Accessory dwelling unit (ADU) construction is on the rise, but will this lower housing costs?
A new report comes from John Burns Real Estate Consultants Skepticism has been expressed, citing the uneven geographical distribution of deregulation and the high cost of construction. As a result, the most influential ADUs are being built new.
California has been a national leader in ADU construction since it passed sweeping legislation at the state level allowing ADUs to be built on single-family residential lots. According to data California Department of Housing and Community Development, ADU construction volume will increase from 3,137 units in 2018 to 22,802 units in 2023, a growth of 626%.
But one factor holding back ADU construction in other parts of the country is that ADU measures are implemented at the county or city level, rather than on a statewide basis like in California. The report points to Denver as an example, where changes occurred only at the neighborhood level. This results in only 35% of the city’s area allowing ADUs.
John Burns said states with “broad authorization” for ADUs include California, Oregon, Washington, Montana and Vermont. Colorado, Arizona and Hawaii have also joined the 2024 initiative.
Another factor that affects ADU construction is the cost of construction. Its prices range from $150,000 to $300,000, nearly the price of a full-size home in some markets. People who build ADUs tend to have considerable home equity and “financial acumen.”
These “one-off” ADU units tend to be high-end, expensive to build, and drive up the price of rental units. Renters who prefer a single-family environment may find it attractive, but others will find it larger and cheaper to rent a multifamily unit.
Looking ahead, John Burns said modular construction is a trend worth watching that could lower the cost of many existing residential ADUs, but it still represents only a small portion of the market. Regulatory changes will obviously have a significant impact. The report concluded that accessory dwelling units would likely have the greatest impact if they were included in the construction of new housing.
The report also states that ADUs are an ideal solution for senior living, as the American Association of Retired Persons (AARP) endorses the idea.
