Construction of accessory dwelling units, or ADUs, has taken off in recent years, as property owners take advantage of new streamlining laws that makes them easier to build. San Jose’s ordinance allowing homeowners to buy and sell their ADUS separately from their primary homes will take effect July 18.

It remains to be seen how many people choose to sell an ADU, rather than renting it out or using it as an addition to their home. But Mayor Matt Mahan said any new option for homeownership is a boon for the city.

“ADUs are one of many solutions to expanding our housing stock,” Mahan said in a recent interview. “The ability to sell them as their own asset will serve an interest in the development of ADUs in the community.”

In 2023, California added more ADUs than ever — 22,802 — representing one in every five new homes around the state. As the state looks to build 2.5 million homes before 2031, advocates see these units as a way to add supply without marked changes to the look and feel of a neighborhood. The bill, AB 1033, which passed in last year’s legislative session, allows cities and counties to permit such sales.

Housing advocates say that by allowing these smaller, denser homes to be put on the market, the supply of “naturally occurring” affordable housing will increase.

“By virtue of these being smaller homes on smaller lot sizes, we expect them to trade at significantly cheaper prices than single-family homes in San Jose,” said John Geary, CEO of pre-manufactured ADU company Abodu. Attached ADUs can be up to 1,200 square feet on lots of 9,000 square feet or larger. On smaller lots, their maximum size is 1,000 square feet, meaning someone who buys an ADU as a condo couldn’t tear it down and build a large home in its place.

The median listing price per square foot in San Jose was $832 in May, according to the Silicon Valley Association of Realtors, meaning that a 1,000-square-foot ADU might sell for around $832,000. Meanwhile, the median single-family home in San Jose — typically around 1,700 square feet — sold for $1.4 million.

“This will create opportunities for homeownership at price points not currently being met by the market,” said Mathew Reed, policy director for the pro-housing group SV@Home.

The bill, AB 1033, which passed in last year’s legislative session, also provides homeowners with an opportunity to make money on their homes without having to sell, which they may be reluctant to do with mortgage rates currently hovering around 7%, he added.

In some ways, the law accomplishes the same goal of creating new housing on existing lots as SB 9 — the controversial 2021 state law that allows single-family homeowners to split their lots in two and build two homes on each parcel. The law has been mired in court battles — in April, the Los Angeles County Superior County Court struck down the law in five Southern California cities that challenged it.

The two laws differ in key ways — while a homeowner using SB 9 would create two separate parcels, a homeowner using AB 1033 would be required to establish a homeowners association that covers the primary unit and the ADU “condo,” with governing documents outlining how common areas, such as a shared yard, would be maintained and repaired.

Homeowners should be prepared to consider the ways that converting an ADU into a condo could impact the resale value of their home, said David Gunderman, a real estate agent based in Oakland who frequently works with people selling properties with ADUs. While a homeowner may receive an initial windfall from the ADU, he noted, their primary home’s value could decrease as a result of having a new, close-by neighbor.

Other cities could soon follow in San Jose’s path. Berkeley is likely to implement AB 1033 by mid-2025, Berkleyside reported.

San Jose has been at the forefront of ADU streamlining. In 2019, it offered some prefabricated ADU builders an expedited permitting process, plus lower-cost city reviews. The result has been a steady growth of the backyard cottages — in 2023, the city issued permits for 466 ADUs.

Still, even with the simplified process, some are still building ADUs illegally. A recent study estimated that for every legally permitted detached ADU built in San Jose from 2016 to 2020, there were four illegal ones — which would not be eligible for the new condo program — built.

Built legally, a custom ADU might cost anywhere from $500 to $600 per square foot, meaning that a 1,000-square-foot in-law unit could cost around $500,000. Pre-fabricated units go for around $280,000.

Traditionally, securing construction loans for ADUs has also been more difficult than for primary residences. But this fall, the Federal Housing Administration expanded access to mortgage financing for homes that have or could include construction of an ADU, which could spur further growth of the backyard cottages.

“These are a great tool to increase the number of affordable homes for sale for first- or second-time homebuyers,” Geary said. “San Jose should receive credit where credit is due.”

