San Jose ADU Outlook 2027-2028: SB 79 Transit Zones, AB 1033 Lending, and the Policies Other Cities Have That San Jose Doesn't

San Jose earned its reputation as California's ADU pioneer by issuing over 3,000 permits since 2019 and recording the state's first AB 1033 condominium sale in August 2025. But the policy landscape is shifting fast. SB 79 will upzone roughly 40,000 parcels near the city's 56 transit stations starting July 1, 2026. The RHNA target of 62,200 units by 2031 is far from on track. And the mortgage industry still has no standardized product for ADU condos. This article looks ahead at five policy changes likely to affect San Jose ADU owners and builders through 2028. For the current rules, see our San Jose ADU guide. For statewide context, see our California ADU laws guide.

Bottom Line

San Jose's current ADU rules are favorable, but the next two years will bring meaningful changes. SB 79 creates new density allowances near transit that could compete with or complement ADU construction. AB 1033 condo conversions remain bottlenecked by lending uncertainty and $50,000 to $75,000 in soft costs. And several policy tools used by Los Angeles, San Diego, and Sacramento have not yet been adopted by San Jose. Homeowners planning an ADU should build under current rules rather than wait, but should design with the 2027-2028 policy environment in mind. [1][2][3]

1. SB 79 Transit Zones: 40,000 Parcels Get New Options

The Abundant and Affordable Homes Near Transit Act (SB 79), signed October 10, 2025, takes effect July 1, 2026. It requires cities to allow denser, multi-story housing near major transit stops. [1]

In San Jose, this affects approximately 40,000 parcels near 56 transit stations, including BART, VTA light rail, Caltrain, and future planned stations. [2]

What this means for ADU builders:

SB 79 does not change ADU rules directly. But it changes the strategic calculus for property owners near transit. A homeowner sitting on a 6,000-square-foot lot near Diridon Station now has two development paths: build an ADU for $250,000 to $440,000 in rental income, or explore a multi-unit development under SB 79's density allowances.

The practical effect depends on lot size and the owner's capital. Most homeowners with a single-family home on a standard lot will still find an ADU far more accessible than a multi-unit project. But investors with larger parcels near BART or Caltrain stations may skip the ADU entirely in favor of denser builds. [1]

What San Jose should do but has not: The city was required to submit an alternative plan to HCD by March 2026 or accept SB 79's default provisions. Whether San Jose tailors its transit zone rules to preserve ADU incentives or lets the default apply will shape the relative attractiveness of ADUs near transit. As of early April 2026, the city's approach has not been publicly finalized. [2]

2. AB 1033 Lending: The Bottleneck Nobody Fixed

San Jose proved that AB 1033 conversions work mechanically. The Josefa Street project showed that Public Works can process a parcel map in 60 days and record a new APN for the ADU. [4]

The problem is on the buyer's side. ADU condos are a new asset class with no established comparable sales data, no standardized condo questionnaire, and no Fannie Mae or Freddie Mac guidelines specific to them. [5]

Current lending reality:

Most lenders have no internal policies for ADU condo purchases. Borrowers report being turned away or steered toward portfolio loans with higher rates.
Underwriters apply standard condo rules, which means they model HOA dues and reserves into the borrower's debt-to-income ratio, even when the "HOA" is a two-unit association created purely for the AB 1033 map.
Appraisers struggle with comparables. The first few sales in any market produce appraisals based on cost approach rather than comparable sales, often undervaluing the units. [5]

What to expect by 2028:

As more cities adopt AB 1033 (San Diego County enacted its ordinance April 4, 2026; Berkeley, Santa Monica, and San Francisco have followed San Jose), the volume of transactions will grow. [3][6] Once 50 to 100 ADU condo sales close statewide, appraisers will have market-rate comparables. That threshold is realistic by mid-2027 based on current pipeline activity from developers like Apex Homes, which announced 85 more Bay Area projects after the Josefa Street closing. [4]

The more consequential change would be Fannie Mae or Freddie Mac issuing guidelines for ADU condo loans. Without GSE backing, ADU condos remain a niche product. With it, they become a mainstream asset class overnight.

