Affordable / bonus ADU program in San Diego
I've been looking into the low income bonus ADU program and it seems if you buy a reasonably priced SFR with a good sized yard, you can construct at least 2 but up to an almost unlimited number of ADUs in a transit priority zone if you designate 50% of them as low income. Essentially build row homes in an SFR zone. Summary from the SD Housing Commission
Is anyone experimenting with this?
I'm also interested in hearing about this strategy. Thanks for the question Nate!
I'm a MF broker and am currently evaluating multiple projects throughout the county with ADU & affordable aspects.
There are tons of projects in the works, with a few that have hit the market recently. The extent to which you can leverage the ADU laws and new legislation is mind-blowing. There will be many angry neighbors in the years to come, but it will be a critical part in adding more units to the county. Feel free to reach out if you have any more questions.
To share some numbers on how many projects are being submitted with multiple units... see below data on the permit applications for City of San Diego, which is a combo of public data + our analysis on text fields describing the projects (to extract things like unit counts... it's directional, not perfect data). Note the status options:
"In Review" = submitted and in plan check
"Active" = permit granted and construction underway
"Inactive" = project paused
"Final" = certificate of occupancy obtained / construction complete
Observations:
-Significant uptick in applications with multiple units, with a handful of projects with 5+ ADUs
-Virtually none of these projects have been approved ("Active") or completed ("Final") yet, with just 1 project with 6 units active. There are 30+ double ADU projects active though
-Not visible in this data set, but City of San Diego is massively backed up on ADU permits. We're seeing the average time the city holds the plans (not counting our revision time) at nearly 5 months, compared with under 3 months in Oceanside, Carlsbad and Vista. They are missing 25-30% of their staff, and consequently, are throttling applications with a "pre-screen" process that takes 30 business days at present... that's before plan check even starts.
Bottom line: not many have actually executed on this strategy yet, so if you are going for it, have realistic expectations on overall timeline. Also, as I'm sure you know, build costs have gone up roughly 30% in past 18-24 months. On the bright side, the moderate income levels required to qualify for the bonus program are quite high (I'm not allowed to link here, but google "Guide to the Affordability Bonus ADU Program in San Diego" to find all the info)
@Nate Wiger I have not heard about this, but seems like an INSANE opportunity! Let's connect and see if we can partner. Ill bring the deal you do the development..???
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I do land development and site civil almost exclusively in San Diego. The rule is actually 3 ADUs on a SFR....it is your SFR, your regularly allowed ADU, your affordable ADU and your bonus ADU for providing an affordable. Then as you note the TPA allows for a 1/1 continued increase of affordable and bonus ADUs.
The issue becomes you're essentially subsidizing the project as a 50% affordable project. So the economics quickly erode as your rent base is extremely low....but the other benefit of this, is the affordable agreement is only 10 years where typically they are 55 years for inclusionary affordable units. So it just becomes a question of how much subsidy you are offering for how long as to whether it is worth it or not.
There is another program that I have heard of that seems to be better opportunity for certain properties in San Diego. It allows permitted non residential space to be converted to ADU residential space max unit count. Best impact to NOI is to convert the non-residential space to studios (I dislike managing studios, but they are best development option for NOI increase).
The play is to find property that has significant garage or other legal non residential structure and convert the space to studios. The garages and other non-residential spacehave negligible NOI impact. The studios have increase NOI much more compared to the garages.
@Whitney Hill thanks for the wealth of information! And a big thanks for all the info you post on SnapADU’s website - it’s a phenomenal resource.
One thing I'm unclear on is what parts of town the affordable ADU program is available in. Is this only in City of San Diego proper? Or are similar programs available in Oceanside, Carlsbad, etc?
Really happy you found it helpful! It's just in City of San Diego. Can do one bonus and one additional regular throughout, and unlimited in TPA transit priority areas. There is no comparable program in another city in our area right now.
Quote from @Nate Wiger:
@Whitney Hill thanks for the wealth of information! And a big thanks for all the info you post on SnapADU’s website - it’s a phenomenal resource.