But there is much wider interest in ADUs than that number suggests; it only represents legally permitted and constructed ADUs. New evidence shows that even with new streamlined permitting for these “mother-in-law cottages,” hundreds of homeowners are still building them illegally.

RELATED: Sunnyvale welcomes new affordable ADUs

A study from a team of researchers at Stanford University and the Massachusetts Institute of Technology found that even in San Jose — one of the cities at the forefront of reforming ADU permitting — the number of illegal ADUs may outnumber legal ones by more than three to one, with illegal units more prevalent in low-income and minority communities wary of high permitting costs and red tape.

Between 2016 and 2020, property owners in San Jose legally built around 291 detached units — but, using a computer vision model to analyze satellite images of San Jose, researchers estimated that another 1,045 “informal” detached ADUs were built during that time.

“Official statistics show signs of ADU progress, but what if those are just the homeowners who can easily get through the permitting process?” said Derek Ouyang, one of the paper’s authors. “They’re able to take advantage of liberalized laws, whereas people from lower-income communities cannot.”

Without an official record of these units, they aren’t counting toward the city’s goal of building 62,200 new units by 2031.

“This is an opportunity for us to identify and recognize more living units,” said Rachel Roberts, San Jose’s deputy director of code enforcement.

These “informal” units are more likely to pose a risk to tenants’ health and safety, Roberts said. For example, they may feature gas appliances in a bedroom or lack sufficient exits in case of a fire.

But they are also a risk for the owners. For one thing, insurers aren’t likely to cover illegally built units. They also make the property more difficult to sell, since the new owner would take on the risk.

RELATED: Walnut Creek approves ADU plan for faith-based properties

What’s more, property owners can also run into issues with tenants — like what happened in Los Angeles this fall, where an Airbnb guest squatted for 570 days at an unpermitted guesthouse in a Brentwood mansion, claiming that she didn’t owe rent because the unit didn’t have an occupancy permit.

Despite all these issues, many homeowners still choose to build ADUs without the proper permits.

“As long as we have a housing crisis that is as severe as it is, with few options for low- and moderate-income homeowners to keep their family members housed, people are going to continue to do this because it’s the lowest-cost way to put up a home,” said Denise Pinkston, founder of the Casita Coalition, a nonprofit coalition advancing policies to streamline ADU construction.

Some cities offer ADU amnesty programs, which provide homeowners with a penalty-free pathway to bringing their illegal units into compliance.

San Jose recently launched its own pilot program, under which an ADU owner only has to bring their unit up to the building standards in place when the unit was first constructed — rather than the more stringent 2024 codes — to be deemed legal. Homeowners still need to pay the cost of building permits associated with those upgrades — but cost-burdened property owners can tap into a $300,000 fund available to help offset permit costs.

In East Palo Alto, Larry Moore took advantage of a similar program offered by a community nonprofit, after he bought a home in 2021 with an unpermitted ADU in the backyard. Before he bought it, the small one-bedroom barn house had been red-tagged after the city discovered that the previous tenants had been illegally subletting it. The city gave Moore two options: bring the property up to code, or demolish it.

“I told them, I’m not tearing it down,” Moore said. “But what was preventing me from doing it was the financial ability.”

Straight away, costs seemed to pile up. First was the inspector who charged $4,000 to look at the sewer lines. Then there was $13,000 to a designer to draft up plans. And that was even before he had started to pay for any materials or labor costs.

Moore ended up securing a low-interest loan from the city of East Palo Alto and a local nonprofit, the East Palo Alto Community Alliance and Neighborhood Development Organization, which helped him pay for the rehab. The project included a brand new foundation for the ADU, additional ventilation, and moving the unit to increase the setbacks from a neighboring property. Even with the savings from doing most of the labor himself, he expects the project will still cost him around $140,000.

“I’m so grateful to that program,” he said. “It goes to show that if you have the right support, you can do the right thing.”

Still, advocates like the Casita Coalition believe that most amnesty programs make it impractical for most homeowners to bring their properties into compliance by requiring units to meet strict building codes. A bill they are sponsoring, AB 2533, specifies the habitability standards that local agencies must use to assess the safety of the unit, and would exempt the property owners from having to retroactively pay impact fees, thus lowering the cost to legalize a unit.