3. The RHNA Gap: Why the State Will Keep Pushing

San Jose's Regional Housing Needs Allocation (RHNA) target is 62,200 units by 2031. As of 2024, the city had permitted 2,211 units in a single year, with 3,586 total since July 2022. [7]

The math is uncomfortable. To reach 62,200 by 2031, San Jose needs roughly 6,500 to 7,000 units per year. ADUs contribute meaningfully: the city's 3,000+ permits since 2019 represent real production. But ADUs alone cannot close the gap.

Why this matters for ADU policy:

When cities fall behind RHNA, the state intervenes. HCD can decertify housing elements, which strips cities of discretionary control over housing projects (the "builder's remedy"). The political incentive for San Jose is to count every ADU permit toward RHNA compliance, which means the city is unlikely to add restrictions and is more likely to further streamline ADU approval. [7]

Prediction: By 2027, expect San Jose to expand its pre-approved plans library to include two-bedroom designs above 1,000 square feet. The current library tops out at 966 square feet (Alto Housing), leaving the most in-demand configuration without a fast-track option. [8]

4. Policies Other Cities Have That San Jose Does Not

San Jose led on AB 1033 but trails on several other fronts. Here are three policy tools used by peer cities that San Jose has not yet adopted.

San Diego: ADU Density Bonus Program

San Diego's 2026 reform package includes an ADU-specific density bonus that allows additional units beyond the standard 1 ADU + 1 JADU on qualifying single-family lots. The program is tied to affordability commitments: the owner agrees to rent at below-market rates in exchange for permission to build additional units. [9]

San Jose has no equivalent program. Given the RHNA pressure, a density bonus for affordable ADU commitments would let the city count more units toward its allocation while expanding the rental supply.

Los Angeles: ADU Standard Plan Program with Citywide Reach

Los Angeles expanded its pre-approved plan library to include designs from local architects optimized for the city's specific lot patterns, hillside conditions, and fire zones. The program includes pre-calculated Title 24 compliance packages that eliminate the most common plan check correction item. [10]

San Jose's pre-approved program is strong (21 vendors, same-day approval possible) but is dominated by prefab manufacturers. Custom-designed pre-approved plans for site-built ADUs would serve homeowners who want architecturally distinctive units on irregular lots.

Sacramento: ADU Fee Waiver for Owner-Occupied Properties

Sacramento waives permit fees for owner-occupied property owners building their first ADU, reducing out-of-pocket costs by $5,000 to $10,000. The policy targets middle-class homeowners who have the land but not the liquidity to cover upfront fees. [11]

San Jose charges $5,000 to $15,000 in permitting fees regardless of the owner's occupancy status. A fee waiver for owner-occupants building a first ADU would be a low-cost incentive with high political appeal.

5. Mayor Mahan's Factory-Built ADU Vision

Mayor Matt Mahan has advocated publicly for state housing officials to "negotiate the purchase of up to 1 million factory-made backyard homes" and has proposed fast-tracking approvals for modular home manufacturing facilities in San Jose. [12][13]

The 15-point housing plan he released includes a 30-day permit processing limit and a two-year tax holiday on local fees for new housing developments. [12]

What is realistic by 2028:

A statewide purchase of 1 million factory-built ADUs is not realistic in this timeframe. But a local pilot program is. San Jose already has 21 pre-approved vendors, several of which are prefab/modular manufacturers (Abodu, Alto Housing). A city-backed financing program that pairs a pre-approved modular ADU with a subsidized construction loan for owner-occupants could move from proposal to pilot within 18 months.

The 30-day permit processing target is ambitious given that San Jose's current standard review is 20 business days for the first round. But for pre-approved plans with complete documentation, the city already achieves same-day turnaround. The gap is in custom designs, where revision cycles push total processing to three months or more. [8]

What Should You Do Now?

