Student Corner: What’s Old is New Again: Accessory Dwelling Units (ADUs)

Community and Economic Development – Blog by UNC School of Government

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Student Corner: What’s Old is New Again: Accessory Dwelling Units (ADUs)

By CED Program Interns & Students

Published February 23, 2017

The granny cottage, in-law suite, or guest apartment, among its various names, might seem like a quaint relic of the past. But proponents are touting the Accessory Dwelling Units (ADU) as the new frontier of housing development in an era of rising demand for diverse housing stock.

Ranging in size, but averaging roughly 550 square feet, ADUs are large enough to be self-contained (equipped with bathroom, kitchen, etc.), but small enough to remain subordinate to the main house.  An ADU can be attached to the main dwelling with a separate exterior entrance or detached on a residential lot that is separate from the main dwelling—but either way smaller than the main unit; by  definition, an “accessory” to the home. (The Accessory Dwellings website includes a breadth of information on designs, costs and local permitting.) 

Due to the size and subordinate nature of ADUs, they tend to rent at low prices, creating affordable housing options at no or very little cost to the public. That’s why many urban designers, planners and smart growth advocates are embracing pro-ADU policies as a way to meet the challenges of an aging baby boomer generation and skyrocketing housing prices.

Under President Barack Obama, the White House released a Housing Development Toolkit in September of 2016 which recommended ADUs as a way to address the increasing demand for intergenerational living arrangements. The report cites the decreasing rate at which young adults reach financial independence and found that:

” …while the number of Americans caring for both an aging parent and a child has increased only marginally, the costs associated with caring for multiple generations has increased significantly as a greater share of parents support their children beyond age 18 […] In addressing the temporary needs of families that are stretched thin, accessory dwelling units can create a permanent increase in affordable housing stock.”

ADUs are also praised for creating invisible or gentle density, a concept that refers to an increase in the number of residents per area without the construction of large structures that can alter a neighborhood’s aesthetic.  By expanding the available rental housing stock in areas zoned largely for single-family housing, the marginal increase in density reduces the costs associated with extending utilities to new homes, without overextending infrastructure in any one area. Municipalities can, in theory, plan more efficiently for existing infrastructure, including transit routes.

The impact is also environmental. Faculty and staff at NC State’s Affordable Housing and Sustainable Communities Initiative recently completed the Mordecai Backyard Cottage Project, where they worked with residents to promote a series of ADU designs for the Raleigh, NC neighborhood. As part of the project, researchers studied the potential benefits of ADUs, highlighting not only affordability and adaptability as discussed above, but also sustainability due to the smaller carbon footprints created by smaller living spaces.  With a 2,000 square foot home creating an estimated 8,000 pounds of waste, the relative impact of building homes a quarter of the size is staggering.

The potential benefits of ADUs, however, are still limited by the small scale in which they are executed, in most part because municipalities concerned with ADUs typically adopt a passive planning approach that regulates instead of encourages their construction. There are significant financial and regulatory barriers to building ADUs, and cities attempting to scale up ADU programs are often met by community resistance rooted in legitimate neighborhood concerns.  These concerns revolve around unanswered questions about how the units would disrupt the “feeling” of the neighborhood, whether by increasing traffic, bringing in short-term renters, or infringing on backyard privacy.

Understanding the benefits but respecting their community’s concerns, municipalities across the country are testing various approaches to permitting and/or encouraging ADUs. Public officials are assessing how permitting ADUs will work with existing regulations that relate to parking, density, use, etc. (The UNC School of Government’s Coates Canon’s blog describes NC’s regulatory environment here.)

The median cost to build an ADU can range from $45,500 for attached units to $90,000 for detached units. The cost and risks of construction can put the extension out of range for many households. Additionally, any improvements to the property will likely result in an increase in property taxes, which although likely to be offset by rental income is still an additional burden on the homeowner.  At a still higher level there is uncertainty about how ADUs would actually affect housing prices – would they fill a gap on one end but increase pressure elsewhere? “A dramatic increase in property value, due in part to the advantage ADUs can provide in offsetting an owner’s mortgage” would be a boon to sellers but may further erode housing affordability long-term.

Municipal officials interested in incentivizing the development of ADUs while curbing unintended consequences may find they can be more effective by taking a more aggressive approach.  Santa Cruz, CA is one of the least affordable cities in the United States – just 6.9% of residents earn enough to afford a median-priced home. The ADU Development Program was created to supplement the city’s larger efforts to combat the housing crunch by encouraging the “development of small-scale neighborhood compatible housing and to discourage the proliferation of poorly-constructed illegal ADUs.” To minimize the impact of ADUs on the “feeling” of the neighborhoods, the program ordinance implemented zoning standards and limits new construction to seven prototypes designed by local architects.  To address the cost limitations, the program streamlined the permitting process, reduced requirements that created cost premiums, provides technical support, and manages a small loan program. The city expects ADUs to make up 20% of the new affordable housing units over the next six years.

Sarah Odio is a Master’s candidate specializing in Economic Development in the UNC-Chapel Hill Department of City and Regional Planning. She is a Community Revitalization Fellow with the Development Finance Initiative.