“If a unit is unsafe, we need to find a way to make it safe and not get hung up on perfection,” Pinkston said. “If you don’t make it easy to build housing, and people need the income, they’re going to do it anyway.”

Police received the threat around 1:44 p.m., and shut down the warehouse store, locking shoppers inside and advising people outside to stay in their cars as they checked out the area and surrounding businesses.

Officers ultimately determined the call to be a hoax, the department said. Officers stayed in the area afterwards to ensure that no emergency was taking place.

The development company N17 proposed the massive new development. To get approval for its project, the company is invoking a provision of state law called the builder’s remedy, which allows developers to propose projects that exceed local zoning in cities that lack a state-approved housing element, so long as 20% of the homes in the development are deemed affordable. Menlo Park did not have an approved housing element between January 2023 and March 2024, allowing N17 to propose its initial plan in July 2023.

To meet the requirements of the builder’s remedy, 133 homes in Willow Park will be offered to those making up to 80% of the area median income, “making much needed strides to help provide stable, affordable homes for low-income residents,” N17 stated in a press release.

Those making 80% of the area median income in Menlo Park would hardly be considered “low-income” though. The median household income is $145,388 in San Mateo County, meaning that a household making an income of $116,304 could meet the threshold for one of the apartments.

“As a local resident, I have a vested interest in helping the community grow in a way that matches the needs of today’s Californians,” said N17 Founder Oisín Heneghan in the release. “While the magazine offices were an appropriate land use when it was constructed in 1951 and the population of California was one-fifth of what it is now, today people need and deserve housing in prime locations, not vacant office buildings or long commutes. California’s housing crisis requires all of us to embrace change.”

The development has changed shape several times since it was first announced in July 2023. At the time, N17 envisioned a 328-foot tower with over 20 stories. Then, in December, a new proposal showed three towers with 805 housing units grouped across three buildings.

The property’s owners are a group whose principal executives include Vitaly Yusufov, son of a former top Russian government official with close ties to Russia’s President Vladimir Putin, the New York Times reported in 2019. Operating as Willow Project LLC, they bought the former Sunset Magazine site for $72 million in 2018, according to documents on file with the San Mateo County Recorder’s Office. The purchase was an all-cash transaction, the county files show.

Sunset Magazine left the Menlo Park site several years ago, saying in 2015 that it would relocate to Oakland’s Jack London Square.

In Santa Clara County, the median home price hit $2 million for the first time — a record-breaking figure that surpasses even pandemic-era highs, April data from the California Association of Realtors shows. Meanwhile, in San Mateo County, the median sales price was $2.15 million — down from its peak of $2.4 million in April 2022, but up 9.1% from April 2023, when the median price was $1.97 million.

Across the nine-county Bay Area, prices were up 15.5% from last year, reaching a median sales price of $1.44 million. The median price climbed to $1.4 million in Alameda County, $940,000 in Contra Costa County, and $1.8 million in San Francisco.

Sales of previously-owned homes increased 23% from last year, as the spring selling season hit its peak, even with 30-year fixed mortgage rates hovering around 7%.

“Interest rates aren’t floating down to where buyers want them to be, even though they have been waiting and waiting and waiting,” said Janelle Boyenga, a real estate agent based in Los Gatos. “They’ve decided, how long can I wait for?”

In the East Bay, Amanda Piñero and Kenny Handel are weighing whether a bigger place would be worth giving up their pandemic-era interest rate.

In 2017, the couple, in their early 30s, moved from Austin, Texas, to Berkeley, and in 2021, they bought a 720-square-foot condo. But space has been feeling tight lately, and they’ve started looking for a new place. On Saturday, they toured a 1,000 square foot home in the Rockridge neighborhood with a small backyard for their dog, Willie Nelson.

“I struggle to let go of our current interest rate,” Piñero said. “Trying to get anything else could make us house poor.”

