For four decades, the standard pitch for buying in Morgan Hill has rested on one idea: the city controls how many homes get built, so values are protected. That claim is repeated on brokerage pages, in relocation guides, and by neighbors at open houses. It is also, at the moment, legally inoperative.
The Residential Development Control System that anchored the pitch has been preempted by state law since January 1, 2020, and the preemption now runs through 2030. Buyers comparing Morgan Hill to Gilroy, Los Gatos, or the South Bay are looking at 2026 comps through a framework that stopped applying six years ago. That gap between the story and the statute is where the real negotiating room sits.
The ordinance buyers still think is running
Morgan Hill's growth-control regime dates to 1977. Voters modernized it in November 2016 with Measure S, codified at Municipal Code Chapter 18.156, which set an absolute population cap of 58,200 through January 1, 2035 and limited residential allotments to 215 per calendar year. Under that system, developers competed for a fixed pool of allotments using a point score, and the scarcity of those points was the reason a Morgan Hill entitlement was worth fighting for.
That regime was overridden by Senate Bill 330, the Housing Crisis Act of 2019. The city's own SB 330 page states plainly that the law suspended Measure S, set aside the population cap, and moved housing approvals to a ministerial process based on objective criteria. SB 330 was later extended and now runs through 2030. In the city's own language, the RDCS has been suspended, and the Inclusionary Housing Ordinance the city adopted in 2018 was described in the last Housing Element as a direct response to "the loss of the City's Residential Development Control System."
Translation for a buyer: the mechanism the market has priced in for decades is not enforceable right now, and the state has told the city it will not be enforceable for the rest of the decade.
What actually governs approvals today
Three tracks now do the work RDCS used to do, and each one moves faster than the competitive allotment process it replaced.
- SB 330 (Builder's Remedy). Discretionary housing projects that follow objective standards get streamlining and optional vesting. Cities lost the ability to reduce residential density or reject projects for being too large.
- SB 35 ministerial approval. For multifamily projects, Morgan Hill's implementation requires at least 50 percent of units to serve households under 80 percent of area median income, in exchange for by-right approval.
- The Inclusionary Housing Ordinance, adopted 2018. Requires 15 percent of units below market rate citywide, 10 percent downtown, with a funding mechanism added by the City Council in December 2021 to advance projects toward the Regional Housing Needs Allocation.
For the 2015 to 2023 RHNA cycle, the city has already produced 2,203 homes against a goal of 928, which is 237 percent of the target. That is the opposite of a housing-cap posture, and the delivery gap is now weighted toward above-moderate income units, where the city still has an outstanding objective of 997 homes.
The pipeline you can actually count
The clearest way to see the shift is to look at the specific projects that were entitled or broke ground under the new rules, not the old ones.
| Project | Developer | Units | Status |
|---|---|---|---|
| Morgan Hill Apartments | Braddock and Logan (former MWest site) | 389 | Single-phase approval after SB 330 preemption |
| The Village at Madrone | Jemcor Development | 249 | Design permit approved, north of Monterey and Madrone |
| The Magnolias | Eden Housing | 65 | Groundbreaking February 13, 2026 for farmworker households |
The 389-unit Morgan Hill Apartments is the case study. Under RDCS, MWest could not secure enough allotments to build in a single phase and sued under the State Housing Accountability Act. The Santa Clara County Superior Court ruled that state law preempted the local ordinance and ordered the city to approve the application within 60 days. Braddock and Logan took over and is now building all 389 units at once.
The Village at Madrone tells a similar story. As an affordable housing project on a 7.5-acre site at Monterey Road and Madrone Parkway, Jemcor used the state density bonus law to increase zoned density by 80 percent and to secure exemptions from Morgan Hill's height, floor area ratio, and setback rules. The Magnolias, at the 17900 block of Monterey Road, is drawing partly on Santa Clara County's 2016 Measure A Affordable Housing bond, and its 65 units target households at 30 to 50 percent of area median income, which the county reports at roughly $195,000 for a family of four.
None of these projects went through RDCS. None of them would have looked the same if they had.
What the 2026 comps are actually saying
The pricing data has started to reflect the shift, and it does not read like a scarcity market.
Single-family prices in Morgan Hill have compressed year over year through the first half of 2026. Redfin's citywide read for March 2026 put the median sale price at roughly $1.2M, down 9.59 percent from a year earlier, with 39 homes sold that month. Movoto's July 2026 snapshot showed a $1.22M median list price, down 12 percent year over year, with median list price per square foot at $577, also down 4 percent. Zillow's ZHVI diverged, sitting at about $1.35M on May 31, 2026 and up 0.7 percent year over year, because ZHVI weights the full stock of homes rather than the current sale mix.
Two indexes moving in opposite directions is the story. When a market's ZHVI is flat-to-up while its median sale price and price per square foot are down high single digits, what is really happening is that the mix of what closes has shifted toward smaller and lower-priced product. That is consistent with a pipeline delivering more attached and smaller-footprint units, and with sellers of larger single-family homes sitting on price and taking longer to close. It is not the shape of a market where an ordinance is keeping supply artificially tight.
Where this shows up at the negotiating table
For a buyer writing an offer in Morgan Hill in the second half of 2026, the ordinance question is not academic. It should change three specific behaviors.
Read comps by delivery cohort, not by ZIP code. A 2019 stucco tract home entitled under RDCS is not the same asset as a 2025 attached product entitled under SB 35 or SB 330 density bonus. Both will show up in the same neighborhood comp set on any portal. Treat them separately when you evaluate your offer price and expected appreciation.
Ask what pipeline sits within a mile. The Morgan Hill Apartments, Village at Madrone, and Magnolias projects are all clustered along the Monterey Road corridor. If you are buying north of downtown or near Madrone Parkway, the near-term supply picture on your street is different from the picture on the west side or in the Holiday Lake Estates island, which the city has no current plans to annex. Ask your agent to pull the city's development projects map before you write.
Price your leverage into the offer, not the counter. With a citywide median sale price down almost 10 percent year over year in Q1 2026 and homes sitting longer, listing agents who anchor to 2022 comps are the ones you want to make first offers on. Contingency structure, credits at close, and rate-buydown asks travel further in this environment than they did two years ago.
FAQ
Could RDCS come back before 2030? Only if the state repeals or lets SB 330 lapse. As of 2026, the law has already been extended once and its preemption of local density reductions and cap ordinances is intact through January 1, 2030.
Does SB 9 change anything for single-family buyers? Yes. SB 9, effective January 1, 2022, requires the city to administratively approve two units on a single-family lot and to approve urban lot splits that meet the state's criteria. That is a quieter change than a 389-unit apartment building, but it affects what your neighbor can legally do to the parcel next door.
Is Morgan Hill still under a citywide population cap? No. SB 330 set aside the 58,200 cap that Measure S established. The cap remains in the municipal code, but it is not enforceable while state law preempts it.
Does any of this apply to unincorporated San Martin? No. San Martin is governed by Santa Clara County, not the city, and the city's growth-control history and its state preemption both stop at the city limit.
If you are comparing Morgan Hill against other South County or South Bay markets this quarter, the framework you brought with you is probably a version older than the current statute. Working with an advisor who reads the entitlement side and the comp side together is the difference between paying for a scarcity story and pricing the market that actually exists. NAVJIT SANGHA works with buyers and sellers across South Santa Clara County on exactly that read, and offers a free home valuation for owners who want to know what their property is worth under the 2026 rules, not the 2016 ones.
