Zoning reform made way for an explosion of smaller homes in California. Will it work elsewhere?
Lali Grewal is pictured outside his accessory dwelling unit in the Elysian Valley neighborhood of Los Angeles. Alisha Jucevic for The Washington Post via Getty Images
Encouraged by California’s success, states across the country are passing laws to allow for more accessory dwelling units to address a shortage of affordable homes. But a slew of factors can keep the housing solution from taking off.
Whatever name they go by—granny flats, in-law suites, backyard bungalows, casitas—accessory dwelling units in California have exploded over the last several years. The number of these small homes permitted each year increased by more than 15,000% between 2016 and 2022. Last year, 1 in 5 of all new homes in the Golden State were ADUs.
It’s a rare success story in the midst of a nationwide affordable housing shortage, and one that other states want to replicate. But it’s not as easy as flipping a switch, said Yonah Freemark, research director of Urban Institute’s Land Use Lab.
“Saying, ‘You can build an ADU,’ is not necessarily adequate to actually get ADUs built,” he said. “There are a number of different other obstacles standing in the way,” including parking and setback minimums that can be nearly impossible to meet when working with limited space.
California’s journey began in 2016 when it started enacting a series of laws that limit the restrictions local governments can place on ADUs and streamline permitting processes—–a boon for the ADU industry. The bills effectively created a new market in the state, said Denise Pinkston, founder of Casita Coalition, a nonprofit that advocates for ADU-friendly policies.
Prior to 2016, the ADU industry in California was struggling, said Pinkston. “Factories went bankrupt. ... [But today], there are literally dozens of companies in California, more coming through every day, that are building accessory dwelling units in factories and selling enough of them to have a profitable ongoing business.”
With the average ADU valued somewhere between $200,000 and $300,000, the ADU industry is burgeoning while offering a housing solution with relatively little government spending.
“It’s not quite the tech boom,” Pinkston said, “but it's still solid economic growth—and from an unexpected place that solves a lot of social problems.”
Unsurprisingly, other states want in on the action and are considering their own zoning reforms to limit local restrictions on ADUs.
A multibillion dollar Massachusetts bond bill, for example, is making its way through the state legislature and would, among other initiatives, make accessory dwelling units allowable by right across the state. A few weeks ago, the Rhode Island General Assembly approved legislation allowing property owners to build ADUs while stipulating those units cannot be used as short-term vacation rentals. In May, Colorado approved legislation that requires cities with a population of more than 1,000 to allow ADUs on the properties of single-family homes. The list goes on.
But there are broader barriers that can prevent ADUs from becoming a meaningful housing tool or economic influence. While some states have created grant programs to help homeowners build ADUs, financing is often still a major obstacle, especially for low- and middle-income households without much capital on hand.
“Having an ADU in your backyard can provide you some significant income to help make your house more affordable,” said Freemark of the Urban Institute. “There's a bit of a challenge there because folks who are lower income might actually be able to better afford their home if they have access to an ADU, but at the same time, getting that ADU in the first place might be more difficult for them.”
Thanks to state legislation enacting ADU-friendly policies, more attention has been paid to these issues and have led to national solutions.
In October, the Federal Housing Authority and Department of Housing and Urban Development announced a new rule that allows lenders to consider potential income from renting out an ADU as part of a borrower’s total qualifying income. The move is meant to help a broader range of people qualify for a loan backed by FHA and, in turn, increase homeownership.
“Super powerful national-level finance reform can only happen with state-level zoning reform in the ADU space,” Pinkston said.
As more states encourage ADU development, other systems still need to catch up.
In California, there hasn’t been uniform data tracking on sales involving ADUs, Pinkston said, making it hard for property owners to know the value of their units or for assessors to know how much the units should be taxed.
And there are also challenges in getting the public to understand the changing ADU landscape.
“If 75% of the land area of most cities is locked in amber for single-family homes, and we're expecting one city at a time to suddenly change all these other institutional barriers, we're kidding ourselves,” Pinkston said. “It's got to be system-scale reform to remove all of the barriers and then to reform other institutions like lending and realty practice.”
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