Just a few percentage points increase in interest rates can add hundreds — and sometimes thousands — onto the monthly cost of a mortgage. A buyer putting 20% down on $1 million house with a 7.10% rate would pay a monthly mortgage of $5,322, versus $3,373 with a pandemic-era rate of 3%.

Calculations like this are what have kept so many sellers on the sidelines. But as the year stretches on, many find they can’t wait any longer.

“As time goes on, life goes on as well,” said Oscar Wei, a senior economist for the California Association of Realtors. “People can only delay a home sale for so long.”

The upshot is that inventory has grown this spring— new active listings in the nine-county Bay Area increased 25% from this time last year.

As activity increases, homes are spending fewer days on the market. In the nine-county Bay Area, the time on the market was 12 days — the lowest since May 2022, and down from 14 days a year ago.

Some real estate agents say high-performing tech stocks are behind the uptick in Bay Area sales, allowing tech company employees to cash out their stock options to put a higher down payment on a home.

“We tend to track to the primary tech stocks that drive Silicon Valley,” said Connie Miller, a real estate agent based in Los Altos. “As long as they’re healthy, the real estate market is healthy.”

The rallying stock market also coincides with the spring buying market, when buyers with children often make moves so they have time to register in a new school district ahead of the academic year.

Though agents say it’s a seller’s market, they still advise homeowners to make necessary updates before listing to attract the highest possible offers.

“People want turnkey properties,” Miller said. “With two incomes and people already struggling to make ends meet, the last thing they have is time for a renovation.”

Some agents expect that May will register slightly lower home sales, as interest rates hit a peak of 7.2% at the end of April, according to data from government housing-finance company Freddie Mac.

The combination of increased prices and high rates is hitting buyers like Piñero and Handel especially hard. Despite the competition they faced during the pandemic buying frenzy, the couple found it an easier market to navigate.

“2021 gave opportunities for a lot of people to get into the market,” Handel said. “Now we’re asking ourselves: Is this the new normal? Housing costs are so high.”

Unfortunately for buyers, they’re likely to stay that way — especially if interest rates come down, as some real estate agents predict, which could drive even more demand.

“Buyers may as well get in now,” Miller said. “The prices are only going to get higher.”

Forty years and three generations later, the Bradley family has grown — and so has their home. In 2009, the family built an addition, which Mike got when his son, Michael “Casey” Bradley, moved into the main house with his wife, Daphnée St Pierre, and their two children.

Last year, Mike’s daughter Kelly decided to move from Oakland to Berkeley, seeking to be closer to the rest of the family. After a few weeks of fruitless house-hunting around their neighborhood, Casey had an idea: Why didn’t they construct a house for Kelly on their existing lot?

“We already have this family compound,” Casey said. “Why not build it ourselves?”

Within seven months, Casey — a former planner for the city of Oakland who now works in real estate development — built a 1,000-square-foot, two-story accessory dwelling unit on the back of the lot for about $350,000. That brings the total units on their 8,666-square-foot lot to three (four, if you include the tree house).

In recent years, the state of California has seen an explosion in ADUs, also known as mother-in-law units or backyard cottages. In 2023, one out of every five homes built in the state was an ADU, according to recently released state data. Only three years ago, they represented just one in every 10 new units.

“There’s a generation that has a lot of wealth right now that can build these properties in their backyard and ease the pain of another generation,” said David Gunderman, an Oakland-based real estate agent who helps advise homeowners about building ADUs. “I do think, if anything, we’re on the front end of this wave.”

Since 2017, the California state Legislature has passed several bills lowering the ADU building barriers. Most notably, AB 68, authored by San Francisco Democratic Assemblymember Phil Ting and passed in 2019, sped up the approval process from 120 days to 60 and prohibited local officials from imposing requirements around lot size and parking. AB 881, passed the next year, prevented communities from requiring the owner to live on the property, opening up the possibility for landlords to build ADUs on their rental properties.

To address its decades-long housing shortage, housing advocates say California needs to build all types of housing — more single-family homes, more tall apartment buildings, more affordable houses, more everything. But supply is constrained by the lack of open land close to existing infrastructure and jobs, as well as strict local zoning laws that limit what can be built in infill areas.

