Written by Zane Willman, Associate Advisor | CCG Real Estate Advisors
In our last piece on SB 79, we broke down what the law actually does from introducing major density into the transit corridors and the cities positioned to benefit most. If you haven't read it, start here.
Obviously, the opportunity for this bill is massive, but the path from "the law passed" to "the idea is executed" is cloudy. Cities are fighting back.
Here's what's happening:
San Diego is Seeking Delays and Exemptions requiring High-Rises Near Transit Stops
- The bill requires the city to nearly double the number of housing units allowed near its major transit stops from the 494,000 now allowed to 861,000, an increase of 367,000 housing units.
- San Diego is proposing to phase and exempt large portions of the city before the July 1st deadline.
- The City Planning Department is proposing to delay implementation in Very High Fire Severity Zones, on sites with designated historic resources, and on sites subject to one foot of sea level rise — while simultaneously preparing a Transit-Oriented Development Alternative Plan to tailor the law's application to San Diego's specific conditions.
And this makes a lot of sense. When you introduce a major influx of supply into a certain area, the market needs to have time to acclimate. Low-income areas that lack amenities and also in neighborhoods with challenges like high wildfire risk, notable historic structures or vulnerability to sea-level rise.
The zoning changes, which will allow buildings as tall as 85 feet in areas zoned for single-family housing, would not take place until 2031 in low-income, low-resource areas. 26% of city land near transit stops is occupied by these low income areas and the delay would give the city more time to implement the infrastructure required to withstand the incoming population growth.
Displacement Politics Are Creating Real Entitlement Friction
Advocates have warned that implementing SB 79 in areas at risk of gentrification — without delay or meaningful mitigation — will likely lead to increased displacement and may undermine locally-crafted programs designed to produce mixed-income development near transit.
Tenants would be less likely to want to move into new units in areas that aren't built to handle them. Meaning a lot of these new construction buildings might sit vacant for longer periods of time, leading to greater underwriting risk for developers.
Moral of the Story: Projects in lower-income, transit-adjacent neighborhoods will face a more complicated entitlement path than the law implies on paper.
The Transit Infrastructure Doesn't Match the Zoning
We flagged this in our first article (Bumping Again HERE. You're Welcome), but it's important to know when you're thinking about what happens after you build.
SB 79 is pushing density. But it's not directly funding transit improvements.
In San Diego, the trolley system is useful but limited in it's abilities. It doesn't connect to most major employment centers, and frequency remains a constraint in many corridors. The law is effectively telling the market to build transit-oriented development in areas where the transit isn't fully there yet.
This creates a supply-demand mismatch risk. If you build 80 units assuming residents will use the trolley, but the trolley doesn't run frequently enough to compete with a car — you're building for a transit lifestyle that can't sustain the scale in that corridor. Leasing comps in car-dependent submarkets may not support the rent premium you're projecting.
The transit infrastructure will eventually improve. SANDAG has long-term expansion plans. But "eventually" is not reality.
5. Inclusionary Requirements Compress Your Margin More Than Expected
Projects with more than 10 units must include housing affordable to extremely low, very low, or lower-income households — at 7%, 10%, or 13% of total units respectively — unless local ordinances require a higher percentage.
On a project that was already penciling tight with high acquisition costs, construction costs, and longer timelines until completion, that affordability set-aside makes a difference. And it compounds with the unit size cap: units within SB 79 projects may not exceed an average total floor area of 1,750 net habitable square feet. That's not necessarily a dealbreaker, but it constrains your product type and limits your ability to chase higher-end rents per unit to offset the affordable units set-aside.
What This Means For Your Strategy
Real opportunities always come with lots of friction, and the investors who do well are the ones who price that friction correctly before they're caught with their pants down.
A few things worth building into your process right now:
- Confirm site-specific status before acquiring. Know whether your target parcel is in a proposed phased zone, an alternative plan coverage area, a fire hazard zone, or a historic district. This will affect your timeline and your buildability directly.
- Underwrite the transit, not just the zoning. Ask whether the ideal tenant for your market would actually ride the trolley — or whether they need a parking space. In some San Diego submarkets, the answer determines your lease-up timeline and your effective rents.
- Factor in the community landscape. Projects in displacement-sensitive corridors will face more friction than the ones more built for the influx. That friction leads to longer timelines, potential concessions, and reputational considerations if you're a repeat player in the market.
SB 79 changed what's legally possible near transit in California and will introduce significant changes to the market as a whole. What it didn't change is the on-the-ground complexity of actually building here. The gap between those two things is where most deals will win or lose.
Are You Looking at Development or Investment Opportunities in San Diego?
At CCG Real Estate Advisors, we work directly with developers, investors, and first-time buyers to cut through the noise on complex legislation like SB 79. Whether you're underwriting your first transit-adjacent deal, trying to understand which San Diego submarkets carry the most entitlement risk, or looking for opportunities that the broader market hasn't priced yet — we can help you build a strategy tailored for your long term goals.
Click our logo below to schedule completely free, exploratory call so we can better understand your goals.
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or investment advice. Always consult qualified professionals before making investment decisions.
