Accessory Dwelling Units (ADUs) are exploding in popularity, especially with the rise of the work-from-home trend. We have studied ADUs, spoken with industry experts, and one of us even works in one.
Although the term is relatively new, accessory dwelling units have a long history as an affordable, efficient form of housing. They have also been called granny flats, carriage houses, casitas, or tiny homes. Regardless of nomenclature, some commonalties define what we now refer to with the umbrella term ADU:
- A secondary unit to a primary home. ADUs cannot be bought or sold independently. The primary home and the ADU(s) are considered one property for tax and appraisal purposes.
- Independent living space. ADUs must have private entrances, kitchens, bathrooms, and HVAC per local building codes.
- Typically a small, self-sufficient structure. ADUs are usually less than 1,000 square feet with 1–2 bedrooms. Statutes often limit the size and height of ADUs, but this varies widely by jurisdiction. Some areas allow full-size homes.
Why ADUs? Why now?
Builders have struggled to build enough homes in recent years, and ADUs are one way to satisfy pent-up demand. Home prices have risen as demand outpaces supply, creating a combined affordability and availability crisis in many US housing markets. According to one of our recent white papers, America’s Needed Housing Construction, ADUs can be a cost-effective solution for homeowners and local municipalities.
ADUs leverage existing public infrastructure to help municipalities meet their housing goals. They also allow homeowners to tap into their homes’ equity in a way that adds functionality and value to their existing property. ADUs offer the following value propositions, which vary by life stage and household type:
- Rental income to boost affordability for homeowners
- Multi-generational living, lessening the burdens of childcare and senior care
- Work-from-home spaces that serve as guest quarters or extra living spaces outside of business hours
- Affordable housing for the “missing middle” (loosely defined as something between an apartment and a single-family detached home)
The California test case
The current housing crisis is acutely felt in California’s coastal metros—Los Angeles, San Francisco, Orange County, and San Diego.
Scott Wild
Senior Vice President, Consulting
San Diego, CA
"These desirable areas have all been losing residents in recent years—in large part due to the lack of affordable housing options. Land is in short supply, and building new neighborhoods is a long and challenging process."
In anticipation of a worsening crisis, California enacted zoning changes in 2017, which makes adding ADUs to single-family lots much easier. Although the local application and interpretation of the state-wide mandate vary, the results are clear: ADU construction spiked from 1,100 in 2016 to 23,600 in 2021.
About 68K ADUs were built in California from 2017–2021, which made a small dent in the enormous gap between demand and supply for housing. The housing shortfall in Los Angeles was estimated at 250K units in 2022 alone. Although the bulk of ADU development has been in California’s large, high-cost metros, some smaller cities are also embracing the concept. ADUs represented 46% of 2022 permits for new homes in Santa Maria, a central California city with about 110K residents and a median home value of $404K.
An ADU in Los Angeles
“My wife and I chose to live in Los Angeles, despite the high cost of housing, because we both grew up in the area and most of our family also lives nearby. We bought a small fixer-upper in a great neighborhood on the west side, but with a two-year-old at home and one more on the way, we knew we would need more space.
We love the neighborhood and are two blocks away from Grandma, but the housing options are very limited in this built-out part of town. To afford a larger home, we’d be forced to relocate to a less desirable area, which would also mean moving farther away from family and giving up a lot of free childcare.
Thankfully, our dilemma coincided with the rapid rise in the acceptance of ADUs in California. Our property, which was built in the 1940s, turned out to be well-suited for an ADU.
Conner Faught
Senior Vice President, Consulting
Los Angeles, CA
"In 2020, we decided to turn our detached garage into an ADU. We hired an engineer who helped us design the floor plan and managed the approval process with the city. The entire design and permitting process took less than three months, followed by about 45 days of construction."
Most of the time, our ADU serves as my home office since JBREC allows me to work remotely (we call it connected) full-time. Having a defined, separate space steps away from the main house allows me to work from home effectively, and I can also be there when my wife and kids need me. Our ADU includes a private guest suite with a kitchenette, laundry, and a full bathroom. We also use the space as a home gym and as flex space for family time.
We are very happy with our decision to build an ADU. It provided us with the extra space we needed, allowing us to stay close to family. We definitely recommend this option to homeowners looking for a way to add value to their property and improve their quality of life without having to relocate.”
– Conner Faught, Senior Vice President, Consulting
Becoming a nationwide trend
As ADUs’ popularity rises along the West Coast, the trend is spreading eastward. Using California’s policies as a starting point, other states and municipalities are targeting similar goals. Oregon has essentially eliminated single-family zoning state-wide and now allows multiple units to be built on any lot (with required setbacks). Miami-Dade County recently began creating a legal pathway for homeowners to rent attached or detached units on their properties. The city of Denver, Colorado, is making it much easier to add ADUs to existing properties, with the stated goal of easing housing shortages by adding homes that are large enough for families.
ADUs in Denver
“In 2019, the Blueprint Denver land use plan removed many barriers to ADU construction throughout the city. Although this laid the groundwork for the ADU movement, the zoning changes related to ADUs were implemented on a neighborhood-by-neighborhood basis. Chaffee Park made headlines in 2020 when the Denver City Council approved a neighborhood-wide rezoning change allowing residents to construct ADUs without applying for individual rezoning permits. This was quickly followed by similar measures in Sloan’s Lake, Regis, and other Denver neighborhoods.
In June 2023, the City of Denver announced city-wide zoning changes to allow for larger ADUs, including two-story units that are suitable for families to live in. While this was a victory for some policymakers, residents, and builders, the approval of these stand-alone, tiny homes has not come without controversy.
Not all Denver residents are supportive of the movement. Concerns include neighborhood stability, a potential influx of short-term renters, reduced privacy, increased traffic, and parking issues.”
– Chelsea Scott, Senior Consulting Manager
Chelsea Scott
Senior Manager, Consulting
Denver, CO
"While these counterpoints are valid, they may not be sufficient to halt the momentum of the ADU movement, considering the pressing need for more housing and the shortage of affordable housing alternatives. Other cities in Colorado (and some neighboring states) are considering similar ADU strategies."
Challenges and opportunities
As Denver illustrates, ADUs are clearly gaining in popularity, but there are still obstacles to their broader acceptance.
- NIMBY-ism is the typical response to any proposal that would increase housing density. Importantly, California’s state-wide mandate made local officials much less wary of political backlash by taking some of the decisions out of their hands.
- ADUs can be costly to build. Adding an ADU is often more efficient than a home remodel because occupants don’t need to move out of the primary home. However, it is typically more costly than a new build due to the small scale of units and constrained workspaces on existing lots.
- There are concerns about parking, noise, and privacy when adding more households to existing neighborhoods.
ADU trends continue to evolve as they spread and gain momentum. Prime opportunities include:
- Adding ADUs to built-out neighborhoods unlocks them for more growth, helping areas with limited new development opportunities meet their housing needs.
- Planning ADUs into new home communities can make development more feasible for builders in outlying areas with affordability challenges.
- Prefab ADU construction can lower costs with efficient factory-built components. Start-ups are racing to fill this space.
- Homeowners can use rental income from ADUs to offset their monthly housing costs, and now they can also use this income to help qualify for mortgages.
We’ll need a diverse array of strategies to combat the housing crisis. We hope the success of ADUs will help pave the way for broader acceptance of other innovative housing solutions.
To learn more about ADUs and other housing market trends in your area, reach out to one of our local market experts.
