Accessory Dwelling Units (ADUs) have emerged as a growing trend in the U.S. housing market, with California leading the charge in construction and legislative support. However, despite their potential to alleviate housing shortages, a recent report from Scott Wild, vice president of consulting at John Burns Research and Consulting, has found that the current ADU boom has done little to address the broader issue of housing affordability.
California Leads in ADU Construction
Since 2016, California has been at the forefront of the ADU movement, enacting legislation that simplifies the process of adding ADUs to single-family residential lots. This legislative support has led to a significant increase in ADU construction, with nearly 23,000 units built in the state in 2023 alone. This figure represents a more than doubling of ADU construction from 2021, when 10,000 units were built. The surge in ADU construction in California is a direct result of the state’s efforts to encourage this type of development as a way to combat housing shortages.
However, while these numbers are impressive, they do not tell the full story. From 2019 to 2023, 69,000 ADU permits were issued in California, but only 44,000 units were actually built. This discrepancy suggests that a significant portion of ADU projects may not be reaching completion, possibly due to speculative permits or projects being put on hold.
Nationwide Trends: Expanding ADU Mandates
In 2024, Colorado, Arizona, and Hawaii joined the ranks of states with broad ADU mandates, following in the footsteps of California, Oregon, Washington, Montana, and Vermont. However, the level of ADU construction seen in California has not yet been replicated in these other states. For example, in Denver, Colorado, only 278 ADUs have been built since 2018, despite 35 percent of the city being zoned to allow ADUs.
Hawaii’s recent legislative efforts, such as the passage of SB 3202, which allows up to two ADUs on residential properties, demonstrate the growing interest in expanding ADU construction. However, challenges remain, including local oversight, parking requirements, and restrictions imposed by planned communities. As states continue to explore ADU mandates, the impact on overall housing supply and affordability remains to be seen.
ADUs and the Housing Affordability Crisis
Despite being touted as a solution to the housing affordability crisis, the high cost of building ADUs has limited their impact, the report finds. Building an ADU can cost between $150,000 and $300,000, making it a significant investment that often requires existing wealth or financial savvy. As a result, most current ADU projects are high-end luxury units that do little to address the needs of low- to moderate-income households.
Furthermore, many ADUs are added to properties where homeowners already have substantial equity, and these units often serve as extensions of the existing home rather than as affordable rental options. When rented out, ADUs typically command higher rents than nearby multifamily units, placing them at the higher end of the rental market and limiting their affordability impact.
The Future of ADUs: Two Diverging Paths
The ADU landscape is evolving along two distinct paths. On the one hand, scattered, one-off ADUs are likely to continue being high-end projects. On the other hand, there is growing interest in integrating ADUs into new home communities from the outset. This approach has the potential to boost housing supply and offer more affordable housing options, especially if modular, off-site construction methods gain traction.
Builders who design ADUs into new home communities can create more efficient land use configurations and offer smaller, more affordable homes. This strategy is already being used successfully by some build-to-rent developers and could become more widespread as the ADU movement continues to grow.
Trends to Watch
As the ADU movement gains momentum, several trends are likely to shape its future:
1. Broader ADU Legislation: More states and municipalities will enact legislation to clear the way for ADU construction, with California serving as a model.
2. Modular Solutions: The rise of drop-in modular ADUs could make one-off projects in existing neighborhoods more feasible and cost-effective.
3. ADUs in New Communities: Builders will increasingly design ADUs into new home communities, boosting overall housing supply and offering more affordable options.
4. ADUs for Seniors: With the support of organizations like AARP, more ADUs may be built to accommodate the needs of an aging population.
While the ADU trend is growing, its impact on the housing crisis remains limited. As more states and municipalities embrace ADUs, it will be crucial to monitor whether these units can truly contribute to solving the nation’s housing affordability challenges.
