Construction of accessory dwelling units (ADUs) is taking off, but is it bringing down housing costs?
A new report from John Burns Real Estate Consulting casts doubt on it, citing uneven geographic distribution of deregulations and the high cost of construction. As a result, the most impactful ADUs are in new construction.
California has led the nation in ADU construction since it passed broad legislation at the state level allowing for ADUs on single-family residential lots. According to data from the California Department of Housing and Community Development, ADU construction increased from 3,137 units in 2018 to 22,802 in 2023, a 626% increase.
But one thing holding back ADU construction in other parts of the country is that ADU initiatives are happening at the county or city level instead of statewide like California. The report uses the example of Denver, where changes only come at the neighborhood level. This has resulted in just 35% of the city allowing for ADU construction.
States with what John Burns describes as “broad mandates” on ADUs include California, Oregon, Washington, Montana, and Vermont. Colorado, Arizona, and Hawaii have joined them with initiatives in 2024.
Another factor tempering ADU construction is the cost of building them. It can range from $150,000 to $300,000, which is almost the price of a full-sized home in some markets. People who build ADUs tend to have considerable home equity and “financial savvy.”
These “one-off” ADU units skew toward the high end, and the high cost to build them pushes up the price of renting one. Renters who prefer a single-family environment might find it appealing, but others will find renting a multifamily unit to be bigger and cheaper.
Looking ahead, John Burns says modular building is a trend to watch, which can lower the cost of ADUs on lots of existing homes, but it remains a very small segment of the market. Regulatory changes will obviously have a big impact. The report concludes that ADUs can be most impactful if they are included in the construction of newly built homes.
The report also notes that ADUs are an ideal solution for senior living, as AARP has endorsed the idea.
