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The Rise of ADUs in the Affordable Housing Crisis

There seems to be no letup in the nation’s affordable housing crisis-at least not in the foreseeable future.

That’s fueling a movement in high-cost areas for legalizing and expanding accessory dwelling units (ADUs), also known as granny flats, garage apartments, and in-law suites, according to Freddie Mac.

In established neighborhoods, there’s nothing new about the concept of ADUs infilling housing.

When you think of ADUs, well, Fonzie and his above-garage apartment in the Happy Days sitcom might tweak a memory. Then there’s Jesse and Rebecca’s attic conversion in another sitcom. Full House.

An examination the changes in the percentages of the total number of homes active and closed helps support the uptick in the supply and of ADUs. A total of 1.6% of active for-sale listings had ADUs in 2000. By 2019, the share of active for-sale listings with ADUs had swelled to 6.8%. As for those sold, less than 9,000, or 1.1% of homes sold on MLS in 2000 had ADUs. Sales of homes with ADUs grew to nearly 70,000 or 4.2% of homes sold on MLS by 2019.

There also was an uptick in the percentage of rental ADUs from 2003-2019, from 1.8% to 4.1%. During the same period, the number of leased rental listings swelled from 1.2% to 2.9%.

The passage of ordinances designed to shore restrictive zoning in some jurisdictions stems from the lack of affordable housing in the country’s high-cost areas.

The demand for accessory dwellings is highest in the fastest growing regions of the country, as supported by the data. Overwhelmingly, population growth—in terms of both absolute numbers and percent—has spiraled in two regions, the South and West. The U.S. Census Bureau’s 2010 through 2019 population estimates reported the South experienced an 11 million net spurt; a 9.6% growth; the West, a 6.4 million net increase; 8.9% growth. The Sun Belt states of California, Florida, Texas, and Georgia account for half of its total 1.4 million ADUs.

Meantime, the number of for-sale listings that refer to ADUs grew more rapidly in the Sun Belt than the North. In the Sun Belt states, there was a jump from 4.3% in 2010 to 9.2% in 2019 in shares of active listings among homes with ADUs. In Northern states, shares ratcheted up from 2.7% to 4.1%. As for sold listings among homes with ADUs, Sun Belt states parachuted from 3.2% in 2010 to 5.6% in 2019 and from 2.2% to 2.6% In Northern states.

Insofar as cities and states transitioning away from single-family home zoning, Suzy Lindblom is the COO for Planet Home Lending, said that, as a country, more affordable housing’s needed as is observing what some of the states are doing nationally, according to MReport.

For example, “I accessory dwelling units more on the west coast than anywhere.” They could be a garage conversion, a small house behind a house—"I think that’s critical to help people be able to afford housing, especially in these high markets like California. I do see a change, and I think we’ll continue to see this change, and I think as an industry we will adapt to this change to help more consumers get into housing.”

About Author: Chuck Green

Chuck Green has contributed to the Wall Street Journal, Washington Post, Los Angeles Times, San Francisco Chronicle, Chicago Tribune and others covering various industries, including real estate, business and banking, technology, and sports

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