A one-stop source about accessory dwelling units, multigenerational homes, laneway houses, ADUs, granny flats, in-law units…
This post is part of a series I started in 2019.
Washington Takes the Lead in Adopting the Strongest Statewide ADU Legislation in the County
Washington State has passed very strong ADU legislation called HB 1337. Here’s a summary of some of things it does.
Under HB 1337, cities and counties must follow specific policies, including:
Cities and counties may not:
Now, THAT is some strong ADU legislation. Indeed, this appears to be the strongest state legislation in the country, surpassing both Oregon and California’s ADU legislation by mandating the allowance of:
It took Washington several attempts do this ADU legislation, but they did it right. Many states elsewhere in the country have been dappling with ADU legislation. This is great. They should take a cue from Washington.
Strong vs Weak ADU Legislation
Oftentimes, states pass ADU legislation that will do nothing to actually move the needle in terms of ADU development. That is because their ADU legislation is weak.
Here’s an recent article published by the Mercatus Center from George Mason University that reviews some of the existing ADU legislation out there, and spells out which states have passed legislation that will move the needle. Up till Washington’s recent announcement, only Oregon and California had passed impactful ADU legislation. All other states had fallen short of strong ADU legislation in one way, or more commonly, in several ways.
In this article, they correctly made the editorial judgement call to not even to mention in their analysis, the states with rules that wouldn’t legalize ADUs for the typical homeowner like Rhode Island or Florida. In states like these, the ADU legislation is SO limiting that it is almost not worth categorizing as actual ADU legislation.
For example, Rhode Island state’s ADU law requires all localities to permit one ADU by-right for each owner-occupied single-family dwelling, provided the ADU is occupied by a family member with a disability or who is over the age of 62. Its definition of ADU requires a familial relationship between principal residence and ADU occupants and owner-occupancy of the principal residence. The ADU must either be an attached or internal ADU or internal to an existing accessory structure on the property, such as a barn or garage.
In contrast, Washington’s strong ADU law explicitly states:
The city or county may not require the owner of a lot on which there is an accessory dwelling unit to reside in or occupy the accessory dwelling unit or another housing unit on the same lot;
(c) The city or county must allow at least two accessory dwelling units on all lots that are located in all zoning districts within an urban growth area that allow for single-family homes in the following configurations:
(d) The city or county must permit accessory dwelling units in structures detached from the principal unit
Whether you’re a practitioner in an advocacy position to help pass legislation like Washington state just did (along with a host of other innovative housing legislation, likely due to tireless advocacy from organizations like the Sightline Institute), or a homeowner who can advocate to advance strong municipal regulations like Anchorage, Alaska just did, make sure to pass meaningful legislation that will actually help people, strive to make your ADU legislation strong.
FHA’s Construction Loan Financing Takes a Leap Forward
The Federal Housing Administration recently announced a wonderful change to their 203(k) construction loan. This update will allow projected future income from an ADU to help applicants meet the income requirements for obtaining the construction loan.
Up till this point, if a homeowner applicant wanted to obtain a construction loan (to cover not only the cost of their existing property, but also the cost of the future ADU), they would have to prove that they could handle the new higher principal mortgage payments, using solely their current income to cover the increased debt. This burden of financial proof is a challenge for homeowners who had already leveraged their debt-to-qualifying-income ratio, such as homeowners who had recently brought a property and hadn’t accrued equity.
The fact that the future ADU could certainly be used to substantially increase their income, was not taken into consideration because the FHA 203(k) construction loan officers weren’t allowed to consider this future rental income into their calculations, due to FHA’s underwriting standards.
With this change in FHA’s standards, applicants will be allowed to include the future rental income that they will generate from the ADU in their 203(k) loan application to obtain that higher principal mortgage.
If someone is renting out an ADU for $1,500 a month, that additional $18k of income may indeed prove to be the difference between qualifying, and not qualifying, for the construction loan. A construction loan may be the only means that people have to afford an ADU since most moderate income householders simply don’t have hundreds of thousands of spare dollars just lying around under their mattresses.
FHA’s underwriting policy change will be especially meaningful for moderate income households who may not otherwise have sufficient capital to build an ADU.
This change also means that a lot more banks and credit unions will be able to help homeowners with the construction of ADUs.
With interest rates and construction costs being quite a bit higher than they were five years ago, financing the construction of an ADU has become proportionally more and more challenging than it was previously. So, it is critical that governments and lenders continue to make changes like this to make ADU construction capital more accessible for homeowners that may otherwise not be able to afford to build them.
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