Good News for Accessory Dwelling Units

According to the University of California at Berkeley Institute of Governmental Studies, in 2022 nearly 80,000 Accessory Dwelling Units (ADUs) were permitted and over 53,000 were completed, representing a significant percentage of new home construction in California. Despite the popularity and growth of ADUs, there are still barriers that make it challenging for homeowners to add an ADU to their property, including a lack of available financing products, restrictive land use and zoning regulations and permitting requirements, and overall cost of development. This is especially true for lower- and moderate-income homeowners who don’t have the resources to self-finance or enough equity in their property to acquire a Home Equity Line of Credit (HELOC). But there is some good news on the horizon.

• New Funding from the California Housing Finance Agency (CalHFA) – After some bumpy negotiations, $25 million is now expected to be included in the final FY 2023-24 State budget for ADU grants, down from the $50 originally proposed. There is not yet clarity on how the funds will be made available, though CalHFA is conducting outreach and gathering feedback to determine whether changes will be made to the existing ADU Grant Program. That program, which was halted in March when available funds had all been awarded and there were concerns about future funding, provided $40,000 loans to homeowners to cover the planning and permitting costs associated with new ADU construction. According to CalHFA, the program financed loans that could create 1,250 new ADUs. More news to come as CalHFA refines the program and announces funding availability.

• Positive News for Homebuyers Who Want to Add an ADU – The Federal Housing Administration (FHA) is seeking changes to FHA programs to allow lenders to consider projected rental income when borrowers are financing an ADU, helping both borrowers who are purchasing a new home with an existing ADU and homeowners who are seeking an FHA renovation loan to build a new ADU on their property. ADUs are considered residential property not investment property, and as such appraisers can’t currently factor in potential income from the lease of the ADU, which limits a homeowner’s borrowing power. This proposed change is expected to create more affordable ADUs and to remove one barrier to construction. Read more in this comprehensive article from Shelterforce.

• Tools and Resources Available for ADU Development – UC Berkeley’s Center for Community Innovation has a helpful website called California ADU, which includes statistics, visuals, research, reports, and best practices. The Casita Coalition is a Statewide nonprofit membership organization that is working to remove barriers to ADU development as well as other missing-middle housing types. The Casita Coalition website includes stories and videos about ADUs and includes helpful information for homeowners and for professionals who are working in the ADU field. And, the California Department of Housing and Community Development has information and data about ADUs on its website, including a helpful ADU Handbook, which includes comprehensive information about ADUs as well as good information about Senate Bill 9, which allows for the creation of up to four units on property zoned single-family residential.