Innovative Ways to Develop ADUs that Intentionally Help Your Community

Building an ADU can be a way for you to build your wealth, which is a great individual motivator for their construction. 

Meanwhile, for policymakers such as city council members or state legislators, allowing ADUs by liberalizing rules for their development will help solve the housing crisis. As rental units, ADUs typically provide financially attainable rental housing stock in residential neighborhoods simply due to their limited size. 

But for individuals who wish to do more than just build more housing – who wish to directly and meaningfully confront the housing crisis through their individual ADU endeavors – there are creative options available.  

This post features innovative ideas, homegrown in Oregon, to leverage ADUs that include homeowner housing hacks, nonprofit construction subsidies, prefabs, and more. Every option helps create market-rate affordable housing. If scaled to any large degree, all of these ideas will significantly help address the affordable housing crisis. 

Before we dive in, two notes on my terminology. First, by “market-rate”, I mean that these ADU developments are all done by individuals who will recoup their investment costs without any government subsidy. Second, by “market-rate affordable housing”, I’m referring to ADUs that naturally serve households under 100% AMI (Area Median Income). The lower the AMI, the more ‘“affordable” it is. 

These ideas don’t demand as much capital as most other types of housing. What they do require is vision, a little gumption, and a good baseline ADU code, which Oregon thankfully has statewide. With that being said, let’s start our journey into affordable ADUs.

1) Derek Sherrell, based in Talent, Oregon (near Ashland) develops standardized, cute ADUs on his own properties. Derek’s “ADU strategy” allows him to build an ADU for roughly $60K in 3 months. He then rents out his units at less than market rates, which allows him to secure great, long-term tenants. Given his low out-of-pocket development costs, this simple strategy enables Derek to do what he loves: teaching others about building ADUs and living life to the fullest. He shares his construction methods freely on his YouTube channel and on Instagram.

However, others may not be able reproduce ADUs at these costs. Derek is a builder by trade, so he general contracts all of his own ADUs, saving him significant labor costs. His approach is deeply rooted in his long-standing relationships with his subcontractors and community. 

Despite these advantages, Derek is doing his best to consistently prove and document that constructing an inexpensive ADU can be done. In video series like this one, he literally shows each phase of construction and breaks down the costs. 

2) Emilie Karas built “stacked” ADUs on her property in NE Portland. A stacked ADU is two ADUs, one stacked on top of the other. It is similar to stacked flats, or a stacked duplex. In places like Portland where you can build two ADUs (rather than one) in any configuration on a property, a stacked ADU is favorable from a return on investment perspective due to the costs of simultaneously building a shared structural building envelope for two units. Emilie understood this advantage clearly. 

Emilie general contracted the build herself, ultimately paying about $300,000. To secure funding, she tapped into a program called BackHome ADU, which allowed her to get a construction loan on that $300,000 at an astonishing 3.5% fixed interest rate (Yes, you read that right). The “tradeoff” to obtain that interest rate is that she must rent the ADUs to someone that makes less than 80% of area median income.  

As Emilie explains beautifully in this video, her stacked ADUs, built with 3.5% subsidized financing, have a 10-year breakeven period. The upper unit (1BR, 1BA) will rent out at 80% AMI, or $1,700/month. The lower unit (2BR, 1BA) can rent out for up to $2,000. 

Amazing! 

But, that’s not all.

At the same time that Emilie was running utilities out to the bona fide affordable stacked ADU, she opted to stub up RV hookups for a future tiny house on wheels (THOW). As I’ve written about in prior posts, RVs are a permissible form of dwelling on Portland’s single family residential lots. This is a rare thing in the US, and it’s turning out to be an amazing zoning code tweak, unlocking a new species of low-cost rental housing and ownership models. 

As Emilie explains, when comparing the return on investment between her very-low-cost stacked ADU with incredibly favorable financing, the THOW still drastically outperforms the ADU for her and for her renters compared to the ADU. The (non-subsidized) THOW has a 6-year breakeven period, and will rent out at 55% AMI, or $1,200/month. 

This is the perfect Portland DIY project. If we all do what Emilie has done, there would not be an affordable housing crisis. 

