What SB‑21 does (in plain English)

1) Confirms replacement rules for “protected units,” and counts replacements toward affordability quotas—including acutely low-income
When a project would demolish “protected units,” the bill maintains the core rule of the Housing Crisis Act: to replace the units and preserve overall site unit counts from the last five years.  Crucially, replaced protected units now also count toward set-aside requirements that include the acutely low-income band (below extremely low), closing a prior gap in affordability accounting.

2) Creates a targeted flexibility for SRO rehab/replacement
Cities and counties may reduce the number of required replacement units only if the change is needed to: convert tiny SRO rooms into larger units (e.g., studios), add private bathrooms/kitchens or community rooms, improve disability access, or fix health/safety/code issues—and only with long-term affordability covenants (generally 55 years).  Definitions are clearly outlined (what constitutes a complete private bathroom, kitchen, studio, and SRO).

3) Sets timelines and process checks
Conversions must be completed within four years of demolition/rehab, with a one-year extension available if delays are outside the sponsor’s control and supported by evidence.  Jurisdictions must base any reduction decision on “substantial evidence” in the record.

4) Strengthens tenant protections and rehousing pathways
Expect advance notice, relocation benefits, and a right of first refusal to return to a comparable, affordable unit after rehabilitation.  Some summaries indicate that the bill also eases coordinated-entry requirements (for sure displaced SRO tenants), streamlining placements for those with documented histories of homelessness or ties to supportive services.  

5) Amends code sections to “fit” the SRO use case
The enacted measure amends Gov. Code §66300.6, adds §66300.6.5, and adds Health & Safety Code §50406.6, aligning the replacement rules with SRO realities under the Housing Crisis Act architecture.  (Nota bene: the bill’s early “introduced” version addressed a different subject; SB‑21 was later gutted and amended to the SRO focus.)

Where SB‑21 sits in the legal ecosystem

The Housing Crisis Act of 2019 (SB 330) limited local downzoning and set no-net-loss expectations for protected units.  SB-21 doesn’t rip that up; it refines it for SRO scenarios by allowing jurisdictions to trade some unit count for quality and accessibility upgrades—with affordability locked in and replacement obligations still central.  Think surgical carve‑out, not a broad exemption.

Effective date and votes.  SB-21 was approved on October 10, 2025, and will generally take effect as of January 1, 2026.  Votes were unanimous or near‑unanimous: 39‑0 in the Senate, 79‑0 in the Assembly, with routine consent‑calendar movement in committees.

Who’s affected

• Nonprofit SRO owners/operators: Pathway to modernize unsustainable buildings (shared baths, code issues) without violating rigid one-for-one replacement.  Still must meet affordability and timeline tests.
• Cities & counties: New discretion—but also new record‑building burdens (substantial evidence findings, plan review, and covenant monitoring over 55 years).
• Developers and lenders: SB-21 provides a more transparent compliance structure and the ability to propose unit mix changes with market study support in replacement plans.  This flexibility is designed to empower developers and lenders, making them feel optimistic about the potential of SB-21.
• Tenants: SB-21 ensures stronger procedural rights, prioritized return options, and streamlined eligibility for homeless assistance when displaced during SRO rehab.  This prioritization of tenant rights under SB-21 is designed to make tenants feel secure and valued.

Compliance essentials (checklist)

• Establish a “protected unit” baseline (a five-year lookback of the maximum on-site units) and propose a replacement housing plan; replacements count toward affordability, including acutely low-income tiers.
• Document the necessity of any unit reduction for SRO conversion (private bathrooms/kitchens, accessibility, health/safety) with substantial evidence.
• Record covenants ensuring affordability ≥55 years; align rents with the replaced unit’s affordability level (subject to funding‑source constraints).
• Plan the timeline: completion in 4 years (+1 year extension if justified).  Develop contingency plans and permitting schedules to safeguard eligibility and ensure compliance.
• Tenant protections: provide notices, relocation, and right of first refusal; confirm whether coordinated‑entry exemptions apply for displaced SRO residents in your jurisdictional implementation.

Economic implications (deep dive)

1) Capital stack stress—and why SB‑21 can still pencil

Replacing units and recording 55-year affordability covenants caps potential revenue, even as SRO rehabs absorb significant capital expenditures (in-unit bathrooms/kitchens, ADA work, and life safety improvements).  Expect higher dependence on subsidy layers (9%/4% LIHTC, tax-exempt bonds, local soft loans, project-based vouchers) to bridge operating deficits.  The flexibility to reduce some replacement units (where justified) can restore feasibility by converting micro-SROs into code-compliant studios with better rent support and lower turnover costs.  

Illustrative pro forma (hypothetical): Converting a 100-room SRO to 80 deed-restricted studios with private baths/kitchens may raise hard costs by approximately $100–$150k per door (plumbing chases, electrical, fire/life safety).  Even with a lower unit count, stabilized operating margins can improve through lower vacancy rates, fewer code violations, and better rent collection—especially when paired with vouchers or operating subsidies.  (Assumptions for illustration only.)

2) Land value and corridor stabilization

Because SB-21 maintains no-net-loss logic but allows targeted unit reductions to achieve habitability and accessibility, it may stabilize values in older corridors.  Sites that were previously unfinanceable can transact again, but speculative “scrape and rebuild” upside remains capped by affordability rules.  This nudges capital toward mission-aligned sponsors and public-private deals rather than pure market-rate plays.

3) Public‑sector outlays and oversight

Jurisdictions gain discretion—and the duty to document findings and monitor covenants over decades.  Expect administrative costs for plan reviews, compliance checks, and enforcement.  The trade-off is fewer intractable blighted SROs and better health/safety outcomes—reducing downstream costs in health, fire, and emergency services.

