September 16, 2020

Overcoming Barriers to Bringing ADU Development to Scale

ADU Blog

The Enterprise Policy Development & Research (PD&R) team has released its new report on Overcoming Barriers to Bringing Accessory Dwelling Unit (ADU) Development to Scale. The housing industry has been eager to utilize innovative design, construction and production strategies, including off-site construction, accessory dwelling units and 3-D home printing, to substantially improve the cost-effectiveness and efficiency of the housing delivery system.

Last summer, PD&R team released the first report in its New Reflections on Affordable Housing Design, Policy and Production research series, exploring strategies to overcome barriers to bringing off-site construction to scale. Continuing our research on design, construction and production innovations, the newest paper in this series identifies strategies to bring ADU development to a scale that would help boost affordability and diversity in housing options, especially in predominantly single-family zoned neighborhoods. 

Accessory dwelling unit (ADU) is a broad term that refers to a smaller, self-contained residential dwelling that is located on the same parcel as a primary, larger residential dwelling, typically a single-family home. The ADU term is often interchangeably used with other common names, such as in-law/mother-in-law suites, granny flats, secondary dwelling units, casitas and carriage units.

Interest in ADU development has been gaining steady traction in the housing industry as a housing production solution with potential to increase density, housing options and affordability, especially in predominantly single-family neighborhoods. Many stakeholders have been exploring ways to utilize ADU development to accomplish a range of housing policy goals. This includes boosting the diversity of housing types and housing affordability in lower-density areas, supporting aging in place and multigenerational housing strategies, and enabling lower- and moderate-income to generate additional income and build wealth by boosting property value. 

However, there are persisting regulatory and financial barriers to bringing ADU development to a scale that would help boost housing affordability and diversity in housing options, especially in lower-density areas. Writing from a policy-driven perspective, we aim to facilitate a broad conversation among industry stakeholders on how these challenges can be addressed in order to bring ADU development to scale. This research identifies land use, regulatory and financial barriers to ADU development and offers recommendations for addressing these barriers. 

Overcoming Land Use Barriers 

Single-family zoning continues to dominate residential land use, contributing to persisting supply shortages and affordability challenges across the country. This challenge is especially prevalent in expensive housing markets, where many low- and moderate-income families struggle to access housing in high-opportunity, single-family zoned neighborhoods with better access to jobs, schools and daycares, healthcare facilities and other necessary services.

Permitting ADU development in single-family zoned areas is the first step toward supporting “gentle density” in predominantly single-family zoned neighborhoods. This type of density, also known as the missing middle housing, allows for creating housing types that are more dense than single-family homes, but with similar scale and character, such as ADUs, duplexes and triplexes. A range of housing stakeholders have been exploring how unlocking gentle density through ADU development can be utilized as an aging in place strategy, as well as an income generation and wealth-building strategy for lower- and moderate-income homeowners. 

Overcoming Regulatory Barriers to ADU Development

State and local zoning regulations are one of the prominent factors in shaping the form and scale of ADU construction. These regulations also determine the viability of using this housing production strategy to generate rental income and boost property value, which can help lower- and moderate-income homeowners build wealth.

At a minimum, municipal governments must permit ADU development in some/all single-family zones to support ADU development. However, in many jurisdictions where ADU development is permitted, there are zoning provisions that can create regulatory barriers to ADU development, which can result in complex, lengthy permitting processes; reduce the feasibility of creating ADUs; and discourage homeowners from pursuing ADU development. Our research highlights that bringing ADU development to scale requires easing and/or eliminating municipal regulations and requirements that tend to create regulatory barriers to ADU development, including but not limited to:

  • Discretionary review processes
  • Owner-occupancy requirements
  • Off-street parking requirements
  • Minimum lot size requirements and large setbacks
  • Restrictive size and height caps
  • Prescriptive design standards
  • Impact fees and utility connections cost burdens

Overcoming Barriers to Financing ADU Development 

The scarcity of lending products tailored for ADU financing, largely due to the unfamiliarity of lenders with ADU development, has made tapping into homeowners’ cash savings or home equity, such as home equity lines of credit (HELOC) and first mortgage cash-out refinance, the most common path for financing ADU development. While this path may work well for higher-income homeowners or those who are able to tap into their home equity, lower-income homeowners are less likely to be able to use these financing mechanisms.

In addition, there are challenges in using these lending products to finance ADU development, such as excluding the projected rental income from the ADU in calculating the loan value and determining the borrower’s eligibility. Our research recommends that public and private lending agencies support ADU development by creating lending products tailored for ADU development and offering financial support to low- and moderate-income homeowners who are interested in pursuing ADU development. 

The adoption of strategies that can help bring design, policy and production innovations to scale is a key piece in the national affordable housing delivery system. Enterprise will continue to research and disseminate best practices on bringing those innovations to scale to help expand the supply of affordable homes and address cost challenges. Be sure to check the Enterprise blog and our Today in Housing newsletter for more details on the upcoming pieces of this research initiative.  

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