"Many of the changes in front of us today seem small but can actually make a really significant difference," Councilmember Stephen Whitburn said in May, as the City Council approved San Diego's annual Land Development Code update 7–0. The package had 134 amendments. For anyone who owns or is underwriting a small multifamily property in Mission Hills or Hillcrest, one of them matters most. It shrank the development impact fee waiver that made sub-500-square-foot apartments the cheapest product to build under the Complete Communities Housing Solutions program.
The rule took effect July 15, 2026, outside the Coastal Zone. It changes which kind of new unit gets a fee break. That is a question about your future competition, and it hits a different part of the rental market than the micro-unit debate would suggest.
A per-unit fee costs small apartments the most per square foot
Development impact fees fund parks, fire service, libraries and mobility. San Diego charges them per dwelling unit, in size tiers. The city's Fiscal Year 2027 multifamily schedule puts the four citywide components at $17,342 for a unit of 500 square feet or less. The top tier, 1,301 square feet and up, pays $27,583. Spread those numbers over the floor area they buy:
| Unit (FY 2027 citywide schedule) | Fee per unit | Fee per square foot |
|---|---|---|
| 288 sq ft micro-unit | $17,342 | about $60 |
| 500 sq ft unit | $17,342 | about $35 |
| 1,301 sq ft unit | $27,583 | about $21 |
| Sub-500 sq ft unit with full CCHS waiver, pre-July 2026 | $0 | $0 |
On the base schedule, a micro-unit pays almost three times as much per square foot as a large unit. Uptown's own community fee table works the same way. It charges a flat $15,899 per dwelling unit regardless of size. Under the city's SB 330 transition exception, that community fee applies through FY 2029 when it is lower than the citywide fee. The 25% Transit Priority Area discount applies only to the Parks portion of the citywide fee. So it lowers the bill without changing the per-square-foot math.
The base fee structure never favored micro-units. The waiver did. Before the 2026 amendment, a CCHS project that reached at least 120% of its base zone's maximum density could have fees waived on every unit of 500 square feet or less. There was no cap and no bedroom condition. The most heavily charged unit per square foot became the one unit that could carry no fee at all. The Union-Tribune reported that the incentive was costing the city about $11 million a year in developer fees.
What changed on July 15
City Planning first proposed eliminating the small-unit waiver altogether. On March 5, 2026, the Land Use and Housing Committee voted 4–0 to keep it with two conditions. Councilmembers Lee, Elo-Rivera, Whitburn and Moreno voted yes. The current San Diego Municipal Code text reads:
Up to 30 percent of the total number of dwelling units that do not exceed 500 square feet, provided that at least 10 percent or more of the total dwelling units in the development are at least three bedroom dwelling units.
The 120%-of-base-density threshold still applies. The city's July 2026 information bulletin gives an example. In a 120-unit project, at most 36 small units could have fees waived, and the project would also need at least 12 three-bedroom units. A building made up entirely of studios has no three-bedroom units, so under the new rule it gets no small-unit waiver at all. The city described the cap and the bedroom requirement as a way to encourage larger homes while keeping infrastructure funding.
The lot at Fort Stockton and Goldfinch
The vacant corner at Fort Stockton Drive and Goldfinch Street shows the old incentive. Doug Poole, who chairs the Mission Hills Community Review Council, described the proposal for 820 Fort Stockton in a May 2026 Union-Tribune op-ed. He wrote that it would be a 12-story building of 120 units, all about 288 square feet, with no parking and five affordable units. He wrote that the city was processing it ministerially under CCHS. He also wrote that the community's attorney had objected that the project's floor area ratio of 8.68 exceeds the program's 8.0 maximum.
The city's own permit record for the project raises questions that a buyer near this lot would need answered. It shows "Record Status: Recheck Required." It describes a 12-story, 120-unit mixed-use project, and the Complete Communities Housing Solutions field is marked "No." The application opened May 14, 2025, and is set to expire August 5, 2027. The city materials we reviewed don't say whether an application already in review keeps the old waiver terms. So whether the July rule applies to this site is still open, and only the Development Services Department can answer it for this specific project.
