Part 2 - Unlocking the Potential of ADUs: Why Aren’t More Being Built?

By: John Phillips of Verdant living

This is the second installment of a monthly series about one of the hottest topics in real estate:

Accessory Dwelling Units. ADUs have gotten a lot of attention recently as a housing option.

ADUs – accessory or additional dwelling units, also called mini homes - are a wonderful Idea. They use an existing piece of residential real estate and create a separate living space. They are often used for intergenerational housing (aging parents, twenty somethings just starting out, etc.) and have long term value as rental property and add to the value of the real estate. The experience in the City of Denver is instructive. Since

June 2015 the city has issued 528 ADU permits, of those 418 have received Certificates of

Occupancy. There are thousands of possible sites. There are no easily attainable totals for areas outside Denver, but there just a few ADUs scattered around and there must be tens of thousands possible sites.

So, why aren’t more ADUs being built?

For many years, ADUs were discouraged by local governments using restrictive zoning regulations. These made a lot of sense when land was relatively inexpensive, housing was generally affordable, and single family residences were the preferred option. Things change. Now, land in urban areas is scarce (thus more expensive), homes are more expensive to build and aren’t as available, and smaller living spaces in closer proximity to others is more acceptable, often preferred. Zoning was a big hurdle. In Denver applications for variance were rarely denied, but that process could take months and was expensive. However, that isn’t the problem it once was. Legislatures have passed laws that override local zoning regulations; Colorado did that last year and that law takes effect July.

That has opened the door but there is a long way to go. Most homeowners have never even heard of ADUs, much less thought of their needs and the possibility of an ADU meeting those needs. This series is a small attempt to address that education gap.

Other impediments:

• Other local regulations and rules. Some of these are hangovers from the anti ADU sentiment, but many are necessary to ensure the quality and safety of the dwelling as well as it being an acceptable addition to the community. These range from soil testing, setbacks, size limitations, parking, utility fees, construction inspections, and more. These sorts of things are dealt with as a matter of course by builders of multiunit buildings and main residences, but the complexity quickly baffles the average homeowner.

  
  

• Cost. The amount of money needed, even for the least expensive ADUs, is not trivial (for most homeowners). It exceeds the purchase of a car or the cost of a tiny home (many don’t understand why). 

  
  

• Finance. Beyond the raw cost, financing an ADU can be a challenge. Lenders haven’t gotten comfortable with the dynamics, and there aren’t many lenders actively doing it. 

  
  

• Time. From the time a homeowner signs a contract to build an ADU to receiving a certificate of occupancy, the time required could be a year (often longer). Before they get to the contract phase, investigation of options and selecting a vender takes even more time. Homeowners who want an ADU have relatively immediate needs; often the time lines don’t match.

  
  

• Market awareness. As mentioned above, most potential purchasers of ADUs are unaware of the opportunity. That education is happening, slowly.

  
  

• Vendors. In Colorado the “cottage industry” of vendors and other service providers is just now developing. It exists but is small, hard to find (and vet) and doesn’t have a broad community presence.

All these factors are self reinforcing and limit the development of ADUs. And there is another factor at work. The very nature of ADUs which make them such a terrific addition to the housing stock, works against wide spread adoption.  They are “gentle density”, one here, one there. They are rarely installed at multiple residences close to each other. The impact (traffic, etc.) on a particular neighborhood is minimal. They don’t change the character of the neighborhood. But, individual homeowners must have the need and desire. Most have no experience with a construction project, understand how to research the options,  have any desire to turn their backyard into a construction site, and, especially for home owners of moderate means, take on the risk and responsibility of another mortgage (or make the necessary decisions). The whole thing is not part of their perspective.

I want to thank the following people for their input:  Gary Fleisher, Modular Home Source; Kol Peterson, Accessory Dwelling Strategies, Renee Martinez-Stone, Denver Housing Authority and West Denver Renaissance Collaborative, Eric Scott, TinyMod.