A one-stop source about accessory dwelling units, multigenerational homes, laneway houses, ADUs, granny flats, in-law units…
[This is the 11th post in my 13-part series on accessory dwelling unit research and policy. See the series intro and table of contents.]
“Laneway houses,” “granny flats,” “multigenerational homes” — no matter what you call them, ADUs have been on the cusp of being the “next big thing” for thirty years. Periodically they are rediscovered by some interest group (from AARP to preppers) and it seems like they are about to explode into bloom all over the country. But then they don’t.
Why is that?
It turns out there are dozens of barriers in the way of a successful ADU project, and I’m going to list many of them here. If you’re an opponent of ADUs, you’ll want to keep those barriers in place. If you’re an advocate, you’ll want to remove as many as possible. But, I’ll argue, there are other forces at play besides the maneuvering and rule-writing of activists, no matter what side they’re on. The local economy, and family dynamics, can easily overwhelm civic policy when homeowners consider creating ADUs.
The conventional approach to the question of “What are the barriers to ADU development?” is to immediately jump into an analysis of government laws, regulations, zoning standards, etc, which I will lump into a single large category of barriers simply called the “Rules”. Researchers like Antoninetti and Brinig & Garnett argue that even in places that technically “allow” or “encourage” ADUs, the Rules are sufficiently difficult to meet that the production of permitted ADUs is near zero.
I believe there is a lot of truth to that argument, but I also believe it’s a HUGE mistake to focus on the Rules as if they were the only thing that mattered. First, it’s naive to assume that people will follow the Rules — in many cases they will simply create unpermitted ADUs. Second, it’s equally naive to assume that if all the Rules were abandoned, a million glorious and fully permitted ADUs would pop into existence, like the desert after a rainstorm. For better or worse, there are things besides the Rules that hold ADU development back.
To see how limited the influence of the Rules can be, consider two metropolitan areas.
To understand what’s happening in these cities, it’s helpful to go back to the data about who develops ADUs and why they do it.
The research shows that ADU developers:
The homeowner-developers of ADUs create their secondary dwellings for a mix of financial and family reasons:
In short, ADUs are an informal, “grassroots” kind of development that responds to very basic household and family needs. Those household and family needs will continue to exist, and homeowners will continue to search for ways to satisfy them, no matter what the Rules say. And when those needs get strong enough, or the incentives to build are powerful enough, ADUs will be created, with or without the Rules.
This explains the situation in the Bay Area, where housing has been infamously expensive in recent decades. Many households would be glad to have some extra income — and some extra income is available to them, if they have a rental unit. The rental market is tight, and anything halfway habitable can be rented out. In such a situation, even normally law-abiding people are willing to skirt the Rules and create unpermitted ADUs. This has happened so frequently I’ve heard of blocks in Berkeley and Oakland where practically every garage has been converted into an apartment.
On a more personal level, I’ve observed the same kind of thing happen via family dynamics instead of economic pressure. Often a family has a special person they desperately want to house separately but nearby — for example a grandparent, or an adult child. An apartment is created for them — in a wing, a basement, or a garage. Some years later, this apartment is no longer needed, and becomes a rentable unit. Permitted or not, it’s still there.
Personally, I’m not a big fan of unpermitted ADUs, especially as rentals. I feel like their secret nature obscures the true economic value of ADUs, and I also know that many are substandard and unsafe. I would much prefer rental dwellings to be inspected and permitted, and for secret lifestyles to come out into the light so that everybody can understand how people really live.
Nonetheless the abundance of unpermitted ADUs demonstrates this: Economic and family necessity have the power to overwhelm the Rules. Even an iron-clad set of Rules will not stop the creation of unpermitted ADUs when economic and/or family dynamics are strong enough.
The situation in Portland is equally revealing — despite the relative paucity of Rules (no requirement to provide parking, no requirement for owner occupancy), a very tight rental market, and >140,000 eligible properties, permitted ADUs are still present at <1% of places where they would be allowed. Even the recent “boom” in ADU construction is still a small fragment of residential construction activity. One must ask, why aren’t there thousands more permitted ADUs in Portland? If it’s not the Rules that are stopping ADU developers in Portland, what is it?
Again, it’s useful to remember who develops ADUs and why they tend to do it. ADU developers are typical homeowners with economic and family motivations. They are not, for the most part, rich enough to simply pay for a major construction project out of pocket, and they are not experienced real estate pros. So it is no surprise that the survey of Portland ADU owners showed that the biggest challenges ADU developers faced were:
In short, ADUs are significant construction projects which take a long time to work through — especially for developers who are homeowners, and not experienced real estate pros.
With that as a way to put things in perspective, let me now list some of the many barriers to ADU development that have been mentioned in different sources. I’ll separate it into two parts. First, Rules that act as barriers, and second, barriers that pop up even when the Rules have been dealt with. Feel free to chime in, in the Comments, if you can think of any additional barriers.
|Rules that act as barriers||Notes|
|ADUs not allowed “as of right”||When a homeowner must go through a special “conditional use” or “discretionary action” process before their ADU can be permitted, it makes the whole ADU development project more of a gamble. It is not clear if the ADU can be built.|
|Minimum lot size required||ADUs are often prohibited on smaller lots.|
|Offstreet parking required for ADU||This appears to be a significant and often unnecessary barrier. In places with small lots, it may be impossible to find the room to place new dedicated parking spaces. Meanwhile, there is no evidence that ADUs contribute to neighborhood parking problems.|
|Owner occupancy is required on the property||The owner occupancy requirement reduces the flexibility of future uses of the property, which may be a discouragement to development in the first place.|
|ADU must meet affordable housing terms (rare)||Occasionally ADU programs have offered some sort of subsidy or financing, on the condition that the resulting housing unit fit some definition of affordability.|
|Permits and systems development charges (SDCs) are extremely expensive||Portland saw a significant uptick in ADU construction after SDCs (usually $8000+) were waived.|
|Design constraints||Common and widely accepted conditions about ADUs concern their maximum area and height, their distance from property lines, their style in relation to the primary dwelling, etc. These may act as barriers for some homeowners.|
Rules like the ones above, Brinig & Garnett argue, can be sufficiently complex and daunting that they bring permitted ADU development down close to zero.
