Growth of the Backyard Bungalow

Accessory dwelling units are popping up in more backyards, CNBC reports. These stand-alone housing units are either serving as rentals to generate extra income for homeowners or extra space for aging parents or adult children who move back home.

The growing interest in ADUs has sparked changes to local and state zoning rules to allow for more construction. Some communities are even pointing to ADUs as a solution for a lack of affordable housing. For example, the city of Portland, Ore., waived impact fees in 2010, making it significantly less expensive to build ADUs in the city. It also prompted construction to soar: The number of ADU permits rose from 86 in 2010 to 660 in 2018, reports.

“ADU is still, for the most part, an affluent homeowner product, meaning you have to have cash on hand to take this on,” Steve Vallejos, CEO of Prefab ADU, told CNBC. His company’s most popular ADU model is a 288-square-foot home that costs about $105,000 to build. ADUs are “addressing financing, it’s addressing standardizing products within cities, and then also it’s creating partner relationships with contractors, architects, and even other builders,” Vallejos says. “There are many different scenarios that people look into based on income, lot size, different zoning rules – so we build ADUs that start at about 150 square feet going up to 1,200 square feet.”

Some homeowners view ADUs as a rental income generator. Some are even turning their ADUs into a retirement plan. Homeowner Lisa Puchalla of Washington, D.C., told CNBC that she and her husband can envision themselves retiring one day in their ADU. The District of Columbia is another city that recently relaxed its building codes to allow for more ADUs. The Puchallas have an ADU in the side yard of their home and rent the ADU out on a monthly basis. “I can definitely see us hanging out there, retiring and traveling, and then renting the main house,” she says.

Could an Empty Garage Solve Housing Crisis?

That empty garage being used for storage may be the answer to a housing shortage that is ailing markets across the country, housing analysts say. Several communities nationwide are considering lifting zoning requirements to allow more accessory dwelling units or ADUs, which would permit adding extra housing onto an existing home.

California, facing an epic housing shortage, is one state actively pursuing the idea. A recent report from the California Housing Partnership says that the state needs 1.4 million more affordable rental homes to meet current population needs. California lawmakers have been relaxing their laws to allow more ADUs – whether that’s a garage conversion, backyard cottage, an in-law apartment or granny flat that could be added onto an existing home. Calif. Gov. Gavin Newsom has signed a law to urge greater construction of ADUs.

Companies are now stepping in to help. One project under way, called United Dwelling, enters into a partnership with a homeowner and pays for the garage conversion. Once it is converted into a living area, they’ll then manage the rental of the apartment to a tenant and split the rent with the homeowner. The company received a million-dollar grant last year from Los Angeles County to help grow its garage conversions in the area.

ADUs have been regarded not only as a way for homeowners to generate extra income but also as a place for young adults who move back home or aging parents who want to move in. ADUs could also help provide greater affordable housing to low-income populations in need, housing analysts say.

However, one common complaint regarding affordable housing has been the impact to neighboring properties, including having more people living on one property and street parking issues.

“While nonprofit housing developers prioritize multifamily developments, we support ADUs as one of many tools that can help address our housing crisis, given the staggering deficit of units across California for people of all incomes,” Alan Greenlee, executive director of the Southern California Association of Nonprofit Housing, told The New York Times. “Notably, ADUs can help achieve greater density of units in neighborhoods that are primarily zoned for single-family homes.”