Shown Above: A 10-unit accessory dwelling unit complex under construction in April in Clairemont
In a narrow 5-4 decision on June 16, 2025, the San Diego City Council adopted significant reforms to its previously aggressive Accessory Dwelling Unit (ADU) bonus program, placing new limits on the number of ADUs per parcel and tightening development standards across the board.
The changes come amid growing public pushback over projects exploiting a key incentive: for every deed-restricted affordable ADU, developers were allowed to build a market-rate “bonus” ADU without a formal cap. While originally intended to support gentle density and infill housing, the policy’s unlimited framework allowed some developers to build a dozen or more units on standard single-family lots, drawing significant pushback residents and triggering scrutiny from state officials.
What Changed?
Several key elements of the reform package include:
New Caps on Total ADUs per Lot:
- 4 ADUs on lots < 8,000 SF
- 5 ADUs on lots between 8,001–10,000 SF
- 6 ADUs on lots > 10,001 SF
Infrastructure Fees: A new “community enhancement fee” will apply to ADUs in the incentive program – skirting the state’s ADU fee ban by applying only to developers opting into the bonus incentive.
Design and Siting Restrictions:
- Height limit of two stories
- Setback increases from property lines
- Prohibited on cul-de-sacs in wildfire-prone areas
- Parking now required for ADUs not near transit
- Maximum unit size of 1,200 SF
For-Sale Option: ADUs built under the bonus program can now also be sold individually, rather than only rented.
Council Split and Community Backlash
The vote followed hours of public testimony and visible community opposition. Residents raised concerns about parking shortages, infrastructure strain, and the impact on neighborhood character. Councilmember Sean Elo-Rivera cited “exploitation” of the program and the city’s failure to properly model the downstream impacts.
However, others, including real estate professionals, cautioned against dialing back a program credited with adding thousands of new rental units. “Limiting housing options right now – especially ones as efficient and community-friendly as ADUs – would be a step in the wrong direction,” said broker Ninus Malan.
Why It Matters for Developers
San Diego’s previous ADU bonus policy was the most expansive in the state, exceeding baseline state ADU law by offering uncapped density in exchange for a percentage of income-restricted units. While highly effective in driving small-scale housing supply, the backlash illustrates the friction between theoretical policy wins and on-the-ground impacts.
Shown Above: A 17-unit accessory dwelling unit (ADU) bonus program project under construction on Almayo Avenue in Clairemont.
Projects underwritten with expectations of uncapped ADUs will need to reassess feasibility. Neighborhoods like Clairemont, Linda Vista, and Bay Park saw a surge in this type of development in recent years due to their proximity to the coast and strong rental demand. Many of these areas feature large lots along canyon frontages and cul-de-sacs, which made them prime targets for high-density ADU projects with 10+ units per parcel. Under the new rules, that level of intensity is no longer achievable, prompting developers to recalibrate their strategies.
The newly introduced Community Enhancement Fee, though creatively structured to sidestep state-level restrictions, will still put downward pressure on project returns. ADUs remain a viable development strategy, but the path forward is now narrower and more regulated.
The city’s changes aim to strike a compromise: tightening rules to preserve neighborhood livability while preserving the framework that supports incremental density. That balance will be tested as San Diego seeks to maintain its “pro-housing” designation under state law.
Looking Forward
For developers, this represents a pivotal shift in one of California’s most developer-friendly ADU markets. The new caps eliminate the most aggressive density plays while the infrastructure fees add new cost considerations to project underwriting.
The timing is particularly notable given a proposed 120-unit ADU development in Pacific Beach – exactly the type of outlier project that drove the policy change. Such mega-projects will no longer be possible under the new framework.
The reforms also reflect broader tensions between state housing mandates and local implementation. San Diego’s experience demonstrates that even well-intentioned density programs can generate political backlash when implementation exceeds community expectations, regardless of technical compliance with housing production goals.
Three Key Takeaways:
- Regulatory risk remains significant in California development markets, even for programs with strong initial policy support
- Community engagement matters – projects that exceed neighborhood expectations can drive retrospective policy changes
- Adaptability is critical – successful operators will find opportunities within the new constraints while marginal players may exit the market
The question for developers isn’t whether these changes represent good policy, but how quickly they can adapt their strategies to operate effectively within San Diego’s new reality.
While San Diego’s new ADU restrictions will likely curb development, they come at the same time the state is taking meaningful steps to encourage urban infill. Through AB 130 and SB 131, California enacted targeted CEQA reforms that ease environmental review for mid-scale multifamily projects in transit-rich, urbanized areas. While the ADU path narrows, these statewide changes could accelerate infill development and shift momentum toward more traditional multifamily formats.
Sources:
- Garrick, David. “San Diego Reins in Controversial Bonus ADU Incentive.” San Diego Union-Tribune, June 17, 2025.
- City of San Diego Council Hearing, June 16, 2025.
- Holland & Knight. “California Legislature Enacts Major CEQA Reforms for Housing‑Rich ‘Infill’ Projects.” Holland & Knight, July 1, 2025.
- Office of Governor Gavin Newsom. “Governor Newsom Signs into Law Groundbreaking Reforms to Build More Housing Affordability.” Office of the Governor, June 30, 2025.
