This is the sixth installment in ADUs Explained, an Under the Lens series.
It’s easier than ever to find lawmakers, developers, housing advocates, and city planners ready to praise accessory dwelling units (ADUs) as a relatively quick and inexpensive way to create much-needed rental units. But holding up ADUs as an affordable housing solution deserves scrutiny, as they come with some significant limitations—and their increasing popularity and acceptance are creating several unintended consequences.
As recently as 20 years ago, single-family homes in Seminole Heights, a neighborhood in Tampa, Florida, could be bought for about $40,000 (that’s about $64,000 in 2022 dollars). They were small, older houses, according to Racquel Reddie, who lives and works in the neighborhood. The larger homes measured around 1,100 to 1,200 square feet.
“This was sort of a bedroom community with historic, bungalow-type homes. Even I wanted to buy one,” she says. “It was a Black and brown community. Over the years, the residents have started to change. It’s mostly, I would say, young white professionals that are moving in, taking ownership of these older homes, and doing accessory dwelling units.”
Reddie, who serves as managing director of community development for the National Community Stabilization Trust, says she’s watched as longtime residents have been bought out; those quaint bungalows now sell for upward of $700,000. The new owners often add a detached ADU in their yard. ADUs are legal in many Florida cities and counties, including Hillsborough County, where the Seminole Heights neighborhood is located. But they’re subject to use restrictions—specifically, only immediate family members or employees are allowed to live in them.
But that doesn’t always happen. For example, at the time of publication, a completely remodeled “historic charmer” was for sale on Realtor.com for $695,000. The property was listed specifically as a “turn key vacation rental.” The main bungalow is a 2-bedroom, 2-bathroom built in 1957. The listing also advertises a single-bedroom ADU and a one-bedroom “retreat” that’s brought in “11 years of income growth year over year.”
It appears new buyers in this gentrifying neighborhood are flouting the rules—building ADUs and blatantly using them as short-term rentals. “It’s not official. We don’t have a list of where the county went out and said, ‘For every inspection we did, instead of it being occupied by a family member it was being turned into an Airbnb,’” Reddie says. (City officials say ADU code compliance inspections are performed on a complaint-driven basis. Shelterforce reached out to the county to learn whether ADUs have been used as short-term rentals, but the county did not respond by press time.) But the long-term residents who are watching their new, wealthier neighbors move in feel like not only can they rarely afford to build an ADU or work their way through the city’s cumbersome permitting standards, but even if they could, their backyard cottage would be more heavily scrutinized by government officials than the white homeowners’ properties are.
“In still-historic neighborhoods, homes that have multigenerational families, the experience there was that they felt the restriction on the ADU was tighter, and it was harder to do than what they were seeing a few neighborhoods to the east of them,” says Reddie.
The instances Reddie describes are anecdotal, coming from personal observation and conversations with locals, but these issues have been studied and documented elsewhere. David Garcia, policy director at the Terner Center for Housing Innovation at UC Berkeley, studies ADUs and their effect on communities. Terner Center data shows that ADUs are “generally built mostly in affluent communities, and to the extent that we tout ADUs as a solution for building wealth and equity, it’s not accomplishing that goal as well as the policymakers would have liked to see.”
In many areas, especially those with hot housing markets, ADUs tend to benefit wealthier, often white, homeowners. Low- and medium-income homeowners who can’t afford to build an ADU and/or don’t have the knowledge to navigate the complicated design and permitting process are either priced out of building one or sometimes decide to sell their home in the face of changing neighborhood demographics and hard-to-ignore cash offers. But also, the nation’s historically unfair appraisal and lending system blocks Black and brown would-be ADU owners because the disparately lower values their homes are assigned make it harder for them to qualify for the financing they need to build one.
“If I’m a Black or BIPOC homeowner and I have a 1,250-square-foot house and mine is getting valued for $20,000 less than the same house in a neighborhood that’s just up the road, if there’s consistently a lack of additional value not being given to certain neighborhoods, it’s a double-whammy of not getting the value,” Reddie says. “You can’t increase potential wealth-building.”
In most places, including states like Florida where the real estate market is booming, low-income buyers are either outbid or flat-out can’t afford to buy a home in today’s market. But if they already own a home, building an ADU is one of the only ways low- and median-income “house-rich, cash-poor” folks can increase personal wealth, says Tom De Simone, executive director at Genesis LA, a community development financial institution that works in the ADU financing world.