In an August 27 OB Rag column, Poole reported no permit activity since February or March 2026 and 17 open deficiencies, with height and affordable-unit count the most significant. He also cited county records showing a $9.5 million refinance in March 2026. That loan was secured against a combined site of 816–818 and 820 Fort Stockton Drive plus 4061 Goldfinch Street. His own guess was that the owners would lower the height and add affordable units to get a permit. Whatever happens, the assemblage is larger than the original parcel, and that matters to anyone tracking what could eventually rise on that block.
Where the studios are landing
The micro-units already open in Uptown are leasing into a soft market. CoStar figures reported by the Union-Tribune on July 1, 2026, put county apartment vacancy at 6.2% at the end of June. That was the highest in more than 25 years, above the 2009 peak of 5.7%. CoStar's Balboa Park submarket covers Hillcrest, North Park, University Heights and South Park. It averaged $2,173 a month at the end of June 2026, down 0.2% from a year earlier, with 6.9% vacancy. The same report described competing properties offering one month of free rent or more.
Those concessions show up on Hillcrest's own blocks. As of September 30, 2026, 10th & Robinson advertised up to three months free on a 22-month lease, and Denizen advertised up to eight weeks free on select units. Both offers are subject to terms and availability. At the small end of the market, the Union-Tribune reported in April 2025 that Sason Lofts at 901 W. Washington St. opened in 2024 with 54 studios averaging 300 square feet and an average rent of $2,105. Poole's op-ed says a comparable 53-unit micro-unit building one block from the Fort Stockton site was at roughly 57% occupancy after more than two years. That is his figure; we did not find independent occupancy reporting to confirm it.
Taken together, the waiver produced studio supply that is now competing on concessions, and the new rule ties any remaining waiver to three-bedroom units. For an owner of a duplex, triplex or fourplex with one- and two-bedroom units, the near-term competition is mostly a different product. Over a longer horizon, the CCHS projects that still want a fee break will have to include family-size bedroom counts. Our earlier look at how Hillcrest's 2–4 unit zoning had already changed covered the density side of this story. The fee side decides which unit sizes get built on that density.
Reading competing supply before you underwrite
When a vacant or assembled lot sits near a small multifamily property you are pricing, these checks belong in the analysis alongside rent comps:
- Pull the project's Accela record and note its status, application dates and whether the CCHS field is marked. The 820 Fort Stockton record shows how a public description and the city's own record can disagree.
- Ask Development Services whether the project's application predates July 15, 2026, and which waiver terms it is being reviewed under.
- Count the proposed bedrooms. A plan with no three-bedroom units cannot use the small-unit waiver under the current rule.
- Model rents against the concessions nearby buildings are advertising, not just their asking rents.
- Stress-test your own unit mix against both scenarios: studio-heavy supply nearby now, and larger-unit CCHS supply later.
Our Mission Hills small multifamily deal analysis walks through the income side of that same underwriting.
FAQ
Did San Diego eliminate the micro-unit fee waiver? No. Planning proposed eliminating it, but the adopted rule keeps a capped version. Projects that hit 120% of base density can have fees waived on up to 30% of their units under 500 square feet, provided at least 10% of all units have three or more bedrooms.
Does the new rule apply to 820 Fort Stockton Drive? Public records don't settle it. The application opened in May 2025, before the July 15, 2026 effective date, and the city materials we reviewed do not address grandfathering for applications in review.
Is the waiver the only fee break for small units? No. The Transit Priority Area discount takes 25% off the Parks portion of the citywide fee for qualifying projects, and Uptown's community fee is a flat $15,899 per unit.
If you own or are pricing a 2–4 unit property near an Uptown development site, Emerson Group can run a property performance analysis that tests your rents against the supply these fee rules are likely to produce. To talk through how that affects a hold, sale or 1031 exchange, schedule a Wealth Call.
