The Tiny House Solution: Accessory Dwelling Units as a Housing Market Fix
BY ALYSSA DAVIS
THE additional unit in Raneta Pomeroy’s backyard had always been a problem. When the Santa Cruz, California, resident bought her house in 1993, she knew that its converted garage apartment—or “flat,” as she calls it—was technically illegal. But it was also typical for this growing coastal community. For several years, her teenagers lived back there, and occasionally she rented the flat out—the extra income contributed to her mortgage, put her son through college, and helped her keep up with Santa Cruz’s rising cost of living. She often tried to let the unit to others who were striving to get by, including public housing assistance recipients: “So many people struggle around here. They work, but it’s just tough around here.”
The unit in Raneta Pomeroy’s backyard is an example of an accessory dwelling unit (ADU), or “additional living quarters on single-family lots that are independent of the primary dwelling unit.” ADUs are essentially tiny houses—usually less than 1,000 square feet—either attached to the main unit or built separately on the same lot. ADUs are often found in moderate-density urban, exurban, and suburban areas that have historically been zoned for single-family homes. Although ADUs are small, they dramatically increase the housing available to residents in an area, essentially doubling the number of housing units on a given lot.
In recent years, ADUs—both legal and illegal—have popped up in several cities in response to increasingly hot housing markets. After all, our country faces an affordable-housing crisis: 32.9 percent of households in America are cost burdened, spending more than the recommended 30 percent of income on housing costs. One major reason for this problem is a lack of affordable-housing supply. The National Low-Income Housing Coalition estimates there is a shortage of 7.2 million rental units that low-income people could reasonably afford.
ADUs may seem unique, but they help accommodate the needs of growing populations who want smaller housing. While very few people used to live alone, now almost one-third of American adults do. By 2035, an estimated one-third of households will be headed by someone 65 or older, a demographic that often downsizes, needs in-home caregivers, or wants to grow old in their home communities.
ADUs are also a direct response to decades of federal and local housing policies that have shaped the landscape of our cities and suburbs. Although a range of housing choices, such as townhouses, duplexes, and bungalows, characterized pre–World War II America, federal housing policy over the last half-century has focused largely on encouraging the construction of single-family homes. Zoning laws in several cities and suburbs have purposefully excluded denser housing choices, often to discriminate against people of color.,
This focus on single-family homes promoted an inefficient use of land that exacerbated our affordable-housing crisis and ignored the changing needs of our population. In order to create more affordability and meet the needs of these populations, communities historically zoned for single-family homes need denser, smaller, and more diverse housing choices. Enter ADUs.
RANETA Pomeroy did everything in her power to make her ADU safe and wished she could officially legalize the unit with the city. Nevertheless, Santa Cruz had strict rules when it came to additional units: ADUs were only allowed on properties with at least 5,000 square feet, and her property was only 4,879. Even though her unit was “hiding in plain sight,” she kept quiet about her unit for several years, monitoring changes in city ordinances and property requirements. Then, in 2014, Santa Cruz lowered the allowed-property-size restriction of building an additional unit to 4,500 square feet, and Pomeroy jumped at the chance to permit her flat. But when city inspectors visited, they found the unit still did not meet current code requirements and ordered her to tear it down or bring it up to code. By that time, Pomeroy was retired and could not afford to do either. She had a week to make a decision.
Raneta Pomeroy’s situation is similar to many others’. They own or live in ADUs that are illegal, often because too-tight zoning laws would never have allowed them in the first place, despite the housing market’s clear thirst for them. Cities put strict requirements on the types or sizes of lots eligible for ADU construction and the location or square footage of the ADU itself. Cities sometimes put stipulations on the types of residents allowed to live in an ADU, on parking lot setbacks, and on unit entry points. Many cities have completely outlawed the construction of ADUs.
Even owners with properties eligible for ADU construction run into challenges as they start their projects. City permitting processes can be long and cumbersome. ADUs are expensive, with average construction costs upwards of $100,000. It is difficult for homeowners who already have significant debt via a mortgage to secure additional loans or pull out equity to finance ADU construction. Many banks have not developed financing packages for ADU construction or fees. The addition of an ADU can increase property values, and therefore property taxes. And in some cities, new construction or development requires the builders to pay high impact fees to finance the increased cost of providing public services such as roads, water, and utilities.
Raneta Pomeroy’s situation is similar to many others’. They own or live in ADUs that are illegal, often because too-tight zoning laws would never have allowed them in the first place, despite the housing market’s clear thirst for them.
ADUs also continue to be politically controversial in many places. Even though ADUs increase density without changing the look or feel of the street—essentially “preserving” the character of the neighborhood—some people are still opposed to them. In several cities, coalitions of residents with “Not in My Backyard” inclinations have mobilized against proposed changes to ADU regulations, claiming they will change the character of their neighborhoods by increasing density and bringing strangers into the area.
However, some cities have embraced ADUs as a potential solution to increase affordable-housing stock and meet the needs of diverse groups of residents, passing reforms starting in the 1990s.
Portland, Oregon, is the leader in the ADU space. In 1997, the Portland City Council passed ordinances that allowed for new kinds of ADU construction, increased lot and building size requirements, and removed owner-occupancy requirements. Then, in 2010, the city waived required fees for ADUs for water and utility hook-ups that usually come with new development, called systems development charges (SDC).
