California’s housing production has failed to keep pace with the state’s growing population for decades now. The lack of affordable housing is causing average housing costs, particularly for renters, to rise significantly. So why does legislation boosting alternative types of housing keep failing?

A.B. 69, also known as the Help Homeowners Add New Housing Program, was supported by lawmakers around the state, but ultimately failed after a veto by Governor Gavin Newsom. He argued the financial structure proposed in the bill would negatively impact affordable housing production and the California Housing Finance Agency’s (CalFHA) credit ratings. Newsom directed the Business, Consumer Services and Housing Agency to increase access to capital markets and opportunities to encourage broader adoption of ADUs and JADUs.

Widening the range of housing types in the mid- and low-price tiers will not only increase supply, but also help lower-income households thrive instead of just survive. California lawmakers have two promising tools in the fight against the state’s affordable housing shortage:

  • accessory dwelling units (ADUs), also referred to as second units, in-law units, casitas, or granny flats; and
  • junior accessory dwelling units (JADUs).

Lawmakers have recently lowered regulatory barriers which have historically prevented homeowners from developing additional housing units on their single-family properties. As a result of new legislation, construction of accessory dwelling units has increased by 50%. In Los Angeles alone, the number of permits has soared by nearly 3,500% from 2016 to 2018.

And while the number of accessory dwelling units being built shows promise, there are still bigger issues at play. Many homeowners cannot afford to build ADUs due to a lack of financing options and the growing cost of construction.

A.B. 69 would have established a state-backed lending mechanism to encourage banks, credit unions and other mortgage originators to make construction loans to homeowners to bridge existing federally backed loans.

Much Ado about ADU

ADUs and JADUs are one of the many possibilities to help ease the state’s housing crisis. But what are they?

An ADU is an accessory dwelling unit with complete independent living facilities for one or more persons and can be:

  • detached, where the unit is separated from the primary structure;
  • attached, where the unit is attached to the primary structure;
  • space, such as a master bedroom or attached garage, on the lot of the primary residence converted into an independent living unit; and
  • a junior accessory dwelling unit, where the conversion of existing space is contained entirely within an existing or proposed single-family residence.

ADUs are less expensive to build and offer more long-term benefits for owners. These units do not require owners to pay for new land or dedicate parking since they are built on existing or proposed housing lots.

Further, ADUs are cheaper to build than actual homes. Homebuyers have a host of choices when searching for prefabricated ADUs, and many can be purchased directly from the manufacturer. This shaves off a considerable amount of the time and money new construction demands.

ADUs and JADUs also offer flexibility to homeowners who are looking to share independent living areas with family members and others. Seniors and children who are returning from college or looking to pay up debt can live on the property with close family members, but still be afforded a greater sense of privacy.

So, what does that mean in the long run? A study from the Terner Center on Housing Innovation noted that one unit of affordable housing in the Bay Area costs about $450,000 to build. ADUs and JADUs can be built at a fraction of that price. In turn, the rent generated can pay for the entire project in a matter of years.

At stake with AB 69 was easier access to federally backed mortgages, allowing more homeowners to build granny flats and casitas.

And while the governor cut this legislation down with a pen, other parallel financing support systems can emerge bringing homeowners and builders together. It takes brokers with an eye for clients who have a little money saved, own a home on a lot bigger than 7,000 square feet and improvements configured and located on the parcel to allow another unit to be separately built.

This will help bring owners and builders together for a fee – paid either by the owner or builder, depending on who is the primary client. Financing is absolutely imperative for ADU situations to come alive.

Real estate agents are the lifeblood of the communities they serve; no other players are uniquely positioned to realize the long-term effects of legislation like AB 69. Learn more about ADUs and the vital role they have to play in California’s housing recovery.

Related article: New law requires to incentivize ADUs