“Our biggest challenge in California is that so much of our zoning is for single-family homes, which makes it next to impossible to build any new housing,” Ting said in an interview. “This is the one housing product that you can actually build in these single-family neighborhoods.”

In the five-county Bay Area, ADU construction has more than doubled in the last four years, going from 1,179 new units in 2020 to 2,761 units in 2023. The units are especially popular in places like Berkeley and San Jose, where older homes often come with large lots, well-positioned to accommodate an ADU.

Oakland-based architect Matthew Baran can remember designing his first backyard cottage in 2010.

“There were a lot of people at the time that asked, ‘Why would you want a house in your backyard?’” he said. “These days, social norms like the idea of owning a single-family home with a big yard are not a given. We’re seeing a shift toward smaller, more efficient living.”

Developers are also fueling some of the growth. In Antioch, BrightSky Residential leveraged the new legislation to build a 71-home subdivision with an ADU on each lot for a total of 141 units — effectively doubling the density without having to change the property’s zoning.

New companies have sprouted up that seek to take advantage of the demand for ADUs. Abodu, based in Redwood City, offers pre-manufactured ADUs that start at $228,800 for a 340-square-foot studio, promising savings in engineering costs and shortening the construction timeline.

Custom-built ADUs, meanwhile, typically range from $500 to $600 per square foot, Baran said — meaning that a 1,000-square-foot ADU could cost upward of $500,000. And that’s without the hookup costs for water and electricity, which can also add around $15,000 to the total cost.

With its potential for rental income and the extra square footage, an ADU may boost the resale value of a home — but not always, Gunderman said. An analysis of sales data in Alameda County by his firm found that homes with ADUs sold for $325,000 more than those without them on similarly-sized lots. But houses with an ADU sold for $720 per square foot — $50 per square foot less than houses without an ADU.

“Your lot size is diminished because you have this intimate neighbor,” Gunderman said.

Starting in July, homeowners will be able to spin off their ADUs separately for sale as condos. For homeowners who are willing to sacrifice some privacy and yard space, the ADUs could offer a more affordable option than existing single-family properties on the market.

Hosting visiting relatives or generating income via Airbnb are all reasons property owners might build an ADU. Baran also has clients building a home addition who classify the project as an ADU to benefit from the streamlined permit process. (The home additions still have to include certain requirements — like a kitchen and bathroom — to access the shortened permitting timeline.)

For his part, Ting is proud to see that his legislation has been met with such enthusiastic demand, but he says that ADUs alone won’t solve California’s housing shortage.

“It’s concerning that we haven’t seen an uptick in other housing types,” he said. “ADUs are just a piece of our housing — but there is so much more housing that we need to get built.”

Permits in the five-county Bay Area were down last year, dropping 10% to 16,535 from 18,457 the year prior, according to data from California’s housing department.

RELATED: The Bay Area’s building boom is coming to an end. It could be years before housing production climbs back

Here are five charts that explain the slowdown in construction in the Bay Area — which cities are building the most, how much of the new housing is affordable, and where the Bay Area is at in achieving its housing goals.

1. San Jose, San Francisco are permitting the most new housing

San Jose led the Bay Area in housing production — in 2023, it permitted 3,104 units of housing. It was followed by San Francisco, with 3,055 permits, and Santa Rosa, with 1,708.

But smaller cities are lagging behind in their housing goals. Of the 102 jurisdictions in the nine-county region, 40 issued fewer than 50 building permits.

A handful of small cities — Foster City, Albany, Sausalito and Hercules — issued fewer than 10 building permits, and they were only for accessory dwelling units, also known as mother-in-law cottages.

2. The Bay Area is already behind on its housing goals

Every eight years, the state’s housing department determines a certain number of homes that a jurisdiction must build in that timeframe, based on population and job growth trends. Bay Area cities and counties’ eight-year cycle began on January 31, 2023 and goes through January 31, 2031.

That number — called the Regional Housing Needs Allocation — is divided into four categories:

• Very-low-income housing that would be affordable for people making less than half of the area’s median income
• Low-income housing for people making 51-80% of median income
• Moderate-income housing for people making 81-120% of median income
• Above-moderate-income housing for people making more than 120% of median income

The median household income in the Bay Area was $115,321 as of 2022.

