The Housing Loophole Arms Race
Cities keep finding ways around pro-housing laws
One city declared itself mountain lion habitat to block new homes. Another simply pretends state law doesn’t exist. California has passed hundreds of pro-housing laws over the past decade, and cities have worked just as hard to find ways around them.
The most creative loopholes reveal a deeper problem: The state legislature’s boldest interventions warp local planning incentives in ways nobody intended. A handful of cities are now fighting new public transit to block housing; others deliberately limit their density to avoid state bonuses.
Ultimately, the response by local governments to modest state reforms reveals why states should broadly override local authority over land use rather than making targeted changes—and emphasizes why the housing movement still depends on local organizing.
Rich cities fight transit to circumvent state law
Many of California’s most significant pro-housing laws only apply within a half mile of major transit stops. ”Major transit stop” generally includes trains like Amtrak, rail like BART in the Bay Area, and high-frequency bus stops with two or more major routes receiving service every 20 minutes during peak commute times.
Two laws in particular tie housing to transit access: AB 2097 (2021), which eliminated parking requirements; and SB 79 (2025), which will allow 6-7 story buildings within a half mile of many major transit stops starting in July 2026.
Both laws have led to a small but motivated backlash against public transportation in a handful of California’s most expensive jurisdictions.
Most prominently, Atherton (median home value $8 million) supported closure of its Caltrain line in 2020 and is now actively fighting a bus corridor expansion. Though the Caltrain station closure has some confounding factors1, city leaders have been clear about why they oppose bus lanes:
This corridor would connect two of the region’s most transit-dependent communities with high-frequency buses, but it would also put a corner of Atherton within reach of the dreaded state laws. Ergo, Atherton now opposes the bus route.
In Southern California, residents of Burbank are fighting a similar battle over the expansion of a Bus Rapid Transit line through the city’s downtown. The battle simmered for years before SB 79’s passage, but the specter of greater housing has inspired louder opposition. Such pressure led Los Angeles’s transit agency to formally oppose SB 79 for fear the law “has become a catalyst for local opposition to Metro’s transit projects.”
While housing-induced backlash against transit is real, it creates a sort of Catch 22. Public transit only works when people live close enough to ride it. Multi million- or billion-dollar public investments should optimize the public benefit, including public access. If cities don’t want people to live near their public transportation, they are not the best places to build public transit in the first place.
Even when transit-oriented housing laws apply, cities often find ways to circumvent their impact. A 2025 research paper by UC Davis professor Amy Lee and coauthors found that, after AB 2097 eliminated parking minimums, some cities still enforced their rules through strategic interpretation of legal definitions and informal norms. While laws like AB 2097 and SB 79 are backstopped by other legislation streamlining the upfront project approval process, cities continue to exert backdoor authority through the post-entitlement process for building permits.
Transit-oriented housing laws may yet lead to a building boom—I am personally quite excited about SB 79—but they cannot single-handedly force California cities to build or support future transit expansions.
“Density Bonus” inspires lower local densities
Another set of high-impact laws, California’s density bonus law, allow developers to receive more density than local zoning allows in exchange for providing low-income housing.
Density bonus in California has an additional benefit even more powerful than the extra height and density: A set of “concessions and waivers” that developers can use to ignore any local zoning rule or design standard. Concessions and waivers in density bonus laws give developers flexibility to ignore many of a city’s zoning regulations.
Because of its flexibility, density bonus has become California’s most widely used housing program, according to a recent report by Circulate Planning & Policy, a statewide housing advocacy organization. Almost half of all multi-family homes approved in California in 2024 leverage density bonus to sidestep a wide variety of rules, including setbacks, Floor Area Ratios, density caps, lot coverage maximums, parking minimums, even expensive local union labor standards.2
Cities have responded to density bonus law by seeking to limit their own local densities or circumvent the law entirely. While SB 330 (Skinner), another California state law, generally prevents “downzonings” for density decreases, nothing stops cities from declining to upzone as much in the future.
In San Mateo, a mid-sized city between San Francisco and San Jose, the City began planning in 2018 to allow as much as 12 stories of height under local zoning, increasing a 5-story cap that had been in place since 1990. However, due to concerns about density bonus, the city chose in 2024 to increase its maximum height to 8 stories, under the assumption that maximum density bonus rules would allow buildings as tall as 16 stories.
A six-year planning process resulted in just three stories of local maximum height increase on a few hundred parcels, largely because of the warped incentives created by density bonus.3
In Palo Alto, at the center of Silicon Valley, the city has found a way to avoid density bonus altogether.
Specifically, Palo Alto has pursued several new zoning programs exclusive with state density bonus: A developer may choose to use the new local zoning program and get more generous density, or they may use the old, much more restrictive zoning and access state density bonus, but not both.