One thing I'm unclear on is what parts of town the affordable ADU program is available in. Is this only in City of San Diego proper? Or are similar programs available in Oceanside, Carlsbad, etc?
@Wyatt Darien agreed the moderate income threshold isn't too bad...though I'd argue the low income isn't either in this scenario. The reason being that the low income agreement is only for 10 years instead of 15 for the moderate. So I'm more likely to own that unit for 10 years and be able to realize the biggest benefit which is the value increase to the property when I no longer have to rent any of the units at a discount. With 15 years it's just long enough to make the hold less likely...or even if I sell in less than 10 a new buyer can also see the light at the end of the tunnel and may pay without too much of a discount on the price.
I attempted a simple analysis of a moderate vs low income ADU project purely as an arithmetic exercise. I found that the low income project seemed to return an additional 5% annualized overall. The reason being I presumed I 'exited' in year 11 at a full FMV vs holding an additional 5 years to achieve a FMV sale price.
Good point. It all depends on the hold strategy. If the plan is to sell immediately, the moderate will provide the greatest boost to NOI on the sale but will be a larger hurdle for a buyer to stomach.
@Whitney Hill or @Matt Devincenzo do you know if the affordable and bonus ADU's have to fit under the FAR in a non-transit zone? I'm receiving conflicting info - SD City has a bulletin that says they do, but then I emailed the city and the person said they don't... wondering if the city person was incorrect or if the bulletin is out of date.
Quote from @Nate Wiger:
@Whitney Hill or @Matt Devincenzo do you know if the affordable and bonus ADU's have to fit under the FAR in a non-transit zone? I'm receiving conflicting info - SD City has a bulletin that says they do, but then I emailed the city and the person said they don't... wondering if the city person was incorrect or if the bulletin is out of date.
I would use the bulletin interpretation... when you get conflicting info from the City (e.g. verbally in a developer conference), request the written code reference (we often mention "for our clients" so we can point to it). When that's not possible, get the employee's name and title so you can later reference it. I've had city employees call me back to reverse interpretation on occasion... they have 20-30% vacancies in their dept right now and lots of ppl are new and this stuff is constantly changing and they sometimes miss the mark on the first try.
It's pretty clear in bulletin the bonus ADUs must adhere to FAR:
"Within TPAs, the number of additional ADUs does not have a specific limit. In all instances, the number of bonus ADUs would be physically limited by FAR, lot coverage, and height requirements. This means that, aside from setbacks, the ultimate building mass allowed would be no different than what a single dwelling unit or multi-family structure could build on the lot, depending on whether the ADU is located in a single-family or multi-family zone."
I'd be careful of doing anything based on what City staff say. Just like anyone they're people who can be confused or misinterpret things, and honestly I think they do misinterpret more often than others simply because they're generalists trying to recall the entire code essentially. The info bulletins are like cliff notes, so if you want an idea of the rules that's great, but when it comes to test time read the book...
So the code for ADUs that deals with FAR says:
*The gross floor area of an ADU and JADU shall be included in the floor area ratio for the premises.
*An ADU with a gross floor area of 800 square feet shall be permitted on a premises with an existing or proposed dwelling unit regardless of maximum lot coverage, maximum floor area ratio, and minimum open space requirements The development shall comply with the floor area ratio of the underlying base zone unless the development incorporates an existing structure that exceeds the allowable floor area ratio or is under the allowable floor area ratio by less than 800 square feet, in which case an ADU that does not exceed 800 square feet shall be permitted.
So there is FAR relief if you have an existing building that already used all of the available FAR, or is within 800 SF of the maximum FAR. This only applies to SFR as the section is specific to a premises with a dwelling unit (singular). There are some other affordable density bonus FAR relief's available, but those are for other bonus programs, not affordable ADU bonus specifically. That may be where staff is getting confused as Complete Communities, 100% affordable and other programs do provide for FAR relief or increases.