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San Francisco is joining Berkeley and San Jose by allowing homeowners to sell in-law units in their backyards as separately owned condos—a policy shift aimed at easing the city’s housing crunch and helping longtime owners tap into their equity.
Under a new ordinance unanimously passed by the Board of Supervisors, owners of single-family homes and small condo buildings (fewer than four units) can now build an ADU and sell it independently.
However, it remains unclear exactly what impact, if any, it will have on San Francisco’s housing market—and there’s a lot of regulations to consider before jumping into this kind of investment.
What the new ordinance does
Accessory dwelling units, also known as in-law units, are small, self-contained homes built on the same lot as a primary residence. They can be attached to the main house or built separately in the backyard.
Previously, San Francisco homeowners could build ADUs, but they could only rent them out, not sell them. That was a major friction point for homeowners who weren’t interested in becoming landlords, managing tenants, or waiting years to recoup construction costs through rent.
With an average cost of $225,000 and $500,000 for design, permitting, and construction of an ADU alone, the upfront costs and long-term responsibility often outweigh the benefits of adding one.
But now, the city hopes the ordinance will change that calculus. The new law allows qualified homeowners to sell an ADU as a condo, giving them an immediate path to recoup their construction costs. It also limits the change to newly built ADUs constructed after May 1, 2025, protecting existing tenant-occupied units from displacement.
The change is possible thanks to a 2024 state law authored by former Assemblymember Phil Ting that gave California cities the authority to legalize the sale of ADUs as separate condominiums.
Why San Francisco is doing this
San Francisco needs housing—badly.
The city is under a state mandate to build 82,000 new homes by 2031; but so far, progress has lagged. While ADUs have been championed by YIMBY (Yes In My Backyard) advocates as a quick, low-impact way toward achieving this goal, they’ve fallen short of expectations. From 2020 to 2024, San Francisco added just 1,300 ADUs, despite streamlined permitting and financial incentives like fee waivers.
Part of the challenge has been political: Proposals to upzone neighborhoods or allow taller buildings have met stiff resistance. Many residents in western and southern neighborhoods oppose height increases or large-scale developments in single-family areas.
This new ordinance is a workaround: It lets homeowners add housing without changing building heights or density limits.
It’s also meant to help multigenerational families stay rooted. In neighborhoods like the Sunset, many longtime homeowners, especially immigrants, are what the ordinance’s architect, Joel Engardio, calls “house rich, cash poor.” Being able to sell a backyard unit could offer them much-needed financial relief without leaving the city.
“ADUs built and sold as condos provide opportunities to maximize the value of a family’s property and create generational wealth,” Engardio shared in a statement on his website.
What this means for buyers
Supporters say the change could also help first-time homebuyers access homeownership in single-family neighborhoods that have long been out of reach. ADU condos tend to be smaller and cheaper than traditional homes. In cities like Seattle, which implemented a similar policy, they’ve sold for up to 40% less than single-family homes on the same lot.
Still, questions remain about how many homeowners will pursue this path—and whether permitting, financing, and parceling rules will slow adoption. But if even a fraction of San Francisco’s thousands of eligible backyards are tapped, the result could be a meaningful new stream of smaller, entry-level housing in one of the nation’s toughest markets.
As Engardio puts it, “That’s a lot of opportunities to help first-time home buyers find stable, affordable housing in San Francisco. Let’s create it.”
What to watch for next
Engardio says this is just the first step. He’s planning to introduce legislation that would defer building permit fees, making it easier for homeowners to get started without fronting tens of thousands of dollars out of pocket.
The bigger question, however, is whether this new policy will work in practice.
While San Jose and Berkeley have already passed similar laws, it’s still unclear whether any ADUs have been sold as condos in those cities. That raises a fundamental question: Will San Francisco’s ordinance generate meaningful activity, or remain mostly symbolic?
Even advocates of the new law acknowledge the challenges. As Mark Hogan, principal at Openscope Studio, told the San Francisco Chronicle, the ability to sell ADUs might entice more homeowners to build—but it doesn’t solve the deeper problem of high construction costs and complex permitting.
And for some critics, there’s concern the policy could introduce new complications—like confusing shared property responsibilities or fragmented lots in traditionally single-family neighborhoods—without delivering enough new housing to justify the change.
Whether this becomes a scalable solution or yet another well-intentioned policy with limited reach will depend on how the city tackles the real-life barriers to building and buying these units.