How Senate Bill AB 1033 Impacts California's Housing Market

California has never shied away from housing reform, and with the passage of Assembly Bill 1033 (AB 1033), the state is once again reshaping what's possible for homeowners and buyers.

This time, the change centers around Accessory Dwelling Units, or ADUs, the increasingly popular backyard cottages, garage conversions, and detached in-law suites that have gained traction in communities across the state. As of January 1, 2024, AB 1033 unlocks a new prospect for these small-scale properties: ADUs can now be sold as independently owned condominiums in participating cities.

It's a subtle but significant shift, but one that could transform how Californians build wealth, expand ownership, and maximize property value.

Signed into law by Governor Gavin Newsom in October 2023, AB 1033 amends California's Government Code to allow cities and counties to opt in to a new framework: homeowners can construct ADUs and sell them separately from the primary residence—subject to the same rules that govern the sale of condominiums.

In practical terms, this means:

• A property owner in a participating city can build an ADU and sell it to a separate buyer.
• That ADU becomes a legally distinct unit with its own title, financing, and property tax bill.
• Like any condo arrangement, the home and ADU share common elements—such as a driveway or roof—managed by a homeowners association (HOA).

AB1033 signals a significant evolution from previous ADU laws, which limited their use to rental or family occupancy only, keeping them legally attached to the primary property and therefore ineligible for resale or separate financing.

The implementation of AB 1033 is straightforward in structure but nuanced in practice. To take advantage of this new opportunity, homeowners must:

• Live in a participating city, as AB 1033 is not a statewide mandate, and local jurisdictions must opt in through ordinance to permit ADU-to-condo conversions.
  
  
• Comply with condo subdivision laws, undergo a legal subdivision process, and receive separate utility connections for water, gas, electricity, and sewer.
  
  
• Form a homeowners association to manage shared property elements and assess dues to maintain exterior areas, including driveways, landscaping, and roofs.
  
  
• Notify utility providers of the creation and conveyance of a separate residential unit.

Once completed, the property will effectively function like a small-scale condo project—two separate ownership entities on a single lot, each with its own tax ID, deed, and financial obligations, including individual property taxes.

AB 1033 introduces a new level of flexibility for California homeowners—particularly those in high-cost urban and suburban markets.

Homeowners who build an ADU can sell it to generate equity, helping to offset construction costs or fund future investments. The opportunity introduces a partial exit strategy for those who want to downsize, age in place, or share property value with heirs or business partners.

For multigenerational families, it offers the possibility of intergenerational wealth transfer via deeded homeownership.

In competitive markets where even entry-level homes can exceed $1 million, a converted ADU-turned-condo could offer affordable entry points into desirable neighborhoods.

AB 1033 opens the door to ownership in historically exclusive areas, increasing diversity and access.

Local jurisdictions opting into AB 1033 may benefit from increased housing density without fundamentally altering neighborhood character.

More housing units also mean higher cumulative property tax revenues, which support infrastructure and services.

At its core, AB 1033 is a homeownership tool that informs land use policy. While earlier ADU legislation expanded rental supply, this new law emphasizes ownership, potentially creating micro-condo markets within single-family neighborhoods.

Here's what that could mean moving forward:

ADUs offer a way to increase housing organically, one parcel at a time. With the ability to sell these units separately, developers and homeowners now have a stronger incentive to build, resulting in more housing options in mature, high-demand neighborhoods without waiting on major apartment projects or zoning overhauls.

Unlike urban high-rise condos, AB 1033 properties will likely be standalone, small-scale dwellings—offering the charm and privacy of a single-family home, but with the accessibility and pricing of a condo.

For buyers seeking that balance—especially professionals, retirees, and downsizing couples—this creates a new class of residential product.

Mortgage lenders, title companies, and insurers will need to adapt to accommodate these hybrid property types. While similar to small condo associations, there are legal and procedural differences that may impact loan underwriting, appraisal standards, and resale considerations.

Real estate agents and attorneys representing clients should be well-versed in the specifics—especially given that each participating city may have different local rules governing approvals.

As with any policy shift, there are practical and philosophical concerns:

• Local Opt-In Requirement: AB 1033 only applies in cities and counties that choose to participate. Many may take a wait-and-see approach or resist due to neighborhood preservation pressures.
  
  
• HOA Governance: Homeowners must manage or join a legally recognized HOA, which adds administrative complexity and shared responsibility.
  
  
• Financing Hurdles: Buyers of standalone ADU condos may initially encounter limited lender options, as financing standards for these homes evolve.
  
  
• Market Perception: In some luxury markets, condo-classified ADUs may face market resistance or valuation challenges—especially where detached homes carry social prestige.

Assembly Bill 1033 doesn't mandate massive density. It doesn't rezone entire neighborhoods. What it does is open the door to a more nuanced form of homeownership—one that blends the flexibility of ADU construction with the freedom of property resale.

For homeowners looking to maximize value, for buyers seeking new entry points, and for cities interested in gentle density with fiscal upside, AB 1033 may be one of the most impactful housing reforms in recent memory.

The success of this legislation will ultimately depend on local adoption, market education, and continued innovation in how we approach housing in California. But the opportunities are real now that the foundation exists and is ready for those to act.

Uncertain if your city has or plans to opt in to AB 1033 or have questions about how Senate Bill AB 1033 could impact you and your current or future homeowner goals? Or looking for more California real estate guidance? Whether you're navigating a luxury transaction or want to understand the fine print behind the paperwork, contact Consumer's Title Company today. Our team's extensive experience and range of services across all 58 counties in California promise the support and guidance you need to acquire, sell, or protect your most vital asset.