Decoding the Builder's Remedy
California's "remedy" offers GPs tantalizing relief from cities' strict zoning codes and Byzantine processes. But does it offer a practical opportunity for real estate operators and investors?
Thesis Driven dives deep into emerging themes and real estate operating models by featuring a handful of operators executing on each theme. This week’s letter is on California’s Builder’s Remedy and its implications for real estate GPs and investors.
California’s zoning and land use regime needs no introduction. Since the 1970s, California cities—particularly wealthy, coastal ones—have erected numerous barriers to new housing development: restrictive zoning, lengthy and complex approval processes, and hefty impact fees for any new project. This has led to a dramatic housing shortage that has cut 6% from California’s GDP and exacerbated a humanitarian crisis of homelessness on California’s streets.
This letter is not about the history or impact of California’s restrictive zoning policies, as that is covered in depth elsewhere. Rather, we will focus today on the Builder’s Remedy, a legal path for developers to circumvent certain California cities’ zoning restrictions enabled by recent pro-housing reforms at the State level.
Last year, Santa Monica became the first California city to trigger the Builder’s Remedy. Shortly thereafter, 16 projects with over 4,500 housing units applied for approval through the Remedy process—more than twenty times the number of housing units Santa Monica typically permits per year. A number of Bay Area cities triggered the Remedy last week, possibly opening the door to a flood of new housing into expensive, supply-constrained markets.
Today’s letter will share perspectives from a few California developers participating in the Builder’s Remedy process. We’ll learn how they ended up on the front lines of California land use law and whether the Builder’s Remedy presents a realistic—and near-term—opportunity for real estate GPs and investors to generate strong returns while building much-needed housing.