3. Alameda County completed the most homes in 2023 — though most of them are market-rate

Alameda County led the way in home construction in 2023, completing a total of 5,586 units, with most of them aimed at households making above-moderate income.

Meanwhile, Santa Clara County permitted more units — which means construction there could surpass Alameda County in 2024, if all those units are built.

4. The decline in construction is driven mostly by a slowdown in multifamily construction

Multifamily developers are having some of the most trouble finding financing for their buildings, driven in part by rising costs and stagnant rents. Meanwhile, construction of accessory dwelling units, known as ADU’s or mother-in-law cottages, has remained steady over the last three years.

5. Building low-income housing costs an average of $817,000 per unit in the Bay Area.

Of the 440,000 units the state expects to see the nine-county Bay Area build by 2031, 180,000 are expected to be “affordable” — targeted at low-income and very-low-income households.

Already, the region has over 40,000 affordable units in the construction pipeline that could be built as soon as they get financing, according to a recent report from the affordable housing financing group Enterprise Community Partners and the Bay Area Housing Financing Authority, known as BAHFA.

But building affordable housing is expensive — often even more than market-rate housing. Affordable housing units in the Bay Area require an average subsidy of $286,000 per unit. Construction is most expensive in San Mateo county, where they can cost an average of $825,000 per unit.

But as it happens, this project could be his last for a while.

Cranes are coming down in Oakland and across the Bay Area as developers contend with an unfortunate intersection of high interest rates and stagnant rents, which have made lenders wary of funding projects around the region.

RELATED: 5 charts that show which Bay Area cities are building the most housing

“The capital markets are incredibly constrained,” Ball said. “It’s basically shut down construction.”

The latest data on housing permits reflects that reality. Permits in the five-county Bay Area were down in 2023, dropping 10% to 16,535 from 18,457 the year prior, according to California’s housing department.

Developers say it could be years before construction bounces back.

“The Bay Area will recover,” said Drew Hudacek, chief investment officer of Sares Regis, a major developer in the region. “But there will be quite a pause in the near term.”

The slowdown in construction could exacerbate the existing housing shortage and slow progress on building the 440,000 new homes the state says the nine-county Bay Area needs by 2031. The region is a tenth of a way into that 8-year goal, but just 5% of the way to hitting its target.

The new housing is not shared equally by all cities. San Jose permitted the most units of any city in the region last year, and is one of the few localities to have issued more permits in 2023 than in 2022 — growing from 1,791 to 3,104. San Francisco, with 3,055 permits, and Santa Rosa, with 1,708, followed closely behind.

Meanwhile, a handful of small cities — Foster City, Albany, Sausalito and Hercules — issued fewer than 10 building permits, and they were only for accessory dwelling units, also known as mother-in-law cottages. Of the 102 jurisdictions in the nine-county region, 40 had issued fewer than 50 building permits.

For years when the economy was good, it was cities’ drawn-out approval processes and NIMBY resistance that presented the biggest hurdle for builders. It’s perhaps ironic that, just after the state has passed a slew of bills intended to knock down those barriers, builders are pulling back.

The problem is that the costs to develop are increasing, but rent mostly hasn’t. As a result, the value of apartment buildings is going down.

“The good news is, we’re delivering $500 million of apartments this year,” Hudacek said. “The bad news is, it’s costing us $750 million to develop them.”

Sares Regis will bring 1,000 new units onto the market this year — all of them planned before COVID, when rents were climbing, interest rates were low and it seemed like the well of financing would never run dry.

The pullback is an example of the mismatched desires of the market: The new supply is good for tenants, keeping rents stable. But coupled with the high cost of financing, those stagnant rents also mean that developers can’t keep building during the downturn without taking on major financial risk.

In California, regardless of the economic conditions, the housing shortage persists. Someone has to build if the state is to succeed in addressing the crisis. That’s where some housing advocates see room for the government to step in with more financing for affordable housing, so units get built even when the private market retreats.

“Affordable housing production is somewhat less influenced by the ups and downs of the housing market,” said Jeffrey Levin, who has worked in affordable housing for three decades. “I’ve seen in some housing recessions where affordable housing production has kept the building permit counters open.”