“Otherwise the only way for them to realize [profit from] gentrification or property escalations is to sell their home, and then they’ve got to move to Arizona or something because where are they going to buy another house here?” he says.
Homeowners in Reddie’s Tampa neighborhood, including Reddie herself, regularly receive flyers and mail inserts offering to buy their homes, often for large sums of money. In fact, Reddie says she just pulled an Offerpad envelope out of her mailbox “telling me what they’re willing to pay for my house.”
“If you put an ADU on your property it will increase the overall value of the property and eventually increase your wealth,” she says. “But from the standpoint of education, if you think about these communities that have been around a long time—like grandma used to own the house—and now someone is giving [them] big money to move, they don’t even recognize they could be building wealth by just staying there.”
But even with the knowledge that being bought out of current ownership won’t likely earn cash-strapped sellers enough profit to buy again, these deals often sound too inviting to ignore for homeowners in rapidly gentrifying neighborhoods. As a former Fannie Mae manager and former vice president of Regions Bank, Reddie knows hanging onto real estate will serve her better in the long run, but many homeowners in similarly situated areas either don’t know the ramifications of selling or are pulled in by the cash offer.
[RELATED ARTICLE: A Home’s True Worth—Getting Beyond Appraisal Bias]
“There’s a lot of education that needs to happen and if we don’t start talking about it now, I don’t think we’ll be able to move the dial on it for those Black and brown communities that may want to build an ADU but don’t know how to do it,” Reddie says.
But educating existing homeowners won’t help if they simply can’t afford to take advantage of the wealth-building opportunity owning an ADU would offer. “If we look at cities, are we finding that [ADUs] are built more in the ZIP codes where you’re above 120 percent AMI? If we look at the 80 percent [AMI households], are they able to tap into their home’s equity to do the same thing?” Reddie says.
Research indicates they’re not. A 2018 Racial Equity Toolkit on Policies for Accessory Dwelling Units in Seattle found that wealthy white homeowners benefit most from ADU policies. More recently, an analysis in San Francisco determined that most ADUs were being built in affluent neighborhoods—even after the city streamlined the permitting process in an attempt to encourage ADU development. Without a specific financing mechanism in place to fund ADU construction, most homeowners are priced out.
“You can’t get a mortgage for an ADU like you can for a single-family home. It’s hard to get a construction loan for an ADU,” Garcia says. “So, generally speaking, what we’ve found is that you can only build ADUs by either using cash savings or taking out equity from your home, like a home equity line of credit. Both of those are really only options for affluent homeowners.”
Given ADUs’ newfound popularity, legalizing them can be a relatively light lift for politicians. In fact, ADUs have become mainstream enough that in February the White House held a webinar singing their praises, and just yesterday the Biden administration published an action plan restating the federal government’s commitment to “exploring avenues to help lenders pilot and scale renovation and construction financing for ADUs—particularly for low- and moderate-income homeowners.” But considering the difficulty most lawmakers have getting affordable housing developments funded, it could be argued that rezoning single-family residential areas to allow the “gentle density” of ADU development offers politicians a policy pass. By legalizing ADUs, local lawmakers can claim they’re addressing the housing shortage without tackling larger issues such as the glaring need for funding more public housing, creation of units affordable to very-low-income renters or currently unhoused people who require additional services, and/or revamping inclusionary zoning or tax credit allowances.
In California, for example, Sen. Dave Min voted in favor of Senate Bill 9—which expanded the state’s already-loose ADU laws and allowed many single-family property owners to subdivide their lots and add another full-size home—but also carried Senate Bill 719, amending existing state code to reduce the number of units in certain “surplus land” developments that must be rent to low-income and very-low-income renters. Opponents of SB719 say its passage “would subvert the legal responsibility … to prioritize affordable housing.”