3) While we’re on the topic, let’s hop on the THOW train. In my survey of RVs/THOWs in Portland’s Cully neighborhood in June 2020, there was one legally inhabited RV on a four-block stretch of NE Sumner. I re-surveyed this same four-block stretch in September 2023, and found that there were five legally inhabited RVs/THOWs. That’s a fivefold increase of this housing type on this four-block stretch of Portland in three years. 

THOWs are vastly more affordable than ADUs. And RVs are vastly more affordable than THOWs. These dwellings are the least expensive housing options in residential zones in America. It’s literally just a line of zoning code that is preventing this housing option. 

How ridiculous and pompous and dumb are we to NOT allow people to live in these mobile dwellings in every other city in the country? 

The only places that people can legally permanently live in RVs at the moment are RV parks. 

How many RV parks are there near you? Let me guess: none. 

Why?

The low rental income generated by the occupied spaces in RV parks means that they aren’t financially viable as commercially zoned developments in cities with high land values, which is most major cities in the US. 

We somehow allow the ludicrous legacy zoning barriers that limit RVs so drastically to persist, without any rigorous thought or critical analysis. It’s a farce. Policymakers and city planners who aren’t considering this option should expand their concept of needed housing.

The solution is in our face. 

Sorry – I lose my cool when the answers like this one are so obvious to me, and yet we aren’t pursuing them. This is where ADUs were a few years ago, though, so maybe THOWs will soon get their day. 

Check out this video to see some images of these super cute homes that are popping up all over Portland now that they are finally allowed. 

4) Another mission-driven ADU development program has cropped up in Portland to provide grants for people who wish to build an affordable ADU. 

Community Vision is a non-profit organization that will fund and help build an ADU on an existing residential property in Portland. For 10 years, the homeowner owns and manages the ADU, offering it as a new affordable rental unit for a person experiencing a disability – known as the “affordability period”.

Community Vision, along with its non-profit partners, provides a minimum of $45,000 in grant assistance that is passed to the next owner if the original homeowner sells the property during the affordability period. In return for receiving this grant assistance, the homeowner agrees to make the ADU available to rent at or below 60% of area median income. This is $1,185/month for a studio, and $1,269 for a 1BR. 

This program targets moderate-income homeowners who normally would not be able to finance or underwrite the cost of building an ADU. The program is a win for all parties involved, providing affordable rental housing while increasing a moderate-income homeowner’s assets.

Community Vision is addressing the affordable housing crisis for individuals experiencing disabilities. For more information, contact: Joe Wykowski, Housing Consultant joe@cvision.org, or visit https://cvision.org/. 

5) Wolf Industries’ ADUs are one of the best existing examples of a low-cost prefab ADU. This company is churning out approximately one ADU per week. Unlike other prefab companies, they do all of the installation work of the ADU in-house. 

As far as I can tell, these are the least expensive ADU options in the country for someone who just wants an ADU, dammit. Their Model B below costs approximately $107,000 including permits, foundation, utility connections, and other necessary site work. 

This means that Wolf’s ADU costs less than half of an equivalent custom built in Portland. It’s truly impressive.

There are many prefab companies out there that have a Dwell Magazine polish to them – fancy, contemporary… and like a flash in the pan. These companies seem to burn through their venture capital or simply never establish a firm market. 

Wolf Industries, by contrast, is like the Model T of ADUs. Their ADUs are built in a factory using lean engineering principles, and they are crushing it in the marketplace because they are consistently delivering upon their low-cost, turnkey ADU promise, churning out ADUs on short timeline and at a low cost.

YOU can build an affordable ADU

In summary, this article shows us that it is possible to do well, while doing good. 

None of the approaches above are entirely altruistic. These are all rational actors who are trying to create housing solutions on their own property that make financial sense. They each exemplify how to use ADUs in ways that are both rational and intentionally affordable by design.

If your city actually has decent ADU codes (roughly 15% of the US population currently, by my standards), then you too can do well by doing good.  

About Kol Peterson

Kol is an ADU consultant, advocate and author of Backdoor Revolution: The Definitive Guide to ADU Development. Read more here: AccessoryDwellingStrategies.com and learn about building your own at BuildingAnADU.com. Email at Kol@accessorydwellingstrategies.com

View all posts by Kol Peterson →