Homeownership, once a cornerstone of the “American dream,” has been slowly slipping out of reach for many. According to a recent survey by the New York Federal Reserve Bank, renters put the probability that they will own a home in the future at just 40.1%, an ever-dwindling number. It’s not just high interest rates; the United States is contending with an immense inventory shortage — 4.5 million more homes are needed to meet demand. One increasingly popular solution? Accessory dwelling units, also known as ADUs (or granny flats, in-law units, backyard cottages and carriage houses, to name a few terms).
What exactly is an ADU?
An ADU is a secondary housing unit on a single-family residential lot. It could be detached new construction, a converted garage or shed, construction within the main property to create a separate living area — think basement or attic area, among other options. Different cities have different zoning laws when it comes to ADUs, but the sector has been exploding in recent years, as cities seek to create more affordable housing.
Rachel Ginis, senior construction project manager for Hello Housing, an affordable housing nonprofit specializing in infill housing projects, oversees the organization’s ADU program. This program helps with everything from determining feasibility, design and planning, to permitting, construction and leasing ADU’s out.
“We work with jurisdictions to help homeowners develop these units, because jurisdictions are looking to homeowners to build their most affordable housing,” she said. “We don’t have stepping stones to housing anymore. There used to be boarding houses, there used to be room and board, there used to be group homes, there used to be public toilets. If you could work a day, you could get housed a day, and that doesn’t really exist anymore. That was all taken down, you know, in the development of highways and the single family home.”
A burgeoning trend and a throwback to an earlier way of cohabitating
Ginis, who is also a LEED-accredited designer and builder, said the concept of an ADU recalls a different era of how people lived.
“It’s just moving our housing stock back to the way we used to live in our homes prior to 1950,” she said. “It was really common to have a child or a parent living with you, you would have two generations in the home.”
Nearly one-fifth of all housing units added in California last year were ADUs, according to a California Department of Finance report. And the trend is reflected across the country, with many governments offering financial assistance and incentives. Several states and cities have rolled out pilot programs in recent years, including New York and Chicago, while others like Boston and Portland have more established programs.
Gary Chen, a California-based software engineer, is one of many who have taken advantage of ADU-friendly zoning laws. He was in the market to buy a house, but a single-family home felt excessive for just one person. An ADU ended up being an ideal solution.
“I figured it would be less of a hassle living with someone else, and it would be a good investment opportunity as well,” he said.
He purchased a three-bedroom, two-bathroom home with a detached garage, which he converted into ADU that he now lives in, documenting and sharing his experience with others who were interested in doing the same.
The importance of doing your research
While many jurisdictions provide guidance regarding the ADU process, Chen said there there’s a pretty extreme learning curve.
“I basically had to be a project manager,” he said. “’It might be obvious, but [i suggest to] definitely compare more than a couple of contractors. I interviewed like 15 of them and I was quoted anything from $100,000 to $600,000, which is a huge range.”
Ginis of Hello Housing also emphasized how crucial it is to understand the scope of what you’re undertaking.
“You need to understand the construction industry and know good design; unfortunately, people aren’t designers ,people aren’t builders,” she said. “They have no idea if they’re even being told the truth. One of the biggest tricks is [companies] are like, ‘oh, yeah, we’re going to help you. We’re A to Z. We’re a turnkey operation.’ But they are a business. They’re just showing you what they want to show you so that they can make a profit, and how does the homeowner know what they’re not seeing? How do they know what they don’t know? People often come to us when they’re in a bind, and bar none, the later I get into a project the more I’m cleaning up.”
A path to homeownership and more
Income generated by an ADU can open up a path to homeownership to those who wouldn’t be able to afford it otherwise. They also significantly increase the value of a property.
Chen rents out the main home on his property to long-term tenants, which covers about 80% of his mortgage, but for him it’s more about the sustained investment.
“The general consensus is that building an AUD like mine adds a very decent amount of value to your property value when you sell it,” he said. “It’s more than just whatever it cost to build it, it’s the opportunity cost and the time. So in terms of that financial return, that makes me very secure about my ADU investment.”
But It’s about more than just the money
“I think [AUDs] are a vital, vital part of the housing future,” Ginis said. “We’re not only putting back together multifamily housing, but we’re allowing people to create community in their homes.”
Check your jurisdiction’s rules regarding ADUs here.