Or 6-7 smaller houses and sell them for ~$1m each.

Not on a 13k square foot lot!

But yeah, that has happened elsewhere in the Bay Area. (Zoning tends to prevent it, though, so there's an element of regulatory arbitrage.)

You could definitely fit that many units in a 13k square foot lot. Fitting a narrow format house on a 2k square foot lot (40x50') is plenty doable. Even more so if they have some adjoining party walls, as with townhomes.

Though as you mention, zoning may prevent it. Some areas have 5,000 s.f. minimum lot sizes.

This should be illegal. There's no good reason why you shouldn't be able to split up your 13,000 sq ft lot into smaller lots and sell those separately if you want to. Setting some reasonable state right-to-split-lots bill might go a long way to helping solve the housing crisis.

A little late response to this, but many of the minimum lot size laws are rooted in historical racism and classism to prevent people of the wrong type from being able to move in to the neighborhood. In many areas there is a lot of foot dragging to change any of it. Typically the language used to oppose it is "traffic" or "neighborhood feel."

My lot in Seattle is 1500 sq feet. You can definitely subdivide 13k into 6-7 lots if zoning allows it.