I know this will sound a little silly but do you have a db directory just
below the application root? Rails should have created it.

Do you have permission to access that directory?
Do you have permission to create files in that directory?

Maybe the application directory was created by a different user to the user
who is running the db:create

Does the file db/development.sqlite3 already exist?
What permissions does it have?

If it does not already exist what happens when you do this from the
application root

$ touch db/development.sqlite3

It should just create the file for you.

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