One of the best ways to increase active participation in neighborhoods is to increase ownership. It would seem that taking existing multi-unit homes where rentals are common and breaking them into many more small homes would be beneficial. It increases the amount of people and the management of space on a single lot.
People who own their homes have a vested interest in their neighborhoods and the community. Their property value is reflected by crime rates, cleanliness, housing condition, schools, and more. Raising the amount of home owners in San Diego also raises their interests in the community.
The mechanics of demand and supply can impact housing costs. Singles and starting families can purchase homes much cheaper than they could a much larger home. It gives them a way to build a level of equity without having to pay for all the extras they may not need. Small homes may not flatter their ego but do provide value in its fundamental purpose.
A potential detractor to this policy may depend on how many units are being converted. If developers are taking 4 unit apartments and breaking them down into 3 bungalows there isn't much advantage for San Diego housing. The goal should be to increase the effective use of land and space by adding more units to the system. Two unit multi-family houses should become three bungalows, etc...
Time will tell if the policy makes sense. If the policy works well it should be expanded to single-family neighborhoods; especially in areas in need of revitalization. As San Diego struggles with housing costs, old infrastructure, and a new generation of people who want to buy homes they will need new solutions. Some will work and some won't. It is the process of trying, learning and developing that makes all the difference in the long run.