Portland’s strategy has largely paid off. In 2000, the city issued just 24 new permits for ADU construction. By 2016, that number had jumped to 615, a 2,463 percent increase and a number approaching the count of new permits issued for single-family home construction (867). The number of ADU permits took off after 2010, signaling that waiving the SDCs created a big financial incentive for homeowners to construct ADUs. In total, the city has issued more than 2,200 ADU permits since 2000.
Austin, Texas, is another example of a city that has recognized the potential of ADUs to add more infill development, passing reforms concerning their construction in recent years. In November 2015, the Austin City Council voted to amend the regulations for ADU construction permits, including reducing the minimum lot size required to house a new ADU, decreasing the required building separation between units on a lot, and removing the previous requirement for a driveway. The new law also eliminated the requirement for a parking space within one-quarter mile of downtown and limited the use of ADUs as short-term rentals. This ordinance helped lead to an increase in permits for ADUs from 463 over 2010–2015 to more than 577 ADU permits issued during 2016 and 2017.
Austin also has the unique advantage of having a community partnership called the Alley Flat Initiative, born out of The University of Texas and now based at the Austin Community Design and Development Center. The Alley Flat Initiative is dedicated to building affordable ADUs in the city. The group helps homeowners throughout the life cycle of ADU construction, serving as the architects, navigating city permits and incentives, and counseling homeowners on how to manage the properties going forward. According to Nicole Joslin, executive director of the center, the initiative has constructed seven affordable ADUs since 2008, with ten more in development now.
Raneta Pomeroy’s hometown of Santa Cruz has also been at the forefront of the ADU movement. In 2003, the city passed a new ordinance that modified city regulations around ADUs, including ADU locations, design, and development rules. The ordinance also called for the elimination of prior requirements such as providing covered parking. In addition, the city waived impact or development fees for ADUs that were rented to low-income households. They also established an ADU Development Program to “implement the development of well-designed ADUs in the City of Santa Cruz and promote infill development to help preserve the surrounding natural greenbelt.” The city wanted to make the construction of ADUs feasible, so they created an ADU Manual and ADU Plan Sets Book, which has model ADU layouts and design concepts created by local architects. If homeowners choose a plan from the book, they can receive a permit for ADU construction more quickly. The city also created a partnership with the Santa Cruz Community Credit Union to provide pre-approved loans for ADU construction at reasonable interest rates. Santa Cruz issues an estimated 40–50 ADU permits each year.
Although Santa Cruz’s liberalization of ADU requirements partially alleviated Raneta Pomeroy’s illegal-flat situation, Habitat for Humanity was also a huge help. When she was reading the newspaper one day in 2016, she saw an advertisement for a new Habitat initiative called “My House, My Home.” The new program, in partnership with the City of Santa Cruz and Senior Network Services, helped low-income seniors build an ADU on their properties, providing them with stable rental income as they retire so they can “age in place.” In return, participants commit to renting the new unit out to other low-income individuals. Raneta applied for the program and was accepted. The Habitat architects decided it was best to tear down her existing, illegal ADU, but they are building another in its place that is ADA accessible and energy efficient. Her new unit is expected to be completed in 2018.
RANETA’S ADU will be just one of many constructed in cities around the country this year. But cities and counties will need to do more if they want to realize the potential of ADUs to add diversity, density, and affordability to their housing stock. Specifically, cities need to liberalize zoning requirements to allow for the construction of additional units on single-family lots, as well as open up the regulations governing required lot size, lot coverage, ADU size, and tenant restrictions. Cities can address financial barriers to ADUs by waiving systems development or impact fees to decrease the cost of new ADU construction as well as reduce or eliminate permitting fees. Cities can partner with local banks or credit unions to encourage the creation of new financing and loan packages for ADUs. They can also pass laws that provide tax incentives or credits to homeowners who would see increased property taxes as a consequence of building an ADU on their property, focusing on homeowners who choose to rent out their ADU to low-income people. Cities can help to clear the bureaucratic hurdles for those seeking to build an ADU on their property by expediting permit approvals for ADUs. Following Santa Cruz’s example, cities can provide several sample “ready-made” blueprints and plans for homeowners to use as they undertake the construction of an ADU.
Raneta Pomeroy is thrilled with her new flat and finally has peace of mind that her extra unit is within city codes. She has a renter lined up for the ADU and is grateful to have more long-term financial stability as she grows older. Moreover, she is excited for the potential of ADUs to help other people in her city: “A lot of people in Santa Cruz are fighting against high-density housing. But I’m not the person who is fighting against anything in my backyard. I see how well it benefits me. It could also benefit so many others.”
Alyssa Davis is a master in public policy student at the Kennedy School originally from Dallas-Ft. Worth, Texas. Alyssa has a background in economic research, data analytics, and local economic development. She is interested in urban innovation, labor economics, affordable housing, using data to solve public problems, and creating more equity-driven governments and institutions. You can follow her on Twitter at @alyssalynn7.
Photo: An accessory dwelling unit in Austin, Texas / Credit: Austin Community Design and Development Center
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