If you are considering an ADU in San Jose, the current rules are already among the best in California. Here is how to position for the next two years.

Build now, not later. The 2026 development standards (4-foot setbacks, up to 1,200 square feet, two bedrooms) are locked in. Waiting for potential 2027 improvements means losing 12 to 18 months of rental income. The only scenario where waiting helps is if you are near a transit station and want to evaluate SB 79 density options first.

Design for the condo option. Even if you plan to rent initially, build with AB 1033 conversion in mind. That means separate utility connections, a separate entrance visible from the street (corner lots are ideal), and quality finishes that support a higher appraisal. The conversion process takes six months and costs $50,000 to $75,000, but the option has value even if you never exercise it. [5]

Watch the pre-approved plan library. If you want a two-bedroom unit above 1,000 square feet, you currently need a custom design. If San Jose adds larger pre-approved plans by 2027, you could save weeks on plan review and thousands in reduced fees.

Check your transit zone status. If your property is within a half mile of one of San Jose's 56 transit stations, SB 79 may create development options beyond a single ADU. Consult with an architect or the ADU Ally team (ADUally@sanjoseca.gov) to understand your full range of options before committing to one path. [2]

This article is a forward-looking analysis based on enacted legislation, announced policy proposals, and regulatory trends as of April 2026. Predictions about future policy are not guarantees. ADU rules change frequently at both the state and city level. Before committing capital, verify current requirements with the San Jose Planning Division and consult a licensed architect and land-use attorney. Nothing in this article constitutes legal, tax, or investment advice.

Planning an ADU in San Jose? ADU Pilot provides site-specific feasibility analysis, constraint mapping, and fee estimates so you can move from research to permit with confidence.

Sources

[1] SB 79 Bill Text, "Abundant and Affordable Homes Near Transit Act." Signed October 10, 2025: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB79

[2] SV@Home. "Housing Day at San Jose City Council: Decisions That Will Shape Housing Affordability": https://siliconvalleyathome.org/housing-day-at-san-jose-city-council-decisions-that-will-shape-housing-affordability/

[3] San Diego County Board of Supervisors. AB 1033 Ordinance adopted March 4, 2026, effective April 4, 2026.

[4] City of San Jose News. "Approves the First ADU Condominium in California." August 2025: https://www.sanjoseca.gov/Home/Components/News/News/6851/4699

[5] HousingWire. "ADUs could remedy America's housing crisis, but obstacles remain": https://www.housingwire.com/articles/adus-could-remedy-americas-housing-crisis-but-obstacles-remain/

[6] KQED. "San Jose developers pioneer new California law: selling ADUs as condos." August 14, 2025: https://www.kqed.org/news/12052050/san-jose-developers-pioneer-new-california-law-selling-adus-as-condos

[7] City of San Jose. PBCE Housing Production Dashboard: https://www.sanjoseca.gov/your-government/departments-offices/planning-building-code-enforcement/planning-division/development-data/permit-statistics-reports

[8] GatherADU. "San Jose's Fast-Track ADU Permitting: Does It Really Work in 2025?": https://www.gatheradu.com/blog/san-joses-fast-track-adu-permitting-does-it-really-work-in-2025

[9] City of San Diego. ADU Reform Package 2026: https://www.sandiego.gov/sites/default/files/2026-01/ib-400-august-2025.pdf

[10] City of Los Angeles Department of City Planning. ADU Resources: https://planning.lacity.gov/plans-policies/accessory-dwelling-units

[11] City of Sacramento. ADU Permit Fee Waiver Program.

[12] San Jose Spotlight. "San Jose mayor touts 15-point housing plan for California": https://sanjosespotlight.com/san-jose-mayor-touts-15-point-housing-plan-for-california/

[13] San Jose Spotlight. "San Jose mayor sees ADUs as housing crisis quick fix": https://sanjosespotlight.com/san-jose-mayor-sees-adus-as-housing-crisis-quick-fix/