A major shift is coming to housing in San Francisco. Thanks to a new law passed by the San Francisco Board of Supervisors, homeowners will soon be able to sell in-law units as condos, opening the door to new housing supply, affordable entry-level homeownership, and increased financial flexibility for long-time property owners.
This policy, effective May 1, 2025, only applies to newly constructed Accessory Dwelling Units (ADUs), commonly called in-law units. While it won’t allow sales of existing units (many of which are rent-controlled), it marks a pivotal change in how San Francisco approaches condominiums for sale, land use, and home equity.
Key Highlights of the New ADU Condo Law
- Only NEW ADUs qualify: The law applies only to new ADUs built after May 1, 2025. Existing in-law units, often already rented and under rent control, cannot be sold as condos.
- Homeowners can unlock equity: Owners of single-family homes or small multi-unit buildings can build ADUs (such as garage conversions or backyard cottages) and sell them independently from their main house, unlocking immediate equity without having to become landlords.
- Neighborhood focus: This change particularly benefits single-family home neighborhoods like the Sunset, Richmond, and Excelsior Districts, where space for backyard units exists and housing options are limited.
- No displacement for renters: Tenant protections remain in place, and existing renters in ADUs won’t be affected by the law. This helps prevent displacement while encouraging new housing construction.
How Selling In-Law Units as Condos Could Reshape the San Francisco Housing Market
The ability to sell in-law units as condos may not sound revolutionary at first, but its long-term impact could be significant. Here’s how:
1. Increase in Affordable, Entry-Level Homes
By allowing small ADUs to be sold as standalone condominiums, San Francisco opens the door to a wave of affordable, compact homes. These units could appeal to first-time buyers, young professionals, and downsizing seniors who have been priced out of traditional single-family homes for rent or sale.
Unlike luxury high-rises, these ADU-condos are woven into existing neighborhoods, an incremental and less disruptive way to add housing where people already live.
2. Unlocking Equity for “House-Rich, Cash-Poor” Homeowners
In a city with high property values but limited liquidity, many older residents are considered “house-rich, cash-poor.” This law allows them to access the value of their property without having to sell their entire home. They can build and sell an ADU, use the proceeds to support their retirement, pay off debt, or even help a family member purchase the unit.
This approach could support multigenerational living, allowing a parent to live in the main house while their adult child buys the in-law unit, or vice versa.
3. More Incentive to Build ADUs
Previously, the financial motivation to build an ADU often depended on whether homeowners wanted to rent the unit long-term, which comes with landlord responsibilities and sometimes rent control.
With the option to sell instead of rent, homeowners may be more willing to invest in building ADUs, which range in cost from $225,000 to $500,000. Selling as a condo makes the investment more viable, encouraging broader housing production across the city.
Limitations and Regulatory Hurdles
While the policy is a step forward, experts caution that widespread adoption may be slow due to the following:
- High construction costs: Even with the opportunity to sell, building an ADU in San Francisco remains expensive.
- Permitting and financing: Complex permitting processes and potential legal/tax implications could be hurdles for homeowners unfamiliar with condo conversion rules.
- Parceling and zoning: Subdividing properties and getting financing for condo development may still pose regulatory and legal barriers.
- Limited immediate impact: Because the law only applies to future ADUs (post-May 2025), the number of new condo units will ramp up gradually. This means the initial supply increase will be modest.
Will Selling ADUs as Condos Lower Housing Prices in San Francisco?
The short answer is: not dramatically, at least not immediately.
While the ability to sell in-law units as condos introduces new, affordable inventory to the market, the number of units created is unlikely to be enough to lower overall prices significantly. Experts attribute San Francisco’s high housing prices to larger market forces, including geographic constraints, demand, and high development costs.
However, this new law broadens ownership opportunities, especially for those who may not qualify for a traditional single-family home or who want to stay in the city but can’t afford a full property. Over time, the cumulative impact of more ADUs being sold as condos could increase housing diversity and stabilize pricing in certain neighborhoods.
A Creative Tool for Expanding Housing Options in San Francisco
The decision to sell in-law units as condos offers a fresh solution for San Francisco’s ongoing housing shortage. It provides homeowners with new financial tools, offers affordable homeownership options, and contributes to a smarter, more sustainable way to grow the city’s housing stock.
This law is not a cure-all. It won’t single-handedly drop prices or fix every barrier to affordable housing. But it’s a strategic, incremental step that balances the needs of renters, homeowners, and new buyers.
If you’re exploring condominiums for sale, thinking about building an ADU, or following trends in housing in San Francisco, now is the time to pay attention.
Realtor Emily Martin made the move from San Francisco to Sonoma County…..
After spending eight years as a homeowner in San Francisco, Realtor Emily Martin made the move to Sonoma County in 2020, settling in the heart of wine country, Healdsburg. Her personal experience relocating from the city to this charming, slower-paced community gives her a unique advantage when working with Bay Area buyers looking to make a similar transition. Emily understands firsthand the lifestyle changes, the logistical considerations, and the emotional aspects of leaving the city behind for the vineyards and small-town charm of Healdsburg. Now a top-producing agent with Healdsburg Luxury Living, she brings both the insider knowledge of a local and the strategic mindset of a city-savvy real estate professional. For those looking to move from San Francisco to Sonoma County, Emily is the ideal Realtor, experienced, empathetic, and deeply familiar with both markets.
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