What Makes ADUs Popular in California

What Makes ADUs Popular in California

What makes ADUs so popular in California?

Affordable housing shortage in California is one of the biggest problems nowadays. Hong Kong and New York were the priciest cities in the world when it comes to rent until recently. Not so long ago San Francisco had surpassed both with the average rent of $2,913 for 1 bedroom apartment. Los Angeles, San Jose, Oakland, and San Diego are not so far behind.

After the Great Recession, a median single-family home in California was worth around half a million dollars. California real estate market prices hit their record high in May 2021 with the median single-family home price reaching $818,260. The new sales price is 39.1% higher than the one recorded last May, $588,070, during the spring lockdown. For the price of one average home in California, you can now buy three in Utah or five in Kentucky.

While the economy has recovered and the unemployment rate has improved to 7.9%, affordable housing shortage problem is here to stay. The pandemic hit lower-wage jobs the hardest, according to CBC. More people than ever before are struggling to pay the bills, especially when it comes to rent. Housing market forecast in California doesn’t look so good and that is one of the biggest reasons why ADUs became popular in California.

“People and jobs can come to a city relatively quickly,” Mayor Eric Garcetti says. “In a couple of weeks, you can open up a new business. But housing takes years to be zoned, approved, and built. Now, west of our 405 Freeway, there are four jobs for every one unit of housing.”

Fast Company

What makes ADUs so popular in California?

  • affordable housing shortage
  • a high percentage of renters
  • all-time high rent
  • wages can’t keep up with rental costs
  • demand outpaces supply
  • 90% of housing is single-family homes
  • record-low homeownership
  • home-sharing services like AirBnb evicted tenants

Crazy-high rent

Economists advise renters to pay no more than 30 percent of their annual income on housing. Anything more than that is unaffordable for average worker in California. Wages remained the same even though jobs have increased. Almost 22 million working Americans are living on a minimum wage salary in 2021. At the same time, rents keep going up. The job market in California creates increased demand for rental units across the state. That is why homeownership rate has dropped.

188,696 or 52% of the households in San Francisco, CA are renter-occupied while 173,658 or 47% are owner-occupied. There are a total of 3305 apartments for rent available in San Francisco, CA. 1-Bedroom apartments are the most common, with a total of 1302 listings available. 4-Bedroom apartments are the least common, with a total of 194 listings available. (Rentcafe)

Did tech industry and other high-paid jobs affect real estate market in California? Or the state of California has always been expensive for the average American? Well, the answer to both of the questions is YES. But at the same time NO. If there wasn’t for tech guys and the “everyone wants to live in Cali” attitude, it would be something else. 

The thing is – insufficient construction of new housing units can’t provide enough supply to meet the demand. Meanwhile, 90% of housing in California is single-family homes with a large backyard. That is what makes ADUs so popular in California!

In May 2021, three of the five major regions set new highs for median prices. Each region increased by more than 20% year over year. The San Francisco Bay Area had the highest year-over-year gain of 38.9 percent. Followed by Southern California (33.1 percent), the Central Coast (32.6 percent), the Central Valley (27.1 percent), and the Far North (22.1 percent).


Housing crisis in California

Even before the pandemic happened homelessness and housing affordability were at the top of the Californians anxiety list. They over-voted the economy, environmental issues, and education over housing crisis. Let’s classify homelessness as the biggest and most urgent problem at the moment. Over 150,000 homeless Californians are currently sleeping in shelters or even on the streets.

Right after homelessness, there are 7.1 million Californians who live in poverty. Taking the housing costs into account, giving more than half of their paychecks for rent only, leaves them with not enough money to live a decent life in California. Even if they are not homeless, there is more than 57% of these low-income Californians who are barely making their ends meet.

You don’t have to be homeless or live in poverty to feel the housing crisis on your skin. Crisis afflicts younger people who belong to middle-class & higher-income Californians. Sixty years ago, the average home in California was worth about three times the average income of a household. Nowadays it costs more than seven times what the average household makes. Such big rents make Californians unable to save enough for downpayment which makes them live as tenants for much longer than they have planned.

What has changed in the past decade? Well, this is the first time in a while that housing crisis hit higher-income Californians. In 2021, nine out of ten Californians consider housing affordability a problem, and nearly one in three Californians are considering leaving the state because of it, according to Public Policy Institute of California. All of these problems are obviously related and stem from the same root problem: not enough housing. 

ADUs are popular in California as they provide solution to housing crisis

Welcome to the world of ADU. An accessory dwelling unit (ADU) is a second, smaller residential building that shares the same lot as a primary residence. It is a separate dwelling from the home, but on the same property. Other names for ADUs are in-law apartments or mother-in-law suites or casitas. The current technical term ADU and backyard cottage are gaining more popularity.

Some call them a “granny flat” or a guest house or even a backyard home. ADUs are habitable with electricity, water, and everything else needed for someone to live and work in full time. Standard ADUs have their own kitchens, living room, and often a bedroom. ADUs typically have their own separate entrances, which provides privacy and independence to the occupant. Newer ADUs are converted to separate office spaces, gyms, or craft studios to provide separate spaces for the primary home resident.

Only a few years ago, in 2016, there were around 50,000 ADUs in built in LA without a permit. Everyone wanted a backyard home and they gained popularity really quickly. Permitting was a nightmare – it used to cost thousands of dollars and it required a dedicated parking spot for an ADU. Zoning adjustments and fire sprinklers were also mandatory. Even then, there was no guarantee of ultimately obtaining a permit from the design commission or city council. 

ADU law changes

In 2016 and 2017, bills were passed by the California legislature which revoked the authority of cities to establish zoning and permitting ADUs, and a new, more lenient approval process for legalizing an ADU or building a new one was formed. The new legislation addressed obstacles such as reduced parking requirements, ease of permitting, and design standards.

Not so long after 2016, zoning was established, and permitting was changed. From that moment it was much easier to legalize an ADU and it encouraged Californians to build accessory dwelling units in their backyard. Los Angeles went from 80 applications in 2016 to a whopping 1,970 applications as of November 2017 according to a report from researchers at the University of California Berkley’s Terner Center for Housing Innovation. Five years later, permitting is on the rise.

“California basically legalized ADUs throughout the state on January 1, 2017. It turned out, there was quite a pent-up demand from homeowners.” Says David Garcia, Terner Center’s policy director. The rent from the unit can help offset the homeowner’s existing mortgage and provide a monthly, passive income, so it is a win-win for both, the renter and the homeowner. Learn more about the ROI of an ADU and how much value do ADUs add to the property.

ADUs are on the rise in California

ADUs were identified as a solution to housing shortage problem by Los Angeles Mayor Eric Garcetti. Building backyard homes was the only way to meet his goal of creating 100,000 new housing units by the end of the year. “Garcetti expects a meaningful percentage of the remaining new units to be small, freestanding dwellings built in the backyards of homes,” according to FastCompany. LA is expecting to build 10,000 new units.

The rise in the number of ADUs will directly impact the housing shortage in California. “The state sees ADUs as a small part of a broad effort to address its housing crisis as demand outpaces housing supply and housing costs rocket ever higher” according to Next City.

One of the biggest problems for ADU growth has been financing. Finding financing for an ADU is much easier than it used to be as new companies are breaking through. Learn how financing an ADU works with Cedar. Please reach out to info@cedaradu.com for any questions you may have.