Multiple listing service (MLS) inventory is about level with last year as of September 2016, according to Zillow data. But the spread is uneven, as high-tier properties are sitting on the market for longer and taking more price cuts compared to low-tier properties, which are snapped up quickly by eager first-time homebuyers.

The situation is worse for California renters, who have seen their rents increase on average by 5% over the past year, according to Zillow. For perspective, the national average rent increase was a much lower 0.9%. The lack of rental inventory for low- and moderate-income residents is part of the push behind the rapidly rising rents experienced across the state, but especially in desirable coastal job centers like Los Angeles and the Bay Area.

In the Bay Area, one-third of residents are considering moving out of the region in search of lower housing costs and less traffic, according to Mercury News. This is alarming news for housing professionals.

While one solution to the low- and moderate-income housing squeeze is to sit around and wait for builders to get building, another thing current homeowners can do is to build a granny flat, also known as a casita or accessory dwelling unit (ADU) in their own backyard, above their garage or attached to their single family residence (SFR).

The extra unit allows homeowners to take in elderly or disabled family members who don’t have the income needed to pay market rent elsewhere, or rent out to tenants at the going rate, helping the homeowner pay their own housing costs.

But excessive fees and permitting issues have prevented many SFR homeowners from breaking ground.


New laws to encourage granny flats

Legislatures sense how high rents are impacting their residents, and have taken steps in 2016 to encourage the building of secondary units across the state to alleviate the inventory issue.

Assembly Bill (AB) 2406 authorizes local governments to allow for the construction of junior ADUs, defined as dwellings of no more than 500 square feet and fully contained within an SFR. For example, a homeowner may seal off part of their house, add a kitchenette and bathroom, and rent it out as a junior ADU. However, the high cost of fees and additional parking requirements some cities require has been a hindrance to junior ADUs.

The new law, which took effect on September 28, 2016, prohibits local agencies from requiring additional parking requirements for junior ADUs. It also treats these tiny units as part of the same SFR unit when it comes to installing water, sewer and power, so a separate connection fee cannot be required for the junior ADU.

Another new law, AB 2299, limits parking requirements for other types of ADUs, which may be attached or unattached to the main SFR, to one parking space per unit or bedroom. It also provides maximum standards a local government is authorized to issue on ADUs. For instance, an ADU may be built on the property even if it is zoned for SFR use only. Further, no setback is required for ADUs built in an existing garage and a setback of no more than five feet will be required from the side and rear of the lot for an ADU built over a garage.

Local ordinances may be looser than the standards set out in AB 2299, but cannot be stricter.

All steps in the right direction, but more work is needed on a large scale. Another step local and state governments can take to ensure more low-tier housing is built for the upcoming generation of homebuyers and renters is to provide incentives to builders to construct more low-tier condominiums and rental housing.