San Diego’s June 2025 ADU Policy Overhaul: What Investors Need to Know

San Diego’s Accessory Dwelling Unit (ADU) and Bonus ADU programs have been pivotal in addressing the city’s housing crisis, but concerns about overdevelopment, infrastructure strain, and neighborhood character prompted significant reforms. On June 16, 2025, the San Diego City Council voted 5-4 to approve a package of 25 amendments to the ADU regulations, balancing housing production with community needs. This blog post dives into the specific changes regarding ADU caps per lot, their effects on residential lots, updates to affordability enforcement, and a detailed breakdown of key amendments, with commentary on what these mean for real estate investors in San Diego.

Specific Number of ADUs Allowed Per Lot

New ADU Caps

The most significant change is the introduction of a cap on the number of ADUs permitted on single-family lots, closing a loophole in the Bonus ADU program that previously allowed unlimited units in some cases. The approved caps are:

  • Lots up to 5,000 square feet: Maximum of 4 ADUs (plus one primary residence, totaling 5 units).

  • Lots between 5,001 and 7,000 square feet: Maximum of 5 ADUs.

  • Lots 7,001 square feet and larger: Maximum of 6 ADUs (with a proposed cap of 7 units rejected).

A stricter proposal by Councilmembers Campillo and von Wilpert to cap ADUs at 4 units regardless of lot size was rejected in a 5-4 vote.

Impact on Residential Lots

  • Single-Family Lots: The cap directly limits the scale of ADU projects, preventing developers from building large “ADU farms” (e.g., 35–126 units on single-family lots, as seen in Encanto and Pacific Beach). This preserves neighborhood character but reduces the potential density and profitability of larger lots, particularly in Transit Priority Areas (TPAs) where unlimited Bonus ADUs were previously feasible.

  • Multifamily Lots: Multifamily properties can still add up to 8 detached ADUs under state law (SB 1211), but the city’s Bonus ADU program no longer applies to these zones in the same way, limiting additional incentives.

  • Investor Implications: Smaller-scale projects (4–6 units) remain viable, but investors targeting high-density developments on single-family lots face significant constraints. Lots over 7,000 square feet offer the most flexibility, but the cap at 6 ADUs reduces economies of scale compared to prior rules.

Investor Takeaway: Investors should focus on mid-sized lots (5,001–7,000 sq ft) for optimal unit counts and ROI, leveraging real-time market data to identify parcels with zoning advantages. Firms like BridgePoint Realty, Inc. can streamline site feasibility analysis using direct consumer insights from local investors to pinpoint opportunities.

Changes to Affordability Enforcement

New Penalties for Violations

  • Amendment Item: Increased fines for violations of deed-restricted affordable rents in the Bonus ADU program, set at a minimum of $10,000 per affordable ADU per month.

  • Details: The Bonus ADU program incentivizes affordable housing by allowing one market-rate “bonus” ADU for each deed-restricted affordable ADU (rented to low- or moderate-income households for 15 years). The new penalties aim to ensure compliance, addressing concerns that some developers exploited the program without maintaining affordability.

  • Impact: Stricter enforcement protects the program’s intent but increases risk for non-compliant investors. Proper documentation and tenant income verification are now critical.

  • Investor Implications: Investors must budget for legal and administrative costs to comply with affordability requirements. Non-compliance could lead to substantial fines, eroding profits. Partnering with experienced firms like BridgePoint Realty can mitigate risks through strategic planning and access to trusted property managers familiar with affordability regulations.

Community Sentiment

Posts on X reflect mixed sentiment: YIMBY groups criticized the reforms as a setback for affordability, arguing that caps and fees limit housing for working families, while residents like Shane Harris praised the changes for balancing affordability with neighborhood compatibility. BridgePoint Realty’s direct-to-consumer conversations confirm that investors value clarity in affordability rules but are wary of increased compliance costs.

Key Proposed Amendments and Investor Commentary

Below is a detailed breakdown of the most impactful amendments from the 25 proposed changes, referenced by their context in the June 2025 council meeting, with commentary on implications for real estate investors.

1. Development Scale: ADU Cap per Lot

  • Amendment: Caps ADUs at 4–6 units based on lot size (detailed above). Removes the Bonus ADU program from the lowest-density single-family zones.

  • Commentary: This curtails large-scale projects, impacting investors who relied on the Bonus ADU program for high-density developments. However, smaller projects remain profitable, especially in TPAs where state law still allows flexibility. Investors should pivot to multifamily zones or mid-sized single-family lots, using BridgePoint’s network of contractors to optimize construction costs.

  • Investor Action: Conduct zoning and lot size analyses early. BridgePoint’s real-time data tools can identify parcels maximizing allowable units.

2. Community Enhancement Fees

  • Amendment: Introduces infrastructure fees for ADU projects, termed “community enhancement fees,” to address neighborhood impacts.

  • Commentary: These fees increase upfront costs, particularly for projects with multiple ADUs, potentially reducing ROI. However, they mitigate community backlash, improving project approval odds. Investors should factor fees into financial models and explore cost-saving designs (e.g., smaller ADUs under 750 sq ft, exempt from some state impact fees).

  • Investor Action: Budget for fees and prioritize cost-efficient ADU designs. BridgePoint’s preferred contractors can deliver cost-effective solutions.

