On 4 October 2018, PlanNH and Vital Communities sponsored a talk titled, Can Accessory Dwelling Units Help Meet Our Region’s Housing Needs? at the Kilton Library, in West Lebanon NH.
The primary speaker was Kol Peterson from Portland Oregon. He has published many books/resources on the subject of Accessory Dwelling Units: http://BuildingAnADU.com, https://accessorydwellings.org, and Backdoor Revolution.
His answer is a strong, YES. Primary drivers for people to create an ADU:
- Rental income
- Flexible space for intergenerational use
- Age in place
Why are ADUs valuable for a municipality?
- 75% of 2018 households have 1-2 people
- In major cities, 35-45% of households have a single person
- But they have no option but to purchase a large single family home
- Average home: 1950 – ~950sf; 2018 – ~2600 sf
- Small homes cost less to build, and have HUGE energy savings
- A huge benefit of additional housing using existing homes with minimal impact to the town/streetscape.
Parking: In Portland OR, the US city with greatest penetration (1%), ADUs have no observable effect on parking. (A municipality only needs to find space for one additional car per hundred homes.)
The Finances: ADUs (like all construction projects) are expensive to build, therefore, breakeven has multi-year payback:
- 250sf => $100K
- 600sf => $200K
- 750sf => $150K to $300K
ADU Construction is not financially viable for ordinary developers who want to “build-and-flip”:
- Doesn’t improve the value of the property enough to make up for the $100k-300K construction cost.
- But… rental income breaks even over 5-10 years (depending on construction cost and market)
- Attractive for people who plan to stay in the neighborhood for 20-30 years
Financing is hard: must rely on home equity line of credit, savings, cash out of liquid assets, family, sweat equity (often 50% of cost)
Takeaway: Given the difficulties of building anything (brainstorming, finding an architect, talking with the neighbors, schematics and design, etc) and the modest financial returns, ANY limits of permitting and zoning regulations discourage people from developing ADUs. There is a good discussion in the slides. Another example of a disincentive, the State of NH requires an attached ADU to have a connecting door.
Furthermore, many laws/ordinance/regulations require owner-occupied ADUs. This is also a disincentive, for the following reasons:
- Appraisers will undervalue because of deed restriction, therefore may not be able to refinance
- Lenders cannot (by definition) owner-occupy, so may choose not lend
- Affordable housing NGOs cannot occupy, so may not fund either
- The requirement places a significant restriction if the owner needs to move
- Why wouldn’t owner simply build an un-permitted ADU?
- No cities have seen large number of ADUs, so it’s not a practical problem
- Finally, what other property type in the US has this requirement?
However, certain restrictions are not unreasonable:
- Regulations limiting ADU to 750-800sf are not an important restriction because ADUs are designed for secondary home/smaller unit
- Regulations preventing ADU from being subdivided is not important restriction
What about people who use ADUs as Short Term Rentals?
- There’s no data on the trends
- If it is becoming a problem, decouple ADU reg’s from ST rental reg’s – they’re not the same thing.
Sponsors: Vital Communities – Workforce Housing and PlanNH
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