But money to subsidize affordable housing has been slow to materialize. Construction data shows that even cities hitting their overall housing goals are falling behind when it comes to building more affordable housing.

Take San Jose, for example. Of the permits the city has issued in the last five years, 25% are for units considered  “affordable.” But in terms of actually completed units, that number drops to just 16%.

“Even if you get it approved, it becomes a challenge for the developers just to secure the funding,” said Elisa Orona, director of housing equity with the San Francisco Foundation. Affordable housing developers often pull together several funding sources — including state and federal low-income tax credits and private grants — to get a project off the ground.

Another major source they use: local funding, like the millions of dollars that Oakland, Santa Clara County, and Berkeley voters have passed via bond measures in recent years.

Still, a major backlog of affordable housing exists. The nine-county region has over 40,000 affordable units in the construction pipeline that are stalled as they await financing, according to a recent report from the affordable housing financing group Enterprise Community Partners and the Bay Area Housing Financing Authority, known as BAHFA.

“It’ll be a game changer,” Levin said.

There’s still the task of getting cities long wary of approving any kind of housing — let alone low-income housing — to sign off on these projects.

Some of the state’s new streamlining laws leave them no choice, however, forcing locals to accept projects with certain amounts of affordable housing. Housing advocates expect the new laws will also speed along market-rate housing once economic conditions turn back in developers’ favor.

“I’ve never really expected 2023 or 2024 to be good years for housing production,” said Corey Smith, executive director of the Housing Action Coalition, which has lobbied for some of the major housing reforms. “But we’re passing a lot of laws to make it easier in 2026, 2027 and 2028.”

The move comes more than a year after a deadly shooting in the coastal community pulled back a curtain on farmworkers’ desperate living conditions.

Commissioners aired their concerns over the height, traffic implications and design of the project at 555 Kelly Ave. over several hours in a meeting that extended past midnight before eventually approving a slightly shorter height than had previously been proposed. The commissioners were under pressure from Newsom, who last week said the state would “take all necessary steps to hold Half Moon Bay accountable.” This was the commission’s third hearing on the project.

Coastal farmworkers and Latino advocacy groups rallied behind the proposed apartments, saying that housing for older farmworkers is desperately needed, especially after last year’s deadly shooting.

That shooting left seven workers dead across two farms where employees lived in tarp-covered shacks and flimsy trailers that have since been condemned, with the workers relocated to temporary housing.

Plans for the project predate the shooting — it was first proposed as a four-story building in 2022 by nonprofit developer Mercy Housing and ALAS, a nonprofit supporting Latinos in Half Moon Bay.

But after meetings with farmworker advocates and city staff earlier this year, Mercy Housing swapped out some of the studios for larger one- and two-bedroom units. That pushed the building up another story — a move that ended up becoming one of the primary concerns of planning commissioners, though the commission ultimately approved the five-story design.

“I feel uncomfortable saying yes to five stories when it is easily the largest building in Half Moon Bay, and it doesn’t need to be,” said Commissioner David Gorn.

Commissioners had plenty of suggestions for how the developers could shave off space, such as by reducing the common space and communal kitchen, where ALAS plans to provide one meal per day to residents.

“Can’t you take them somewhere so they are out of the complex?” Commissioner Hazel Joanes asked. “Wouldn’t that be better for their mental health?”

“The idea is to get them out into the community — to get out of isolation,” ALAS executive director Belinda Hernandez Arriaga responded.

The continued demands for concessions frustrated project supporters such as Jordan Grimes, a lead member of the pro-housing organization Peninsula for Everyone.

“Here you have a project that was designed by and for a community — in particular, its most vulnerable members,” Grimes told this news organization. “Instead you have a body of unelected commissioners engaged in discussion stretched over weeks to decide what is and isn’t appropriate for a community who has already told you what they need.”

Despite the commission’s approval, the project can still be appealed by any Half Moon Bay resident to the City Council, which will have the final say over the project’s fate. Anticipating an appeal, the commissioners recommended that the City Council revert to the original project — with 31 studios and nine one-bedroom units — and consider removing some of the community space and offices on the first floor, as well as some of the parking, which contributed to the building’s taller height.