3. Parking Requirements

  • Amendment: Requires one off-street parking space per affordable and bonus ADU outside TPAs (more than a half-mile from major transit stops).

  • Commentary: This addresses resident complaints about parking shortages but complicates projects on smaller lots with limited space. In TPAs, parking exemptions remain, favoring urban infill projects. Investors in suburban areas must allocate space and budget for parking, impacting site layouts and costs.

  • Investor Action: Prioritize TPA properties to avoid parking mandates. BridgePoint’s site feasibility services can optimize lot configurations.

4. Fire Safety Setbacks

  • Amendment: Mandates 5-foot side and rear setbacks for ADUs in High or Very High Fire Hazard Severity Zones, with potential for larger setbacks per the Fire Code Official.

  • Commentary: This enhances safety but increases costs, as structures closer than 5 feet to property lines require fire-rated materials. Investors in fire-prone areas (e.g., Scripps Ranch) face higher construction expenses and reduced buildable area, impacting project feasibility.

  • Investor Action: Assess fire zone status early. BridgePoint’s architects can design compliant, cost-effective ADUs to minimize material costs.

5. Elimination of Landscaping Requirements

  • Amendment: Removes tree and landscaping requirements for ADUs and JADUs, aligning with state law.

  • Commentary: This reduces permitting costs and timelines, benefiting investors by streamlining approvals. However, it may raise environmental concerns, potentially affecting community support for projects. Investors can voluntarily incorporate landscaping to enhance property appeal and tenant satisfaction.

  • Investor Action: Leverage cost savings to improve ADU interiors or exteriors. BridgePoint’s property managers can advise on tenant-preferred amenities.

6. Increased Penalties for Affordability Violations

  • Amendment: As noted, fines for violating affordable rent restrictions are now $10,000 per ADU per month.

  • Commentary: This ensures affordability compliance but heightens financial risk for investors. Clear lease agreements and tenant screening are essential. BridgePoint’s expertise in affordability compliance can help investors avoid penalties.

  • Investor Action: Implement robust tenant verification processes. BridgePoint’s network includes property managers skilled in affordability regulations.

7. Alignment with State Housing Laws

  • Amendment: Adjusts parking, setback, and zoning rules to comply with state mandates, following warnings from the California Department of Housing and Community Development (HCD).

  • Commentary: Compliance preserves San Diego’s “prohousing” designation and access to state funding, stabilizing the ADU market. Investors benefit from predictable regulations but must stay updated on state-local alignment. BridgePoint’s real-time market tracking ensures clients adapt quickly to regulatory shifts.

  • Investor Action: Monitor state law changes. BridgePoint’s strategic advisors provide timely updates and compliance strategies.

Broader Implications for San Diego Real Estate Investors

Opportunities

  • Small-Scale Projects: The 4–6 ADU cap still allows profitable projects, especially on mid-sized lots in TPAs, where parking exemptions and Bonus ADU incentives remain viable.

  • Affordability Focus: Stricter enforcement creates opportunities for investors committed to affordable housing, as deed-restricted ADUs unlock bonus units and potential tax benefits.

  • Streamlined Permitting: Eliminating landscaping requirements and aligning with state law simplifies approvals, reducing timelines and costs for smaller projects.

Challenges

  • Increased Costs: Community enhancement fees, parking mandates, and fire safety requirements raise expenses, particularly for suburban or fire-prone lots.

  • Reduced Density: The ADU cap limits high-density projects, impacting ROI for investors targeting large-scale developments on single-family lots.

  • Compliance Risks: Higher penalties for affordability violations demand meticulous management, increasing administrative burdens.

Market Sentiment

Direct-to-consumer conversations at BridgePoint Realty reveal cautious optimism among investors. Many appreciate the clarity of the new caps and affordability rules but are concerned about rising costs and reduced scalability. Real-time data from local markets shows sustained demand for ADUs, particularly in urban TPAs, where rental rates remain strong ($2,000–$3,500/month for 1–2 bedroom units).

How BridgePoint Realty Can Help

Navigating these changes requires expertise and agility. BridgePoint Realty, Inc. offers:

  • Real-Time Market Insights: Our data-driven approach tracks San Diego’s evolving ADU market, identifying high-ROI opportunities.

  • Direct Consumer Sentiment: Daily conversations with local investors provide unparalleled insight into market trends and buyer preferences.

  • Comprehensive Support: From site feasibility to stabilization, our network of contractors, property managers, and strategic advisors ensures your ADU project maximizes value while complying with new regulations.

  • Affordability Expertise: We have strategic management partners that can guide clients through deed-restricted ADU requirements, minimizing compliance headaches and optimizing Bonus ADU benefits.

Looking Ahead

The June 2025 ADU reforms strike a balance between housing production and community concerns, but the 5-4 vote and HCD’s warnings suggest ongoing debates. Investors must adapt to stricter caps, higher costs, and enhanced affordability enforcement while capitalizing on streamlined permitting and TPA opportunities. For detailed regulations, visit the City of San Diego’s ADU webpage or contact the Planning Department at developmentcode@sandiego.gov.

Partner with BridgePoint Realty, Inc. to turn these changes into opportunities. Contact us today to start your ADU journey in San Diego’s dynamic real estate market.