The popularity of Accessory Dwelling Units (ADUs) have increased over recent years, especially in the Greater Los Angeles area. Why the recent surge of interest ADUs?
Los Angeles has the fourth highest percentage of renters in the nation with most of the housing units in the Los Angeles area rented, not owned. More tenants are renting and therefore fewer rental properties are available causing rental prices to soar to some of the highest in the nation. Since 2011, the cost of an average one-bedroom apartment in L.A. has increased 63%, and nearly a third of Angelenos now spend more than half their income on rent, with a vacancy rate hovering at 4%. At the same time, the cost of living continues to increase and more neighborhoods are gentrifying, leaving a lack of affordable housing in the market. State and local leaders are searching for solutions to create more affordable housing to address this shortage.
The Affordable Housing Shortage in Los Angeles
To give some context into today’s housing shortage in Los Angeles, let’s remember back to the early 2000s when “flipping” properties was all the rage. There was a loose flow of credit financing home purchases for borrowers. That white-hot real estate market eventually burst and it lead to the financial crisis. Financing essentially dried up and left lenders too paranoid to make a mortgage loan for fear of a “buyback” or default. Tightened lending requirements is one of the factors that has lead to a housing shortage for potential buyers in Los Angeles. Banks have a very restrictive “box” that borrowers have to fit into in order to qualify for a loan and many potential borrowers don’t qualify. Today, demand outpaces supply, and it has driven up home prices to levels not seen since 2007. Current homeowners are reluctant to sell their homes for the fear they will not be able to buy again and first-time buying is out of reach for many Angelinos due to pricing. As home prices continue to rise, affordable housing has become a major issue in the city.
ADUs provide a solution to the housing crisis
Enter the ADU. An Accessory Dwelling Unit, or ADU, is by definition a separate dwelling from the main home on the same property that can be attached or detached. Many times referred to as a “granny flat” or a back house or guest house, these units are habitable with electricity, water and everything else needed for someone to live and work in full time. The average size of a newly built, detached ADU is around 600 square feet.
Previous to 2016, there were an estimated 50,000 unpermitted ADU units in the city. They were popular, but getting a permit cost thousands of dollars and included adding covered parking, fire sprinklers and zoning adjustments. Even then, there was no guarantee of ultimately obtaining a permit from the design commission or city council. In 2016 and 2017, bills were passed by the California legislature which revoked the authority of cities to establish zoning and permitting ADUs and a new, more lenient approval process for legalizing an ADU or building a new one was formed. The new legislation addressed obstacles such as reduced parking requirements, ease of permitting and design standards.
Today, permitting is on the rise. Los Angeles went from 80 applications in 2016 to a whopping 1,970 applications as of November 2017 according to a report from researchers at University of California Berkley’s Terner Center for Housing Innovation. “California basically legalized ADUs throughout the state on January 1, 2017. It turned out, there was quite a pent-up demand from homeowners.” Says David Garcia, Terner Center’s policy director. The rent from the unit can help offset the homeowner’s existing mortgage and provide a monthly, passive income, so its a win-win for the renter and the homeowner.
Mayor Garcetti has identified backyard units as a way to help with the housing shortage and meet his goal of creating 100,000 new housing units by 2021. “Garcetti expects a meaningful percentage of the remaining new units to be small, freestanding dwellings built in the backyards of homes,” according to Fast Company. The city is expecting to build 10,000 new units.
“There is a lot of available land out there in people’s backyards” according to YimbyLA, an ADU consultant in Los Angeles. According to a recent New York Times report on California housing, more than half the land in Los Angeles is filled with neighborhoods in which 90 percent of the housing is single family homes. Therefore, there is a lot of potential for ADUs to increase housing inventory in these neighborhoods and “an obvious place to tackle the affordable-housing problem.”
One of the limitations to ADU growth in Los Angeles has been that it’s somewhat difficult to find permanent financing to build an ADU. Homeowners could turn to refinancing an existing mortgage and taking out additional cash during the process and pay for a new ADU or they could apply for, and tap into a home equity line of credit, or HELOC. Today however, finding financing for an ADU is much easier than it once was and new companies are popping up to provide financing.
The rise in the number of ADUs will directly impact the housing shortage in Los Angeles. “The state sees ADUs as a small part of a broad effort to address its housing crisis as demand outpaces housing supply and housing costs rocket ever higher” according to Next City. This is a relatively new program, but all signs point to an evolution over time and ultimate success.
About The Author:
When building new or converting an existing structure to an ADU, you want to make sure the project is properly permitted. There are local rules and regulations and navigating the process can be daunting. The first place to start is with a consultant like Ira Belgrade at YimbyLA!
YimblyLA! is the industry expert who can walk you through the permitting process. We will visit your property, measure, analyze, photograph and provide you with a detailed written plan explaining exactly what you need to do to get your permit on your own or with our team of expert architects and engineers, we can handle the entire permitting process for you. We also have trusted builders who specialize in ADU’s. Contact us at YimbyLA/permit for more information and to book your free phone consultation.