And while ADUs’ infill potential and comparatively cheaper development and rental costs make them attractive, they alone can’t solve the nation’s housing crisis. Even if ADUs became legal and permittable in every city in every state, they can’t be built or delivered quickly enough to supply the millions of units the nation needs, for several reasons. First, they’re built piecemeal, as single units, and at the whims of private homeowners. Not only that, but the nation is experiencing severe supply chain disruptions and the subsequent delays of building materials while also grappling with a construction labor shortage. Even if all zoning barriers were removed and every homeowner who wanted to build an ADU could legally do so, ramped-up production couldn’t match multifamily apartment complexes in terms of sheer capacity and scale. A single ADU takes between 12 and 18 months from permitting to completion. A multifamily building with 20-plus units averaged 19.7 months to build (after permitting, a process that varies by location), according to National Association of Home Builders estimates.
[RELATED ARTICLE: Tiny Houses — Not a Big Enough Solution]
California, for example—arguably the nation’s most ADU-friendly state—is home to 17 million renters. As of early 2021, 7.1 million of them were living in poverty when factoring in housing costs, and 56 percent of those renters spent more than half of their monthly income on rent. California also had more than 160,000 people experiencing homelessness on any given day as of 2020. Studies show the state needs 3.5 million additional homes by 2025 to satisfy current demand and account for new population growth. If an ADU of some type were built on every feasible property (which is highly unlikely) that would still only amount to about 2.5 million units. And that’s just one state.
Louis Mirante, who serves on the board of the Casita Coalition and is legislative director for California YIMBY (both organizations are active proponents of ADUs), says that even with exponential growth of ADU development, the housing crisis can’t be solved without substantial public commitment to building affordable housing.
“We need the federal government to commit massive amounts of money—much more than the government is committing now—to the production of new affordable housing. That’s especially important for California’s homeless population, for folks who are in extremely low incomes, folks who need wraparound services,” he says. “Just building one type of housing is never going to be enough. We need an all-hands-on-deck, all-tools-in-the-toolbox approach to building all different types of housing.”
Not Family-Sized or Family-Priced
ADU square footage is constrained by many factors—lot size, setback allowances, height restrictions, city ordinances, and, in some cases, neighbor approval. Additionally, because ADUs must be an “accessory” to a main home, their total square footage is often limited. For example, in Portland, Oregon, ADUs’ square footage can be no greater than 75 percent of the primary dwelling. Other places set local ordinances limiting their size in relation to the overall lot size or available open space.
Due in part to these limitations, Portland garage units tend to be about 400 square feet, basement ADUs top out at about 600 square feet, and detached units average around 700 square feet of living space. For comparison, the typical 2-bedroom apartment is 882 square feet.
Whatever the jurisdiction’s size limitations, the fact is ADUs are typically built as either studios or 1-bedrooms. For example, in California, which has more ADUs than any other state (30 percent of the 1.5 million total units), 86 percent of the renter-occupied ADUs have no more than two people living in them. While smaller units are needed, they won’t be enough on their own, and in many places larger families face a particularly acute housing crunch.
These size constraints mean families with children usually can’t fit in ADUs, if they can even afford them—and they often can’t. In San Diego, one builder was allowed several development perks, such as waived infrastructure fees and setback variances, by the San Diego Housing Commission based on a commitment to keeping the units “rent restricted” by commission-set standards. Even so, the developer was able to charge $2,000 per month for a 480-square-foot ADU. In Vancouver, British Columbia, ADUs (called “laneway homes”) are incredibly popular and easy to permit. They’re also fairly small, ranging from 600 to 900 square feet, and expensive, renting for about $3,000 per month.
[RELATED ARTICLE: Are Tiny Homes a Piece of the Affordable Housing Puzzle?]
Karen Chapple, director of the School of Cities at the University of Toronto, says her research has determined that ADUs are popular with “a high-income, white demographic building for themselves. In fact, in my interviews there were a couple of design-build firms. I started talking about affordability and they looked at me horrified that I would bring that term into the conversation, and said, ‘We don’t do affordable housing and we don’t want to think of [ADUs] as that kind of product.’”
Homeowners as Landlords
When advocating for ADUs as the solution for the nation’s housing crisis, proponents sometimes seem to forget that they’re privately owned units subject to the whims of their individual owners. There’s no guarantee they’ll be used as rentals, remain as rentals, or, as Chapple learned, be rented at rates affordable to most renters.
Chapple also found that placing deed restrictions on ADUs that required the units to be rented to lower-income folks hindered development. In Piedmont, California, which experimented with allowing homeowners to build larger ADUs in exchange for a 10-year deed restriction requiring they rent to low-income tenants, ADU construction “didn’t take off, and the few people who did do it were renting to [a family member] who was low income.”
