SELLING ADU’S COULD BE A MAJOR HOUSING ANSWER

 

CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, JULY 19, 2024, OR THEREAFTER

BY THOMAS D. ELIAS

     “SELLING ADU’S COULD BE A MAJOR HOUSING ANSWER”

 

 

       No one doubts there’s a shortage of low-end housing available for purchase in California.

 

 

        The combination of high prices, high rents and the lower-than-normal property taxes paid by long-term homeowners has kept California’s inventory of low-priced housing down for many decades.

 

 

        The often-innovative city of Berkeley earlier this year proposed one possible way to ease some of the shortage: allow homeowners to sell off the “accessory dwelling units,” also often also called “granny flats” or ADUs that have become a popular item all around the state.

 

 

        But then along came San Jose and beat Berkeley to it. In early June, that city’s council voted to allow the separate sale of additional dwelling units (ADUs, sometimes called “granny flats”) starting almost immediately.

 

 

        This is a logical consequence of a 2016 state law allowing homeowners in almost every urban area to build ADUs on their property and rent them out, regardless of local zoning limits. More than 50,000 such units have been permitted around the state since that law passed, allowing owners to add as many as three such rental units to properties with existing homes.

 

 

        It’s become routine for new tear-down-and-build-ups in single family neighborhoods to include ADUs, often atop new garages built as separate structures from the houses they serve.

 

       

        “Why not spent about $150,000 to build a place that will bring you income of $2,000 or more per month?” asked one pitch from an ADU specialty contractor.

 

 

        But that’s peanuts compared to what homeowners might make if they could build ADUs and then sell them off as separate homes, sans homeowner associations. In some areas, sales could allow homeowners to quickly double or triple their investment in an ADU, while still selling for far less than the current statewide median price of more than $850,000.

 

 

         This putative price differential comes partly because homeowners who add ADUs avoid the land-purchase cost that makes up a large percentage of the approximately $1 million it takes to build a typical “affordable” home in California today.

 

 

         This is exactly what an unpublicized new law known as SB 1033, which became effective Jan. 1, now allows, if cities and counties go along.

 

 

         San Jose became the first to act, with Berkeley also having approval on its future docket The East Bay city has ordered its staff to draft a local law authorizing sales. San Diego County is also considering quick approval. It’s only a matter of time before many more locales jump aboard.

 

 

        If rental ADUs became popular as new ways to enrich existing homeowners, imagine what selling ADUs might do. This could become a major new financial bonanza for homeowners who have watched their equity build for many years, nevertheless unable to touch it without selling until they grow old enough to qualify for a reverse mortgage.

 

 

        Buying studio or one-bedroom ADUs could also become a way for young families to begin building generational wealth in areas most cannot afford even to consider today.

 

 

         For the existing homeowner, of course, this will usually mean exchanging a somewhat smaller yard for a larger bank account.

 

 

        Still, nothing prevents homeowners from continuing to rent out ADUs or letting their adult children or extended families use them to live close by.

 

 

        “I think it’s a great opportunity to buy their first home that’s relatively affordable and get their piece of the California dream,” Democratic Assemblyman Phil Ting of San Francisco, author of AB1033 and a former county assessor, told a reporter.

 

 

        Some Berkeley officials, who have long wrung their hands over the inability of city workers like police officers and teachers to live locally, say they expect ADU sales to be legal there soon, especially with San Jose showing the way.

 

 

        If this becomes as popular as rental ADUs have been, expect it to be a major factor in continuing the reversal of California’s population drain of the last few years, without lowering property values of existing residents who have resisted other new laws calling for an end to single family (R-1) zoning.

 

 

        In all, this is a logical move that should have happened years ago – and probably would have, if anyone had thought of it.

       

 

            -30-

    Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net