Are you a homeowner thinking about creating a rental unit — known as an accessory dwelling unit or ADU — in your backyard? Investing in an ADU for long- or short-term rentals — such as Airbnb — can produce revenue to help cover household and other expenses.
Or it can financially benefit a multigenerational family by housing a young or aging relative, or by providing living quarters for an employed domestic caretaker or housekeeper.
ADUs are a hot topic of late for two reasons. On the one hand, some zoning ordinances now allow creation of an ADU on a single-family home property under certain conditions, stimulating homeowner interest. Likewise, housing advocates and urban planners see ADUs as a means to augment affordable housing opportunities by modestly increasing residential densities in neighborhoods where lots are sufficiently wide and deep.
On the other hand, in metropolitan Washington and other jurisdictions across the country, many community residents and local government officials, along with hotel owners and operators, are fretting about potentially adverse effects of short-term rentals. Homeowners linked with Airbnb-like entities likewise worry.
Prince George’s County recently banned most short-term home rentals. And the D.C. Council is considering legislation limiting short-term rentals in lower-density residential zones, thereby constraining Airbnb-type opportunities in the city.
What fiscal and regulatory policies are needed? How should jurisdictions deal with questions such as business licensing fees applicable to short-term rental lodging; levying, reporting and collecting taxes on short-term rental income; equitable property tax assessments for homes used as real estate rental businesses; and ensuring that rental homes comply with safety, health and other regulations. Many homeowners affiliated with Airbnb reportedly are unlicensed, their properties uninspected.
Yet other risks and potential negative impacts of ADUs and short-term home rentals are fueling anxiety and opposition: changing neighborhood character and demographics associated with increasing density; residential neighborhood commercialization; infrastructure overload, including schools; on-street parking demand and competition; reduced residential market values yet possibly rising property taxes based on commercialization; and noise, truck traffic and debris associated with disruptive new construction on moderately sized lots facing relative narrow subdivision streets.
Homeowners seeking to create a legal ADU face another daunting challenge: the onerous, always complex process of designing, financing, dealing with zoning regulations, obtaining permits, negotiating contracts, effectuating utility hookups and finally building a free-standing, backyard ADU they can afford. Even creating a lawful apartment in a basement or atop a garage can be difficult.
Building a free-standing, 250-square-foot ADU with a bathroom and compact kitchen can be as complicated as building an entirely new, three-story, 2,500-square-foot house. For the latter, the direct labor and material construction costs will be proportionately higher. But other costs and development challenges are likely to be comparable.
Homeowners can undertake building a backyard ADU in two ways. One approach is to be the master developer. This requires searching out, negotiating contracts with and then coordinating the work of design consultants — architect and engineers — and various contractors responsible for site preparation, extending and connecting utilities, ADU construction and landscaping, all of which entail continuous cost estimating. Additionally, the homeowner would be responsible for procuring financing, along with helping consultants and contractors obtain necessary building permits.
The alternative approach entails hiring a private building company that specializes in constructing backyard ADUs on a turnkey basis. Such companies coordinate, manage and assume responsibility for completing most of the tasks needed to build an ADU. A few companies can deliver and assemble pre-designed structures using prefabricated components, which can save time and some costs.
However, the homeowner still would be responsible for project financing as well as working closely with the turnkey developer to select a design, obtain permits and ensure that construction work is performed in accordance with contract plans and specifications.
Either approach necessitates first doing an ADU feasibility analysis. Three basic questions must be posed and answered by the homeowner. Does the property have sufficient space, access from a street or alley, and available utility access and capacity to build an ADU in compliance with zoning regulations and building codes? What will be the probable total cost and therefore the necessary financial investment for creating a backyard ADU? And will available financial resources, including projected ADU rental income, cover all building costs, additional mortgage servicing costs and increased costs for utilities, insurance and taxes.
The ultimate feasibility question is: Will creating the ADU be affordable and the return on investment worthwhile? A thorough feasibility analysis is indispensable for deciding whether to undertake the ADU project. Moreover, prospective lending institutions, consultants, contractors and government regulatory officials would want assurance of project feasibility.
Creating a free-standing ADU on a residential lot in an appropriate neighborhood can be a prudent, commendable idea for homeowners, their families and their communities. But building a backyard ADU should be undertaken only with ample diligence and professional development expertise.
Roger K. Lewis is a retired practicing architect, a professor emeritus of architecture at the University of Maryland and a regular guest commentator on “The Kojo Nnamdi Show” on WAMU (88.5 FM).