Landlord support is among the missing pieces of the puzzle if homeowners are to be asked to build and rent ADUs. Even for homeowners who can self-finance or qualify to have an ADU built, getting a project organized, permitted, and underway is a heavy lift. Adding landlord responsibilities on top of development and construction is daunting enough to deter many homeowners from considering renting to an arm’s-length tenant. “On top of all the other responsibilities homeowners have, becoming a landlord is too intimidating or daunting to take on” for many, Garcia says.
To lower-income homeowners like those in Reddie’s sphere, landlord duties are not only intimidating, they can be financially devastating if done improperly. “If you’re not in this business, you can get really hurt by not knowing enough about the laws and the timelines for when things need to happen,” Reddie says. “There are a lot of things you have to know, and you almost feel like you need an attorney sometimes to meet those timelines or you can get sued. So here I am just trying to build an ADU to get some income and someone’s trying to sue me.”
One of Many Solutions
Even most ADU proponents recognize that the housing crisis the U.S. is battling is too big for ADUs to fix on their own. Sherry Taylor, an asset manager at Durham Community Land Trustees, a Durham, North Carolina, nonprofit that’s piloting a program to use a land trust model of ownership to build ADUs, says “this is not a silver bullet.”
“Here in Durham we need 16,000 units [of housing] just for the people who are already here, and that doesn’t count those who are rent burdened. It does not include those who are energy burdened,” she says. “So ADUs are just not enough. We need, in my view, the whole football team. We need the small-scale developers. We need the nonprofits. We need the large developers. And we need the homeowners to do ADUs. We need it all.”
Renee Schomp also sees ADUs as part of the solution. Schomp is the director of the Napa Sonoma ADU Center, a California project sponsored by Napa Valley Community Foundation. The Napa Sonoma ADU Center is currently piloting several programs intended to make ADU construction and development accessible to homeowners at various income levels. The project offers free services such as feasibility consults and custom project cost breakdowns. Clients are also provided with a connection to Redwood Credit Union, which has created an ADU-specific loan product aimed at “opening up financing to homeowners who otherwise may not be able to afford to build an ADU,” Schomp wrote in an email. The Napa Sonoma ADU Center team also created a set of recommendations for local governments that identifies parts of the ADU development process that could be made financially viable for more homeowners via government subsidization.
“I think it’s great to have certain pieces be more local, like the feasibility consults,” Schomp says. “It’s a good idea to have it stood up within a region, and I think the model of [parts of] it being paid for by local government and/or local community foundations either housed with the local government or with a local nonprofit is really great. I also think we need state and federal subsidies of those local programs.”
Walter Jaegerhaus, an architect and proponent of “walkable, compact cities” who’s written about ADUs, says they “might be a perfectly legitimate tool in a big toolkit that has a variety of options in it,” but he also believes that by throwing too much political weight and resources behind ADUs as a solution the nation is missing a larger problem, which is that continuing to build in a largely suburbia-oriented landscape means continuing to back an existing model of urban design that helped create the housing shortage in the first place.
“Suburbia is the problem, and ADUs, in their best form, are a slightly positive addition to a suburban framework. But it’s not a fix for suburbia to become something else,” he says. “We don’t offer people choices anymore. We’re just giving them something and saying, ‘You have to live in this because it’s the only thing there is. We are sort of stomping our feet and saying, ‘Hey, we invented suburbia, we’re gonna do it until we die.’ Well, the end result might be we die.”
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ADUs constitute a very tiny part of solving the affordable housing problem — and ADUs can become part of the problem. In Evanston, IL, speculators are buying up large homes, adding one ADU, and then placing 6 college students in a house + ADU at exorbitant rents — pricing out Evanston residents of modest incomes. This isn’t happening just around Northwestern University. It’s also happening on the edges of Evanston’s Black enclaves. It is critical that if a jurisdiction allows ADUs, that it require that the homeowner live in either the primary house or the ADU.
The important truth about ADU’s is that they are a much needed component of housing affordability. I have owned and lived in three homes (since 1977) that have each had an ADU in the rear yard, and they each served a valuable purpose for my family. They are certainly not the total answer to our nation’s affordable housing issues, however.