For example, in 2025 Palo Alto theoretically allowed more housing along a major road corridor called El Camino Real by implementing a new zone, the El Camino Real Focus Area. However, the code has a quirk:
El Camino Real Focus Area sites may, as an alternative to State Density Bonus Law [emphasis added], meet base district regulations as modified by Table 3. Housing Development Projects that utilize State Density Bonus Law shall be subject to base district standards or standards provided in Tables 1 and 2, as applicable.
Tables 1 and 2 provide much more restrictive zoning standards than Table 3. No amount of density bonus will allow a developer using the Table 1 or 2 zoning to achieve the standards available under the Focus Area, so any rational developer will choose the Focus Area over the flexibility of density bonus.4 However, the Focus Area remains so prescriptive that most developers using it have still had to ask for discretionary waivers—meaning developers cannot avail themselves to any of the state streamlining laws that otherwise speed up permitting in California.
The state could partially override the perverse incentives of density bonus by simply making the bonus bigger and bigger: Right now it allows 100% density increase; why not 200%? 500%? Name a percent increase, density bonus could permit it. Yet local zoning to circumvent density bonuses can always render the full toolkit of state legislation, including the density bonuses themselves, functionally useless. And there’s a more direct approach that avoids these perverse incentives entirely.
Ending the Loophole Arms Race Once and For All
California’s state legislature could avoid perverse incentives by broadly preempting local zoning and permitting authority, Japan-style. Japan has a single national zoning code that broadly permits multi-family housing and mixed-use small businesses, a stark contrast to America’s thousands of bespoke local codes with strict separation of uses and elaborate design standards.
With less direct control over private land use, cities would rush to plan for transit to accommodate growth in new areas. Density bonus would become less relevant toos as base zoning directly permits housing without all the bells and whistles.
However, much as I may fantasize about broad zoning preemption, such proposals remain politically impossible in the U.S. Just legalizing housing near transit in California required a series of political gymnastics, squeaking through the legislature at each step. A few weeks ago, some state legislators introduced legislation to delay SB 79’s implementation, though it’s unlikely to pass.
In our current political reality, state law is no substitute for local organizing. Cities will continue to seek loopholes until they have support from their residents to embrace new homes, and residents will only embrace new homes if they believe housing will make their neighborhoods more vibrant, safe, livable.
A handful of powerful success stories illustrate the promise of state and local coordination. Most starkly, Berkeley—the originator of single-family-only zoning and a longtime anti-housing stronghold—has come to embrace state law after the 2024 election swept a definitive pro-housing mayor and council majority into office. Local zoning reforms paired with density bonus have unleashed a building boom for the first time in more than 50 years. The city looks set to adopt SB 79 without complaint. Sacramento can write powerful laws, but the arms race ends when cities start wanting to build.
Atherton’s Caltrain station closure occurred before AB 2097’s passage in anticipation of future legislation tying housing to transit. It also occurred in part because of low ridership leading to financial pressure. However, the city had long refused to allow denser housing near the station and council members explicitly cited the prospect of laws like AB 2097 in their support of the Caltrain closure, so there’s something of a chicken and egg problem.
Though density bonus concessions can be used to opt out of expensive local labor standards, some state legislators supported by powerful unions have proposed legislation to prevent using concessions for such a purpose.
To the City’s credit, despite only increasing maximum heights from 5 to 8 stories, San Mateo had so much pent-up demand that the city has experienced a wave of development applications in 2025 greater than anywhere else in the Bay Area on a per capita basis. Yet the city could have unlocked even more potential had it not sought to limit the impact of density bonus.
For those who really want to know about the structure of Palo Alto’s local density bonus program: If using the Focus Area zoning, projects can receive a height limit of 85 feet, a Floor Area Ratio of 4, a lot coverage of as much as 80%, and unlimited density. That gets pretty close to allowing a 6- to 8-story building.
If using State Density Bonus Law, a project faces a maximum height limit of 40 feet in the best case (often lower), Floor Area Ratio of 1, 45% maximum lot coverage, and at most, 40 homes per acre. That’s a 3-story building max.
No use of state density bonus can achieve the benefits of the Focus Area, but the Focus Area itself remains too restrictive to accommodate most projects.
Good article! This is just rephrasing your argument with a different analogy, but I think there’s unfortunately a real comp between bills like SB79 and the downsides of IZ. Lots of cities, like you pointed out, essentially see new housing density as solely a “cost”. So SB79 makes transit more expensive because it forces the city to “pay” for their transit with even more density.
Great piece. Thanks for covering Circulate's report.
I tweeted about it: https://x.com/i/status/2048086412717916226