Accessory Dwelling Units (ADUs) are becoming more popular throughout California and for good reason: we need more affordable housing. Many people think of ADUs as just a home office, rental property, or additional living space for grandparents or grown children, but ADUs are so much more. The socio-economic impact of ADUs is just in its beginning phase and these small homes have the potential to change families for generations to come. While this sounds rather grandiose, ADUs are a real and attainable way for families to grow stronger and build financial stability. Here’s how:
I recently came across this fascinating study published by the UC Berkeley Center for Community Innovation entitled ADUs for All: Breaking Down Barriers to Racial and Economic Equity in Accessory Dwelling Unit Construction which states that, “Because ADUs can be rented out to tenants and provide an additional source of income, they can make homeownership more attainable for low- and middle-income households and cushion against foreclosure during times of economic hardship.”
Multigenerational housing is commonplace in many cultures and is not only accepted, but expected. It just makes sense with high housing prices and when aging parents need additional care to ensure their health and safety. My husband grew up in a home with his parents, siblings, and Mamita, his maternal grandmother. However, I’m also noticing that multigenerational housing is becoming more popular not because of cultural responsibilities, but because of economic necessity. One of my longtime friends purchased a home with her husband’s parents because they couldn’t afford a home on their own. Now they live in the home with aging parents and two grown children along with one grandchild! That’s four generations! They were able to buy a larger home in a nicer neighborhood when they combined their finances. By adding an ADU, the grown children can have their space and independence affordably!
Now just think about the socio-economic impact of ADUs that can help other families in this same situation. If one family member owns property, this provides more opportunities for other family members to have affordable housing. ADUs take less time and money to build than traditional homes. This means that one property can easily house two families if not more. The above study from UC Berkeley shares, “Constructing ADUs requires less time and money than other forms of housing (traditional affordable units cost nearly twice as much to build) and can increase socioeconomic integration; provide independent living for disabled family members, elderly parents, and adult children; and meet cultural needs of some communities for multigenerational living while typically facing less opposition from neighbors than larger developments.”
New Laws Fuel ADU Growth
There are many factors that have contributed to the housing shortage in California. California is one of the most populous states in the U.S., and its population continues to grow due to migration, job opportunities, and a desirable climate. This high demand for housing drives up prices creating limited affordability. Zoning and land-use regulations in California are also restrictive and complex. These regulations often make it difficult to increase housing density or build new housing units which also have limited supply. The socio-economic impact of ADUs can counteract against the negative effects of excessive demand and minimal supply.
That being said, ADU laws were first created in 2016 to loosen regulations that limited housing creation. In 2016, California passed statewide ADU reform in SB 1069, later tweaked in 2017 by SB 229 and AB 494. This allowed homeowners to build an ADU on their property with an expedited permitting process, waived parking requirements, a 1,200 sq ft unit size, and 5 foot setback rules.
This is especially important in metropolitan areas like San Francisco, Oakland, and San Jose. ADUs can help alleviate housing shortages in densely populated areas by increasing the overall housing supply. This is particularly important in markets where housing affordability is a significant concern. We’ve all seen news reports about San Francisco apartments being some of the most expensive to rent with a typical monthly cost of $3,168. San Jose was the most expensive market in June 2023, with a typical monthly rent of $3,411. With rent prices this high, saving for a down payment for a home seems quite impossible. Imagine how putting this monthly payment towards an ADU could change the trajectory of a family! At the end of a decade, rent money is but a memory. Putting that same monthly fee into an ADU over ten years could very likely pay off the unit! (Be sure to discuss your financial situation, mortgage rates, and other factors with your trusted lender before making any decisions about purchasing an ADU. This is just a sample but the true numbers will vary depending on the market and current economic conditions.)
The average cost of an ADU starts around $250,000. The average home in California costs $741,789 according to Zillow in August 2023. Clearly the socio economic impact of an ADU is quite impressive with an ADU costing almost one-third of the average home. Homeowners can generate additional income by renting out their ADUs if they choose to rent out the property to pay for it before having a family member move in. This can be particularly beneficial for homeowners facing rising housing costs or seeking to supplement their income. Or they could live in the ADU and rent out the main home to generate a larger rental income to pay off the property sooner.
The Socio-Economic Impact of ADUs
The socio-economic impact of ADUs can vary significantly based on factors like location, local regulations, housing market conditions, and the motivations of homeowners. Policymakers and planners must consider these various aspects when assessing the potential benefits and challenges of promoting ADU development in a given area. However, the socio-economic impact of ADUs is clear when you consider the need for multigenerational housing, low income housing, generating additional income through rent, and more.
Are you thinking about purchasing an ADU? Call ADU Warehouse today! We’re your one stop shop for all things ADU and will help you with your property evaluation, connecting you to a reputable lender, introducing you to real estate professionals to assess the value of your property before the ADU and the potential value after the ADU, we’ll guide you through the permitting process and more! We’re here to serve you!