As California grapples with a housing shortage, multi-family developments play a critical role in providing affordable and sustainable housing solutions. This blog explores emerging trends, innovations, and opportunities in small multi-family housing to meet the region’s housing needs.
Southern California is at the epicenter of a housing crisis, with demand far outstripping the availability of affordable homes. According to the California Department of Housing and Community Development, the state needs an estimated 2.5 million new housing units by 2030 to meet its population’s needs [1]. Multi-family housing, particularly small developments, is emerging as a promising solution to address this shortfall. From innovative financing models to sustainable design practices—and new legislation such as Senate Bill 9 (SB 9)—there are numerous opportunities for developers to create housing that can alleviate California’s housing crisis.
1. The Rise of Small Multi-Family Developments
Small multi-family developments—typically defined as properties with two to nine units—offer a middle ground between single-family homes and large apartment complexes. These projects are often more affordable to build and easier to integrate into residential neighborhoods, making them a feasible solution for increasing density in California’s cities.
Programs like California’s Accessory Dwelling Unit (ADU) initiative have streamlined the permitting process for small projects, allowing developers to create “infill” housing on underutilized lots. This trend aligns with the growing interest from cities in densifying housing within existing neighborhoods, avoiding the need to develop large swaths of new land. According to a report by the Terner Center for Housing Innovation, policies that support small multi-family developments are essential for addressing the housing shortfall, while also preserving the character of existing neighborhoods [2].
2. The Impact of Senate Bill 9 (SB 9)
A significant legislative shift that has opened new doors for multi-family housing development is California’s Senate Bill 9 (SB 9). Signed into law in 2021, SB 9 allows property owners to build up to two units on lots previously zoned for single-family homes. Additionally, it enables “lot-splitting,” permitting a single-family lot to be divided into two, each of which can host a duplex, effectively allowing up to four units on what was once a single-family property [3].
SB 9 represents a major opportunity to increase housing density in established neighborhoods. By enabling more homes in single-family zones, the law provides a pathway for gradual, community-centered densification, which could help to alleviate the housing crisis. However, implementing SB 9 is not without challenges. The process of obtaining approvals and navigating local zoning requirements can be complex, with city-specific variations and neighborhood opposition often posing hurdles.
Furthermore, the costs associated with subdividing lots, securing financing, and adhering to local ordinances can make SB 9 projects financially and logistically challenging for smaller developers. Still, when executed successfully, SB 9 projects have the potential to deliver high-quality, affordable housing without the need for large-scale developments that may disrupt neighborhood character.
3. Sustainable Building Practices
As California strives to address its housing crisis, sustainable development has become a priority. CALGreen, the state’s Green Building Standards Code, mandates environmentally responsible building practices for all new developments [4]. Small multi-family housing developers are increasingly incorporating sustainable practices, such as energy-efficient materials, solar installations, and eco-friendly landscaping, to reduce environmental impact and long-term costs for tenants.
For developers of small multi-family projects, these practices not only align with state regulations but also appeal to tenants seeking energy-efficient living options. Innovations like green roofs, high-efficiency appliances, and water-saving systems are making multi-family developments both environmentally and economically sustainable. As sustainable building practices continue to evolve, these green standards will be crucial for developers working within SB 9’s new zoning allowances to create high-quality, eco-friendly housing in California’s densifying urban neighborhoods.
4. Innovative Financing Models
Financing is often one of the greatest barriers to multi-family development, particularly for small-scale projects. New financing models, however, are emerging to support developers in this sector. Impact investment funds—such as Calvert Impact Capital—are helping developers prioritize projects that have both social and environmental value, offering flexible loans for affordable housing [5].
Opportunity Zones and affordable housing tax credits are also available to offset costs in qualifying areas, making development more accessible for smaller players. Opportunity Zones provide tax incentives for projects in designated low-income areas, while the Low-Income Housing Tax Credit (LIHTC) and the California Tax Credit Allocation Committee (CTCAC) offers companies tax credits specifically for affordable housing initiatives. These programs are crucial for helping developers finance projects within SB 9’s new lot-splitting regulations, bridging funding gaps and creating affordable options for residents in need.
5. Embracing Technology for Efficiency
The rise of property technology (Proptech) is transforming every aspect of real estate, and small multi-family developments are no exception. Developers are increasingly using digital tools for property management, virtual leasing, and tenant communication, which streamline operations and lower costs. These platforms also improve the tenant experience, offering online portals for lease management, maintenance requests, and other services.
Building Information Modeling (BIM) software is also being adopted to improve project planning and execution. By creating detailed digital models, developers can better understand project costs, construction timelines, and design implications, which is particularly valuable in smaller projects where budget efficiency is paramount [6]. For SB 9 lot splits, which may involve unusual site configurations, BIM can help developers visualize project layouts and identify potential challenges before construction begins.
6. Opportunities for Affordable Housing Development
With California’s housing affordability crisis in full force, multi-family developments play a vital role in providing cost-effective housing options. Government grants, such as California’s Affordable Housing and Sustainable Communities (AHSC) Program, provide funding to support projects that meet affordability standards and promote sustainable urban growth [7].
Cities are also adopting inclusionary zoning policies, requiring new developments to include affordable units or contribute to affordable housing funds. For SB 9 projects, these requirements mean that even lot-split developments have the potential to contribute to the region’s affordable housing stock, helping to ease the burden on low- and middle-income residents.
Moving Forward: A Path to Housing Solutions
The future of multi-family housing in Southern California is dynamic and full of potential. With new laws like SB 9 making it easier to build in single-family zones, and with sustainable practices and innovative financing becoming more prevalent, developers are better positioned than ever to contribute to housing solutions. While challenges remain, particularly with regulatory complexity and project financing, small multi-family projects—including those enabled by SB 9—represent a feasible path toward easing California’s housing crisis and creating vibrant, accessible communities.
At Angelocity, we’re committed to guiding developers and investors through these changes, providing expertise on navigating SB 9, sustainable practices, financing options, and emerging technologies. Together, we can drive meaningful progress, creating housing that is affordable, accessible, and sustainable.
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By supporting developers with these tools and strategies, the future of multi-family housing in Southern California promises to deliver sustainable, affordable solutions that make a positive impact.