For the lucky or skilled homeowners who can satisfy or bypass these Rules, they have not yet reached the end of the gauntlet. Other, non-governmental challenges await.
|Barriers beyond the Rules||Notes|
|ADUs are expensive to build||This may be the largest single factor restricting ADU development in places like Portland, where Rules are relatively lenient. How does an average homeowner get the money together?|
|Appraisals for properties with ADUs assign arbitrary low contributory values to the ADUs||Inaccurate appraisals, apparently encouraged by GSEs, tend to assume that all ADUs are illegal or are worth very little. This affects sales, refinancings, and construction loans.|
|It is difficult or impossible to get bank financing for ADU construction.||ADU-specific lending programs are very rare, and the problems with appraisals discourage traditional lending.|
|Homeowner-developer is inexperienced at dealing with planning & permitting process.||This is not a small matter. Homeowners who do not know the ins and outs of this process, and do not have sufficient help from those with experience, may become extremely discouraged and give up.|
After listing all these roadblocks, I find it a little remarkable that any ADUs get built at all. 🙂
The fact that some do get built – and that a few of them are actually permitted – demonstrates the strong natural appeal of this kind of development.
For a homeowner, an ADU is a fairly simple, organic idea — to extend the property a bit by creating a nearby cottage for a grandparent, or an apartment above the garage that helps pay the mortgage. It’s as American as Fonzie and Mr. Cunningham. But turning that simple idea into reality, even in the absence of strong Rules, is currently a major challenge.
ADU opponents might actually take some comfort in that fact. Because ADUs are challenging to create, it is very unlikely that ADUs will suddenly become ubiquitous in any neighborhood. Even in the extremely “permissive” city of Portland, where Rules are lenient, it will probably take decades more for ADUs to be present on even 5% of the city’s single family properties.
Meanwhile, ADU advocates might look at this list and decide to embolden their positions. Because ADUs are challenging to create, small changes to the Rules are likely to have even smaller effects on the number of ADUs actually constructed. If ADUs are actually meant to contribute to the quantity of housing in an urban area, and not just be token examples of a good idea, then barriers — both governmental Rules, and nongovernmental challenges — will have to be taken down wholesale.
That’s probably what it will take to finally, really make ADUs the next big thing.
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My city is charging about $8,000 in impact fees and school fees for a “secondary dwelling unit”. Then there are still thousands of dollars for water, sewer, and gas connection fees. This is discouraging since they are charging almost the same amount as if I was building a new 4 bedroom house on a different parcel.
Essentially they are charging impact fees twice; once for the main dwelling, and again for the secondary dwelling, they should be giving concessions instead!
What city are you in, Diana? Are you creating an ADU?
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Although I have not scoured the site, I see no mention of what happens w/in the city of Portland, Oregon when the SALE of real property with one rental ADU onsite (rental property=business activity) occurs. According to what I can find online, the property owner MAY be responsible for paying taxes on the gains for that business activity. Are you here at accessorydwellings.org aware of that? I sold a duplex in 2012 and paid the city over $1000 in taxes on that sale. The Portland business tax exemption for fewer than 10 rental units was omitted in 2012. This seems completely contrary to Urban Growth Boundary and “build denser better” approaches. And how will ADU’s portion of property value gain be determined? As a percentage of the whole residential property sale value? Will you address this? You may have the leverage to ask and get a response from the City of Portland.
Curious, I have never heard of this. But if you paid $1000 on the sale of a duplex, which is pretty similar, it’s clear something is going on. Eli, you know anything about this tax offhand?
It occurs to me that, if the tax is related to “business activity,” a lot of properties with ADUs might not qualify in spirit or in profit. Common scenarios would include “renting” to relatives for zero or greatly reduced rates (not much of a business, and not necessarily profitable), use of the ADU as an office or art studio, etc.
With so many possible exceptions, and relatively few properties with ADUs changing hands, I imagine it hasn’t been a significant issue even if the tax should apply. Just guessing though.
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One barrier is the fear of a bad tenant living in the backyard or under the same roof. If the ADU tenant does not pay the rent, complains frequently about minor problems, damage the property, etc., the homeowner/landlord’s living situation becomes very unpleasant. Eviction laws are usually favorable to the tenant, so the homeowner is at a great risk.
I think you have an interesting point there. Though the main financial benefit of having an ADU is rent (or the potential for rent), there is risk to that business activity, and the risk is proportionally bigger for a landlord who has just one rental. What you’re talking about is a legit concern. However, there are several counterpoints. First, risk can be moderated in several ways without violating any laws. It’s not uncommon for ADU owners to rent to family members, for example. Second, you don’t HAVE to rent out your ADU at all. People build them for lots of reasons, and their uses change over the years. Perhaps there are times in the owner’s life when the risks of being a landlord aren’t worth it — and there are times when it is worth it. Personally I’ve had mostly good experiences.