Affordable housing advocates promote ADUs as a way to modestly increase housing stock without drastically altering the neighborhoods that surround them, and a steady stream of new city, county and state regulations is making them easier to build.
“There has been a dramatic uptick in ADU regulatory relaxation over the last few years,” said Kol Peterson of Portland, Ore., author of “Backdoor Revolution: The Definitive Guide to ADU Development.”
“A number of cities and states have come to the conclusion that ADUs are a good thing and that they should put forth enabling legislation to hopefully spur their development,” added Peterson, who is also the owner of Accessory Dwelling Strategies, a company dedicated to ADU-related education, advocacy and consulting.
Cities that have eased or are looking to ease regulations for these units include Evanston, Ill.; Greenfield, Mass.; Maplewood and Princeton, N.J.; and Edmonds, Wash. Missoula, Mont., home of the University of Montana, relaxed ADU regulations in October, raising the maximum allowed height to 25 feet, and removing requirements for owner occupancy and parking.
Also studying the concept are Chicago, which is allowing ADUs under a pilot program, and Alexandria, Va. Perhaps most notably, California and Oregon have passed statewide legislation making ADUs easier to build, which is reflected in recent statistics.
In California, legislative changes helped pave the way for an 11-fold increase in ADU permits between 2016 and 2019 — just 1,269 permits were issued in 2016, which increased to 14,702 in 2019. Los Angeles alone issued 15 ADU permits in 2013, 80 in 2016, then 2,342 in 2017 and 6,747 in 2019.
The numbers could prove to be even higher in 2020 thanks to another round of new California laws aimed at further promoting ADU construction.
Building Blocks constructs 350- to 1,200-square-foot housing units and converts garages into ADUs for homeowners in the Los Angeles area seeking to earn rental income, said Jason Neville, the company’s CEO. The structures range from studios to three-bedroom units, and cost an average of $300 a square foot to build, he said.
“I started three years ago and now am working on my 11th one,” Neville said. Other builders in the space are “small-scale businesses like mine. We’re ma and pa companies employing other ma and pa companies.”
“The major factors in favor of ADUs are affordability and flexibility,” said Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division. “The share of entry-level homes has declined a lot, yet demand has more than outstripped the declining new supply that’s coming out of the market.”
That’s especially true in the high-cost, low-density metropolitan areas of the West Coast.
ADUs fell out of favor starting in the 1950s as suburbanization and zoning codes discouraged their creation. Even so, many were built illegally in the ensuing decades.
Freddie Mac released a research report in July that attempted to identify how many ADUs there are, legal or not, by text-mining 600 million MLS (multiple listing service) transactions from 1997 through 2019 and searching for the various terms used to describe ADUs.
The research found striking growth in ADUs, jumping from less than 2,000 listings per month in 1997 to more than 12,000 in 2018. Between 2009 and 2019, the number of first-time ADU listings averaged 8.6 percent in year-over-year growth. Those figures could also be set to jump as cities and states change codes in favor of accessory units.
As a percentage, ADUs remain a very small part of the overall housing stock. At peak in 2019, the share of active for-sale listings with ADUs reached just 6.8 percent.
Many experts agree that granny flats and in-law suites will go only a small way toward easing America’s affordable housing crisis, mostly because they are built at an individual level rather than on a large scale. In a way that’s an advantage — their small impact doesn’t alter neighborhood character or add a bunch of new cars to the roads. The flip side is they’re more of a small tool in the box than a full-scale solution to affordability problems.
So far, though, the new ADUs in Los Angeles generally rent at market rate, said Neville of Building Blocks. He said he believes that will change once more are constructed. “The reason rents are so high is we have a housing shortage,” Neville said. “Building a handful of units whether ADUs or bigger projects isn’t going to solve the problem of low supply of houses. We need a lot more houses built.”
Christina Stacy, a senior research associate at the Urban Institute, is working with the Alexandria city government on a policy that would allow legal ADUs in the city for the first time. Stacy said she sees ADUs as a good option for seniors who can live on the same piece of land as family members, or for younger people dealing with a tough labor market.
“ADUs can enhance affordability for renters, and can help some lower-income homeowners to rent a place to pay their mortgage and stay in place,” she said, adding that the units can add “gentle density.”
Alexandria held virtual town halls and gathered input last year ahead of a scheduled Jan. 23 City Council vote on the proposed policy.
Even if one is implemented, getting actual backyard homes built is another challenge. Neighboring Arlington, Va., allows ADUs, but has seen just 45 of them built over the past 11 years. A lack of familiarity with the concept is one hurdle to clear. Another is getting financing for a unit, which often costs at least $100,000.
“Because they are not as prevalent as single-family homes or multifamily, banks haven’t come up with a lot of financing options for ADUs,” Stacy said. “Studies have found that financing is the biggest hurdle for people who want to build an ADU.”
That’s the problem Self-Help Federal Credit Union ran into when it launched a program to help its members build ADUs in Los Angeles and San Diego. The credit union partnered with community organizations to try to aid homeowners with financing in exchange for renting their ADUs to Section 8 tenants for at least five years. The theoretical math works out: An ADU might add $1,000 to a mortgage, but bring in $1,400 or $1,500 in rental income. But after a year and a half, just one unit has been built through the program, with two more in the works.
“There is so much promise and potential with ADUs, and yet the devil is in the details,” said Sarah Brennan, a senior vice president managing Self-Help’s market presence in Southern California. “Most homeowners don’t have the experience necessary with architects, with managing a general contractor, with going to city hall to get permits.”
Banks are often unfamiliar with ADUs and thus reluctant to lend at favorable interest rates. Another issue for Self-Help is that it serves customers with mostly low and moderate incomes.
Ebonée Green understands both sides of the ADU issue. She lives in Chicago, and is an organizer with groups including Black Youth Project 100.
Green rents a garden unit, an attached ADU connected to a main dwelling that sits partially underground, in the South Shore neighborhood. She describes it as a clean, well-decorated place where anyone would want to live.
But a decade ago, she was forced due to the recession to move to a less-than-desirable ADU in the Uptown area. She eventually discovered a leak in the foundation that caused the place to mildew, and had trouble getting the landlord to fix it. The experience left her more cautious about why ADUs are affordable.
“My concern about ADUs is that they seem like such a great idea — and I work with affordable housing so anything that increases housing stock is great — but we have to be careful because a lot of ADUs are affordable because they’re not exactly legal,” she said. “For every one you find that is nice like the one I’m in now, you’ll find one that’s really just a basement with a bathroom.”
Green’s roommate Reggie Tucker added: “There definitely needs to be oversight [of the ADU landlords]. If there’s no oversight it would be the wild, wild west, and that brings its own set of problems.”
ADU advocates like Peterson counter that allowing the units can help bring them up to code since more will be built legally. Green isn’t against them, but she wants to be sure any ADU regulations are built with the tenant in mind as well as the owner.
“It’s exciting because we get to open up housing stock, but what housing stock are we opening up?” Green said. “It still doesn’t absolve the city from the protections they need to keep for renters.”