Small infill development is causing a seismic shift in the housing market across California.
And it is creating opportunities everywhere.
While bigger developers battle rising construction costs and regulatory complexities, smaller builders and property entrepreneurs are stepping in to deliver duplexes, small lot subdivisions and 2-10 unit developments.
Small infill development presents a fantastic chance for flippers and developers to grow their business and move beyond basic flips and into small development projects.
Many investors are taking advantage of the opportunities and have transitioned their business from flipping to ground-up builds of 2-10 units.
Why it is happening
Small infill development is the process of redeveloping vacant or under-utilized land within an existing urban area in a bid to contain urban sprawl and maximize infrastructure already in place.
It is booming in California as a result of multiple factors, namely policy, economic forces, house and land scarcity and growing demand.
It is no secret California has a severe housing shortage – something in the order of 2-3 million homes.
This is as a result of:
- decades of underbuilding
- population growth
- restrictive zoning
- rising construction costs
It’s a perfect storm that has created long-term opportunities for developers.
State laws are explicitly pushing small projects which are cheaper to build than the investment required to develop new land on the outskirts of cities that require new utilities.
Infill also satisfies California environmental policies by requiring less driving hence fewer emissions and less loss of farmland and open space.
Why large developers are slowing down
Many developers are facing increasing and sometimes crippling hurdles.
They include:
- rising construction costs
- labor shortages
- rising interest rates
- entitlement delays
Large projects in excess of 100 units are often the most difficult to finance and approve.
It has paved the way for smaller, faster projects to meet the growing housing need.
The rise of the ‘missing middle’
The ‘missing middle’ refers to medium-density housing types.
It lies between traditional detached single-family homes and high-rise towers.
It includes:
- duplexes
- triplexes
- fourplexes
- townhouses
- small-lot subdivisions
These projects deliver much needed housing density and require less capital than larger-scale projects.
In addition, local government has streamlined approval processes and removed much of the red tape to encourage their development.
Legislative shifts encouraging small development
The thirst for small infill development could not have begun without significant legislative shifts.
California’s legislative strategy for infill is built on three pillars:
More units per parcel – such as duplexes, lot splits and ADUs or JADUs (Junior Accessory Dwelling Units)
More land eligible for housing – upzoning or overriding local zoning laws, especially near transit and introducing commercial-to-residential conversion laws
Reducing red tape – via ministerial approvals, CEQA (California Environmental Quality Act) exemptions and waiving parking requirements
On a typical suburban lot, it is now possible to:
- split the lot (SB 9)
- build 2-4 primary units
- add ADUs or JADUs
- avoid hearings and CEQA
- potentially upzone further (SB 10/SB 79)
Senate Bill 9 (SB 9), introduced in 2022, is the most significant change because it legalised duplexes statewide in single-family zones, allowed urban lot splits and replaced public hearings or discretionary reviews of developments with ministerial approval.
It eliminated single-family exclusivity across most urban land and is the foundation of California’s ‘missing middle’ strategy.
Why private lending plays a key role
Traditional banks are often reluctant to finance small developers, first-time builders and short-term construction projects.
They prefer stabilized, income-producing properties, standard housing projects and like lending to borrowers with strong incomes and low risk.
That’s where private and in particular hard money lenders come in.
Hard money lenders fill the void by offering:
- faster approvals
- flexibile terms
- asset-based lending
Hard money lenders are ideal for small infill development which often comes on irregular or non-standard lots and involves demolition, subdivision or partial construction.
When opportunities arise, time is of the essence and hard money lenders can provide finance quickly to secure land deals.
Investors who rely on banks often lose the deal before finance is approved.
Get funded and supported today
Flippers who are interested in upscaling their business would do well to consider the vast opportunities presented by small infill development.
Savvy investors across the state are already doing it in their droves.
The great need for housing in California will only see these opportunities grow in the foreseeable future and there is ample scope for your profits to similarly flourish.
But sometimes, it is difficult to know exactly how to make the leap from basic flips to small infill development.
That’s why a chat with the experts at Equidy is essential.
Equidy has an intimate and personal history with all aspects of property development in California and has done so for well over 40 years.
They will help get you started and happily act as your mentor, advising you of the opportunities and challenges presented by small infill development.
Their sole focus is to help you maximize the return on your investment without putting yourself at unnecessary financial risk.
And now for the best part.
Equidy is also a hard money lender that can finance flippers and developers in as little as 48 hours.
They stand by their core belief that anything is possible and they strive to prove it every single day.
Even in difficult economic times, they are determined to reward entrepreneurship and resolve to help their clients crystallize their wealth creation dreams.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimize the risk to all parties.
Contact Equidy today to book your free strategy call.
