable to lower income households (typically ~10-30 units per acre, depending on the jurisdiction).  The local AHJ is also limited from applying certain setback, parking, floor area, and other limitations.
  • Qualifying projects are exempt from the requirement to form an HOA, except when required by the Davis-Sterling Common Interest Development Act.  This helps save costs while reducing the complexity and hassle of this type of smaller development.
1This is intended to provide a high level summary of the requirements of SB 684 and not a recitation of the entirety of the Bill, which should be referenced for further information.

What CA SB 684 means for developers:

Market-rate developments can pencil. The requirements of the law (smaller homes on existing qualifying sites with existing public utilities) encourages housing that will naturally be more dense, and more attainable to end buyers (or tenants), even without subsidies or other cost offsets from governments coming into play. Given the density that can be achieved, this law should allow for “gentle density” in communities of up to 10 homes to be built on properties that previously were never seriously considered for subdivision for either for-sale or for-rent housing.

 

Returns can be compelling. If a developer has a qualifying parcel that meets the requirements set out in SB 684 (briefly summarized above), then building a small community of entry-level, attainable homes may be a very compelling strategy to build infill housing in a great location with a variety of home products and business plans (for-sale, for-rent, etc.).

 

Approval timelines are fast (and ministerial). The nature of the ministerial approval process typically provides a fast pathway to getting these projects approved, without going through discretionary reviews or hearings, often within a matter of a few months instead of years. The CEQA exemption should also provide significant time and cost savings to developers.  

 

Smaller multifamily zoned sites can be adapted to different housing typologies.  On a site where the costs of building a larger, for-rent, multi-story apartment building might not work well, there is a good chance that building a more cost-effective single-family home product might change the outcome of the underwriting to make the project pencil. It turns vacant multifamily lots into housing.


Ministerial pathway to build “Pocket Neighborhoods” and “Cottage Courts.”One particular type of infill homebuilding typology that SB 684 is particularly well-suited for is the development of “pocket neighborhoods” or “cottage courts.”  Architect Ross Chapin, who wrote a great book on pocket neighborhoods provides a lot of interesting case studies for this type of infill homebuilding on his website. These developments serve as inspiration for a type of housing development typology that is enabled through SB 684.

The benefits of CA SB 684 for cities and communities:

A denser, more walkable community. The proliferation of pocket neighborhoods and smaller lots creates gentle infill density. More people can walk to their local supermarket and coffee shop, get to know their neighbors, and have a much more manageable commute—all meaningful improvements to our collective quality of life. And, it accomplishes this without building vertical attached apartment complexes, thereby creating a pathway to building a more “gentle” density in these neighborhoods.

 

New attainable housing. The reality of smaller lots and gentle infill density is the creation of smaller homes that will naturally be priced at a lower, entry-level price point, creating much needed housing in the so-called “missing middle.”

 

Potential environmental benefits for cities.  The existence of denser communities could result in people living closer to their work, taking cars off of freeways and reducing commutes. Generally, smaller home sizes also typically take less energy to heat and cool, reducing overall energy consumption and power requirements.  These infill locations will also benefit from cost efficiencies of tapping into existing utilities and infrastructure.

A hypothetical case study: What a development with CA SB 684 could look like

Caveat: of course, every infill site is highly idiosyncratic and has a lot of site-specific features to navigate, but imagine the following hypothetical project done under SB 684: 

 

  • Building at a ‘gentle’ density and scale.  Hypothetical 10-home development with the following characteristics:
    • Located in a major urban metro area on an infill parcel that is well-located.
    • Parcel subdivided into, 10 lots at ~3,000 SF each (as subdivided) – so ~30,000 SF (~0.7 acre) is required for the project.  This type of density should fit for many prospective, appropriately zoned, qualifying sites throughout the state.
    • ~1,600 SF two-story homes (with attached garages) on each lot, with a 3-bedroom / 2-bathroom configuration.
    • For-sale business plan (homes to be sold on fee-simple lots to end-buyers at attainable price points). 

  • Developing with speed.  Approvals would be expeditious (given ministerial approval) and the construction process can be done efficiently with volumetric prefab homes, which are more cost-efficient, faster, and less risky to build.
    • This means the total construction and sell-down timeline could be within 24 months quite comfortably.
    • Costs to build are also likely to be more efficient given the infill nature of the project with water, sewer, and other utilities already near the site
       
  • Attainability for end buyers.  Assume the homes are sold for an attainable price, let’s say $425 PSF for this hypothetical scenario. That works out to a $680,000 purchase price for the buyer.
    • That price might seem expensive by national standards, but this is often a very attainable price point for a new build single-family home in California.  In Feb 2024, according to the California Association of Realtors, the median sales price for existing resale single family homes in California was ~$806,500.  
    • With conventional 30-year fixed-rate mortgage financing at 80% LTV at a 6.75% interest rate, the homeowner would be paying something around ~$4,400 / month for their mortgage payment homeowners insurance, and property tax (roughly)2  Moreover, this monthly cost could potentially also be reduced if the developer is willing to put some cash towards an interest rate buydown for the end-buyer.
    • This monthly cost of homeownership can likely compare favorably to the cost of renting a comparable apartment or even single-family rental (with 3 bedrooms, 2 bathrooms) which often lease for $4,000-5,000+ per month in California’s largest metro markets – and it’s often hard to find a 3 bedroom apartment rental, as most apartment stock is comprised of 1- and 2-bedroom units. Most importantly, the end-buyer gets a detached home that they own and in which they can build equity over time. 

  • Win-win-win development.  In this type of development, the key three stakeholders all end up winning:
    • End-occupants can either own a new build home at an attainable price point or find a more affordable rental option in a new build home.
    • Local communities can get more housing stock built with ‘gentle density.’
    • Developers can earn an acceptable risk-adjusted financial return without requiring government subsidies to unlock the housing development.
2Assumes, for illustrative purposes, a 30Y FRM at 80% LTV at a 6.75% interest rate, property taxes at 1.25% of purchase price, and monthly homeowners’ insurance of $200.

Villa, your partner for SB 684 opportunities

At Villa, we are excited by the potential that SB 684 creates for building this critically important type of housing in infill locations.

When it comes to doing a development under SB 684, we believe that Villa’s prefab homes, either single-story or two-story, are ideally suited for these projects.  We can build homes at various spec levels, flexing up or down to meet the price point necessary to make any SB 684 project work. 


We are also prepared to help developers with the site design and subdivision process as well. If you are a developer or property owner curious about creating more housing on a multifamily zoned parcel using SB 684, more information is available from Villa here.

*The information provided here is not intended to and does not constitute legal advice. The information, content, and materials are provided for general informational purposes only. No reader, user, or browser of this site should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction and should contact their attorney to obtain legal advice.  Performance, estimates and/or projections provided in this article intended for illustrative purposes only and are not indicative of future results. Prospective customers, builders, investors, and readers should conduct their own independent investigation. Villa expressly disclaims all claims and liability that may be based upon or related to the information provided herein.

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