Accessory Dwelling Units: Two for the Price of One

Editor’s Note: Cover photo courtesy of Kol Petersen.


They may be small, but they serve all sorts of purposes—from she-sheds to granny-flats and short-term rental units. Yet, accessory dwelling units, better known by their acronym ADUs, are not clearly understood by all interested in this real estate topic.


The best definition of an ADU, according to Kol Peterson, an expert and author of a book on the subject, Backdoor Revolution, the Definitive Guide to ADU Development (Accessory Dwelling Strategies), is a second dwelling on a property where there’s a “regular” or primary house. They can be located either within the main home as an apartment in a basement, attic or even main floor or second level, or be located above a detached garage or in its own separate freestanding structure.


Wherever it appears, it’s become an increasingly popular form of housing for home owners as well as for investors who see the wisdom of buying a primary or main home and getting a secondary dwelling for the same price.




Anticipated increase in ADUs

Peterson and others attribute interest to multiple factors:

  • ADUs work well for single-person households, which numbered about 32.5 million people in the U.S. last year, or 10 percent of the population.
  • Even more important is that they also can work well for two-person households. The combined one- and two-person number of households represent a significant 70 percent of the country’s population. Yet, the total housing stock features much larger homes for the most part—for more dwellers, so there’s a huge “mismatch in what homes are available—and hence the great demand,” Peterson says.
  • Many cities in the U.S., especially those on a coast such as Seattle, San Francisco, Boston, are experiencing an affordable rental housing crisis, making potential home owners and those in the building trades realize that more economical options need to be developed.
  • They appeal to those looking for more sustainable, environmentally sound choices. ADUs, which average about 800 square feet, pare down a home’s carbon footprint, cut down on the use of natural resources and eliminate wasted interior space, extra furnishings, and all sorts of belongings.
  • Finally, they offer a viable option for home owners wanting to rent out their house on a short-term basis in the new sharing economy. Many cities and villages are becoming more restrictive about who can rent the main house, whether the home owner needs to be on the premises, and for how long it can be rented. Some cities like Santa Monica, Calif., state it must be for a minimum of 30 days. However, often an ADU may be looked on more favorably since it’s an ancillary dwelling. And this may become more so since California’s legislature recently passed reforms to reduce regulations governing them. Right after the reforms were approved, several California cities witnessed an increase in ADU permit applications, according to an article by Josh Cohen in “Next Cities.”


Peterson, who frequently conducts seminars on the topic and advises home owners, investors, and municipal officials about do’s and don’ts related to them, shared more for those interested. The following represents a condensed and edited version of an interview with him; for much greater detail please consult his informative book:


Do we know how many ADUs there are nationally?

No, because many cities and communities don’t do a good job of tracking the permits issued and many people don’t go through the permitting process. A wild guess might be about 50,000 in the U.S. but there could be tens of millions of unpermitted ones. We think they increase a home’s value, generally by about 75 percent of the value of the ADU.


Is there an average size or minimum or maximum?

There’s no one number. Most local jurisdictions have a code that dictates acceptable sizes for ancillary structures or units within a home. The key is that they’re architecturally subservient to the primary dwelling. About 800 square feet is common but in California the code allows up to 1,200 square feet. Some municipalities limit them to 600 square feet. Bottom line: Ask and do your homework before you buy or remodel a structure or convert space in your home into an ADU.


How’s it differ from a tiny house besides size, since these are usually under 400 square feet?

Tiny houses are built atop wheels and aren’t considered a “house” per se. An ADU must have a foundation if it’s freestanding.


Who governs rules about ADUs?

The local jurisdiction. Some key rules are that they can’t be bought or sold separately from the primary home. They require a permit, often provided by a town’s building department, which will usually also set restrictions regarding lot size, setback requirements, parking rules, and so on. Many communities and cities are trying to relax rules and encourage an increase to house people. Portland, Ore., has waived fees, says Peterson who lives there and whose 1953 split-level ranch includes an ADU within. Other communities allow them theoretically but still have restrictive rules making it difficult to pursue the option, he says.


Examples of various configurations for accessory dwelling units.


What’s the biggest challenge?

Securing funding since there’s no loan product that will finance it. What home owners or investors need to do now is use a home equity line of credit, cash savings, a loan from family or friends, or a credit card with a sizeable credit line.


Photo courtesy of Kol Petersen.

How much on average does a “nice” ADU cost to construct or remodel if interior space?

About $150,000 for a 600-to-800-square-foot ADU, though the number can vary greatly by city and its labor costs and cost of materials. Get several estimates to be safe.


Do neighbors often object?

Usually not when it’s built with permits and the design is done well.



Where can someone learn more about them?

Through the websites, and buildinganadu; from Peterson’s book (see above); from materials published online from The Terner Center for Housing Innovation at the University of California, Berkeley; and by Googling the words “Accessory Dwelling Units” and “ADUs” and similar terms.

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