ADUs are exploding, but does it matter? – RISMedia |
What are ADUs? Some call them “apartments for grannies”. Others call them “hangars” or “parental suites”. Recently, the “little house” has become a fashionable subject among some builders.
Almost all of these items, regardless of their terminology or function, will fall under the category of “accessory dwelling unit” or ADU. Amid a nationwide housing crisis, this alternative model of living, investing and sharing space has seen massive growth as developers and homeowners seek ways to integrate modes of post-pandemic life and policymakers are scrambling to cope with an acute shortage of living spaces.
But what is the value of an ADU, from a real estate perspective? Do consumers see them as worth the significant time and financial investment? Will the trend of loosening restrictions by local authorities change the current market, and if so, how? Can ADUs survive the current unprecedented housing crisis?
Not all of these questions have answers. But according to the people who build, regulate, and study ADUs, if you don’t ask questions about them right now, you might be missing out.
Amy Allgeyer is the founder of Architect Inc., a construction company in Boise, Idaho that specializes in ADUs. She said that in her market, interest in these specialized structures has increased over the past five years, but has exploded after the start of the pandemic, with people looking for more living space or more value in their properties. with rapid appreciation.
Recently, she said she gets several calls per week from people interested in the possibilities of an ADU.
“Kind of a perfect storm – there are a lot of different things coming together to help people get the DSUs they want and encourage people to want DSUs,” she says.
The ABCs of ADUs
The first question most people ask about ADUs is quite simply: what is it?
This, like many other things in the ADU world, depends on where you are. At the grassroots level, ADUs are separate living spaces on the same land as another main structure, sometimes physically separate from it, sometimes not.
Most states give cities and counties significant latitude in defining and authorizing structures. Some city’s building codes restrict freestanding chalet-style ADUs more than attached structures. There is often a requirement that they offer separate amenities – bathrooms or kitchens – but not always. Maximum sizes can range from a few hundred square feet to over a thousand. ADU clearance can be as simple as a quick visit to a county office or as complex as a multi-month public hearing process.
Local authorities also seek to conform ADUs to local conditions or preferences. Sarah Berke, a program manager at the Family Housing Fund in Minnesota, said UDAs in that area need to have frost-resistant foundations so they can withstand harsh northern winters. Voters in Salem, a historic suburb of Boston, recently passed a new ADU ordinance that, among other things, requires landowners to replace any trees they cut when building an ADU. There are literally hundreds of other potential requirements, from street indentation to paint scheme.
Across the country, however, policymakers tend to ease these restrictions, making ADUs easier and cheaper to build and massively increasing the number of properties and neighborhoods where they are allowed, potentially creating a new market and vast new opportunities for owners and tenants. .
Why is this important
There is one thing almost everyone agrees on when it comes to ADUs: They have enormous value right now in a tight housing market.
“We have more people who want their property to help pay their mortgage as a result of COVID,” Allgeyer said. “Certainly over the past couple of years I have seen a lot of home offices entering ADUs.”
It is not yet clear whether a new interest in ADUs will have a lasting impact on the market, the kind of impact that could remedy the scarcity of supply or significantly alter regional trends or consumer behavior.
But the “perfect storm” Allgeyer referred to is a combination of policies, market conditions and consumer attitudes that currently make ADUs a searing opportunity in the real estate market.
In Salem, Amanda Chiancola is Deputy City Planning Director. She is also a longtime inclusive housing activist who recently helped lead an ordinance that serves as a major overhaul of how the city regulates ADUs.
In the three months since that ordinance was approved, the city has already surpassed the number of ADU permits it has received in the past three years, she said.
“We get calls all the time from people… saying, ‘I can’t afford to live here, I drive two hours a day to get to work,’ says Chiancola. “We hear these calls and emails all the time. “
With much of their housing tied to single-family zoning, a lack of living space – and affordable units in particular – Salem needed to find a way to significantly expand and diversify its housing stock. Enter the ADU.
The focus for Salem is affordability, according to Chiancola, and so the ordinance actually set a maximum rent for ADUs – $ 1,635 for a two-bedroom and $ 1,214 for a studio. Even with that limitation, Chiancola says her office’s estimates predicted that a homeowner funding an ADU through a home equity loan or second mortgage would pay less than half that cost per month, or $ 500-700 on average.
This will hopefully make building an ADU an attractive investment for existing owners, she says.
In Boise, Allgeyer says many families are using rental income from an ADU to enable them to move to an otherwise inaccessible neighborhood, in search of better schools or shorter trips.
“Younger families who couldn’t afford this property in the very good school district, but want to raise their kids there, so they buy a house with an ADU that they can rent,” says Allgeyer.
“It helps a first-time homebuyer afford a mortgage,” adds Chiancola.
An ADU also adds “fantastic” resale value to a home, according to Allgeyer, because even if the buyer isn’t interested in renting the unit, ADUs are incredibly flexible no matter the demographics or needs. of the owner, serving everything to a caregiver. apartment for an older resident to an office space for young professionals.
“Anywhere in between [age] 30 and 90 is roughly evenly distributed, ”Allgeyer says.
How DSUs can be used is something evolving across the country, primarily driven by politics at the local level. Many places – Salem being one of them – have banned short-term rentals like Airbnb from using ADUs. According to Chiancola, city officials are actually scanning the websites of these companies to make sure owners aren’t surreptitiously listing them. Boise and other places allow Airbnb rentals, which Allgeyer has seen become very lucrative for homeowners, especially in booming housing markets.
“I see DSUs are really attractive in an urban area,” she says.
Berke says that as the price of construction goes down, more and more people will be ready and willing to build ADUs. According to Berke, a handful of developers are adding ADUs to their single-family constructions in the Twin Cities area, providing that kind of flexibility from the get-go.
“You can build a single-family home with a basement that is suitable for the ADU conversion and that creates an opportunity for added value in the future,” she says.
Minneapolis was ahead of Salem and many other cities, expanding their policies for ADUs in 2014, in part in response to a severe housing shortage that a recent Minnesota Population Center study called the worst in the country.
Simply changing the policy created a huge influx of ADUs, as many homeowners discovered that rooms they had rented from books or garage conversion projects now qualified as ADUs, with the benefits potential to be able to advertise structures in a more traditional way when selling or renting. Many only cost a few thousand dollars to enable or complete, according to Berke.
All of this comes together to allow for more mobility, more flexibility and potentially a change in attitude as people find new rental opportunities and a new way of looking at work-at-home and age-in-place scenarios. .
Despite all of this, Allgeyer says she doesn’t personally see the ADU race surviving the current housing crisis. Once urban areas have been sated with new ADU construction, she says the trend will fade into suburbs and rural areas where space is less of an issue.
But for cities and neighborhoods that are currently experiencing an ADU boom, the potential for transformational change is there, suggests Berke. Although Minneapolis has seen a relatively small increase in the number of ADUs since changing their policies, adding these structures to just 1.5% of qualifying properties would make a huge difference in the local market.
“This could represent 11,000 new homes. So the impact on any block … won’t change the way your neighborhood feels. But if you add a little here and there, it really makes a lot of accommodations, ”she concludes.
Jesse Williams is the Associate Online Editor of RISMedia. Send him your ideas for real estate news by email at [email protected].