For many people, the dream of owning a home is becoming harder and harder to achieve. But there is one solution that could provide more affordable housing options: ADUs. ADUs, or accessory dwelling units, are small apartments or homes that can be attached to or built beside a primary residence. And they could be part of the solution to our affordable housing crisis. They go by many names including: backyard cottage, carriage house, guest house, or even mother in law suite or granny flat. Regardless of what they are called these provide an opportunity to create new homes in our communities and provide affordable places for people to live.
There are many benefits of ADUs. They provide more affordable housing for homeowners, help seniors stay in their homes longer, and create more opportunities for shared living arrangements. They can also be an important source of income for property owners, often allowing people to afford to purchase their first home. We have found that there are three primary reasons people have come to us to start their ADU projects: building a rental unit to generate income and increase their property value, create a place for an aging family member to live, or to downsize their home while staying in the neighborhood they love while renting out the main house.
Policy
Beyond homeowners, many towns, cities, and states are looking at ADUs as one piece of the puzzle to address some of the housing issues facing our communities. Governments are enacting new policies to allow ADUs by right, make ADUs easier to permit, and open up new opportunities for ADUs to be added to a wider range of properties. These policies take many shapes from zoning code updates to incentives for homeowners to build ADUs. Some places, like Oregon, Washington, California and other states have passed laws to allow ADUs on any residential properties state wide. In California, they have taken a further step to try to make ADUs more affordable to build by providing grants for homeowners to help cover some of the costs of designing and permitting these projects.
Beyond the states that have already adopted ADU specific codes and regulations, many states are actively working on implimenting new policies to allow accessory dwelling units. New York State has a bill going through their legislature that would legalize ADUs statewide - mandating that each town/city/county add code language that allows ADUs. While many cities across the country are also adding ADU language to their zoning code.
It is clear that these projects are growing in popularity and our government representatives are hearing from homeowners in their jurisdictions who want more flexibility to add ADUs to their properties.
Affordable Housing
Although ADUs can be naturally affordable regardless of who builds it since there is no cost for the land, they are also becoming a tool governments and non profits are using to create subsidized affordable housing. For example, Portland, Oregon is allowing more than one ADU per property if one of the units is designated as a permanently affordable rental unit. This incentive is encouraging developers and homeowners to build subsidized affordable units.
Many affordable housing non-profits are also looking at ADUs as a way to increase their housing portfolio. Often community development corporations own single family homes and rent them out below market rate. ADUs allow them to add additional units to these residential properties, creating new affordable units.
There has also been experiments where cities or counties have financed the construction of ADUs on private properties, using these units as affordable or transitional housing for a set period of time, after which the land owner will own the ADU. Basically, a homeowner donates the land for a fixed time period - often around 10 years - and the city builds the ADU and offers it to someone in need. After the time period is up, the landowner takes ownership of the ADU and can rent it out themselves. This is an intriguing way to incentivize the creation of ADUs as affordable housing while making it accessible to those that may own a property but don’t have the capital or access to financing to build an ADU on their own.
Naturally Affordable
One of the best aspects of ADUs when it comes to creating affordable homes is that the land isn’t a development cost. Since homeowners already own the land, adding an accessory dwelling unit only costs the fees associated with design, permitting, and construction. This makes them naturally affordable compared to most other types of housing.
Rental Income Can Make Housing More Affordable
The other big benefit of ADUs is they can make purchasing a home more affordable for more people. If you are a young professional looking to purchase a home, finding a property with an ADU that you could rent out, could allow you to afford a property you may otherwise not have been able to. Or if you can look at properties that could easily add an ADU - like renovating the basement into a JADU or it has a backyard that could accommodate a detached unit - you may be able to stretch your budget knowing you could create another unit that would generate rental income to help offset the mortgage expenses.
Financing
Building an accessory dwelling unit is not cheap. They are significant investments and can easily cost hundreds of thousands of dollars. Financing for these projects typically takes the form of home equity line of credits or cash-out refinancing for those who don’t have the cash on hand to cover the cost of design, permitting, and construction. However, this isn’t available to every homeowner out there. Most lower or middle class families don’t have the cash available or the equity in their properties to cover the cost of an ADU.
This challenge is another place that governments and non-profits are working to address to make more ADUs and thus add affordable homes. Places like California are introducing a grant program to cover up-front soft costs for ADUs. Other places are working on creating public-private partnerships to allow more diverse loan options to help finance these projects. And like we mentioned above, some governments are even covering the cost of building the ADU in exchange for using the ADU as affordable housing for a set period of time.
It is important that more attention is paid to how much these projects cost and ways to make the money necessary to build ADUs more accessible to a wider range of homeowners. I personally would love to see it possible to finance ADUs through a typical construction loan or mortgage product.