4) Labor market spillovers

Preserving ultra-low-rent units near job centers reduces the displacement of service-sector workers, improving workforce reliability and local consumer spending—benefits that traditional ROI overlooks but municipalities prize.  Counting replacements toward acutely low-income targets explicitly channels scarce resources to households with the deepest needs.

5) Lender and investor lens

SB‑21’s more straightforward path to compliance reduces policy risk.  Lenders will still underwrite to construction complexity (vertical wet stacks, asbestos/lead abatement, egress upgrades), but predictable rules on replacement, timelines, and affordability covenants reduce approval uncertainty.  Deal structures that combine public soft debt with conventional senior debt can now underwrite a plausible exit—or a permanent takeout via bonds/LIHTC.

How SB‑21 interacts with your other California playbooks

• SB-330 / Housing Crisis Act: SB-21 is a refinement that maintains a no-net-loss policy while tailoring SRO replacements; it does not green-light wholesale unit loss.  [alcl.assembly.ca.gov]
• SB-326 & SB-721 (building inspections for condos/multifamily): While these focus on structural safety (exterior elevated elements, reserve studies), their compliance costs are prompting owners to consider repositioning or rehabilitation.  SB‑21 offers a parallel path for SRO stock, particularly where life‑safety or habitability upgrades are unavoidable.  (Contextual linkage; SB‑21 governs SRO replacement/rehab, not EEE inspections.)

Process & timelines, step‑by‑step

•   Pre-design diligence
1.   Confirm protected unit status and five-year baseline counts; prepare a replacement housing plan indicating affordability levels (including acutely low income).
•   SRO conversion findings
1.   If seeking unit‑reduction, compile substantial evidence that the reduction is necessary for private baths/kitchens, accessibility, or code compliance; align with definitions in the statute and committee analyses.
•   Tenant engagement
1.   Deliver notices, relocation benefits, and right of first refusal; evaluate whether coordinated‑entry exemptions apply to your tenant cohort during displacement.  [veto.app],
•   Entitlement & permits
1.   Expect local review of your replacement plan; many jurisdictions will adopt 30-day administrative checks before issuance (as reflected in bill summaries).  Bake that into your schedule.
•   Delivery & covenanting
1.   Complete within 4 years (with a possible 1-year extension on a documented record).  Record covenants for ≥55 years and set rents at or below the replaced unit’s affordability—subject to funding‑source rules.

Frequently asked questions

Does SB-21 allow me to reduce units to improve project returns?
No.  Any reduction must be necessary to achieve specified outcomes (amenities, accessibility, or code) and must be supported by substantial evidence in the record, with long affordability covenants.

Do replacements “count” toward my local inclusionary %?
Yes—SB‑21 clarifies that replaced protected units are counted toward affordability requirements, explicitly including acutely low-income thresholds.  

What if my timeline slips?
Projects must be completed within four years; a one-year extension is available only if the delay-causing factors are outside your control and are documented.  Plan for supply chain and utility tap contingencies.

When is SB‑21 effective?
Chaptered 10 October 2025.  As a non-urgent bill, it becomes operative on 1 January 2026, unless localities adopt interim implementing guidance sooner.

Risks, blind spots, and open questions

• Administrative bottlenecks: Cities gain discretion but must build records and monitor covenants for decades—capacity varies widely.  Expect uneven early implementation.
• Funding‑source friction: Where funding layers cap rents or occupancy, reconciling those rules with SB‑21’s rent‑parity expectation may require waivers or alternative compliance findings.
• Tenant placement pathways: The reported coordinated‑entry exemptions will need careful local interpretation to avoid conflicts with Continuum of Care policies. ,

Recommendations for practitioners

For owners & developers

• Front‑load feasibility with two design options: strict one-for-one replacement vs. SB‑21 SRO conversion (bath/kitchen/ADA).  Compare NPV under differing voucher penetration and soft‑debt assumptions.
• Commission a market study to defend unit sizes and mix in the replacement plan; some bill trackers explicitly note this tool.
• Stage resident transition plans early—map temporary relocation housing, service connections, and the right‑of‑return pipeline.

For lenders & investors

• Underwrite to construction complexity (wet stacks, risers, abatement, egress) and timeline risk; require milestone covenants keyed to the four-year clock.
• Seek public‑sector credit enhancements (soft seconds, reserves) where acutely low‑income covenants constrain NOI.  

For cities & counties

• Publish administrative guidance on evidence standards for unit‑reduction findings and 30-day plan reviews; pre-package covenant templates to streamline closings.

Closing take

SB‑21 doesn’t deregulate SROs; it re-regulates them for rehabilitation with dignity.  It preserves the moral core of no‑net‑loss while recognizing that habitability sometimes requires fewer, better homes—so long as they remain affordable for decades and residents aren’t left behind.  For mission-oriented developers, lenders, and cities, that’s the kind of clarity that can move stalled projects from concept to closing.

Citations & primary sources

• Bill status & chaptering: SB‑21, Chapter 511 (10/10/2025), roll call, History and latest text summary.  [legiscan.com], [fastdemocracy.com]
• Committee analysis (definitions, timelines, evidence, 55-year covenants): Assembly Local Government, 7/16/2025. [alcl.assembly.ca.gov]
• Affordability counting (including acutely low income) & SRO flexibility summaries: CalMatters Digital Democracy and TrackBill. [calmatters... org], [trackbill.com]
• Coordinated‑entry and displacement handling (summary sources): Veeto overview; BillTrack50 analysis.  [veto.app], [billtrack50.com]
• Legal frame (Housing Crisis Act / SB‑330 text): Statutory backdrop for protected‑unit rules and no‑net‑loss logic. [leginfo.le...ure.ca.gov]
• General effective‑date rule: California Secretary of State “Bill Chapters.” [sos.ca.gov]