Throughout the meeting, commissioners expressed frustration with the state’s density bonus law, which allowed the developer to propose a building taller than typically allowed by Half Moon Bay local zoning because every unit would be considered affordable to low-income households.

“It is a sledgehammer to local control,” said Commissioner Rick Hernandez.

But advocates such as Grimes say local control is exactly the problem.

“This project highlights the need for the state laws that we have and to ensure that these local municipal bodies can’t stall or stop projects like this one that are clearly needed,” Grimes said.

The San Francisco metro area, which includes San Francisco and San Mateo counties, saw the median monthly rent rise 1.3% to $3,060 between the first quarters of 2023 and 2024, while Santa Clara County faced an increase of 1.5%, to $2,990, according to real estate data company CoStar.

Renters like Chris Lee and Betty Li are struggling to get their hands on a good deal.

“Everything is priced through the roof,” he said.

But there is an exception: In the East Bay, median rent is on the decline, driven in large part by faltering prices in Oakland. Median rent in Contra Costa and Alameda counties ticked down by 1%, to $2,393 monthly, marking the fourth consecutive quarter of year-over-year declines.

“There’s a big glut in market-rate and luxury housing in Oakland, which is driving this decline,” said Derek Barnes, executive director of the East Bay Rental Housing Association.

As of April, the year-over-year rent in Oakland has dipped 10.3%, according to data from Apartment List.

Deals have emerged for tenants in the city as luxury apartments offer concessions like two free months, hoping to lure renters away from their current homes, said Nigel Hughes, senior director of market analytics for CoStar.

That has a “knock-on effect” for other sectors of the market, as mid-priced units lose out on renters drawn to newer buildings.

“Suddenly, as a renter, you can afford a nicer apartment because of the discounts and concessions,” Hughes said.

The East Bay also has a higher vacancy rate than the San Francisco or San Jose metro areas — hovering around 7%, compared to 5% for the others.

Barnes said that’s in part due to the continued, if slowing “exodus,” from the area. California Department of Finance data shows that Alameda County’s population decreased 0.5%, or about 9,000 people, from 2023 to 2024, while Contra Costa County’s increased modestly by 0.1%, around 1,400 people.

The buildings opening now were planned before the pandemic, when the East Bay’s population — and rents — were on the rise and investors were clamoring to respond to the demand.

“We’re still not seeing the regular routine traffic in the downtown corridors of Oakland that we saw pre-pandemic,” Barnes said.

While Oakland, like the rest of the Bay Area, faces an overall housing shortage — especially for affordable units — it can still take time for those buildings to fill up with renters.

“As those new units are slowly absorbed, rents should even out a bit,” Hughes said. “That development pipeline is slowing down now. Toward the end of the year, we might see some rent growth again.”

Meanwhile, in the San Jose and San Francisco metro areas, increased demand is fueling competition.

After getting married in March, Lee and Li began looking for a one-bedroom together in the South Bay. Li, a teacher’s assistant, wanted to stay in San Jose near the school where she works, while Lee, who works remotely as a freelance product manager, was more flexible.

“I wasn’t very happy with the choices out there,” Lee said. The last time he looked for an apartment was five years ago when he landed a $1,733-a-month studio in South San Jose. But this time, it felt different.

To make matters more complicated, Lee was laid off from a job in tech last year, which limited the pair’s budget. The two hoped to spend just $2,250 per month. By comparison, the average monthly rent for a San Jose one-bedroom is $2,507.

That left them with few options. Although Lee said they wanted to move out of South San Jose, they ended up signing a lease on a one-bedroom in Lee’s existing complex there for $2,245.

Unlike in Oakland, landlords in San Jose aren’t quite as desperate for renters.

“They offered zero concessions. They even put us on the first floor,” Lee said. “We feel like we’re the ones who made the concession.”

That’s the type of market renters can expect going forward. The summer months are big months for leasing — and more people looking, means more competition for units.

“There’s an opportunity to push rents a little bit higher,” Hughes said.