United States
September 2022
US Market Report

How do you ADU? Introducing a possible solution to the housing shortage

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Accessory dwelling units (ADUs) go by many names – “backyard cottages,” “granny flats,” “in-law suites,” – but some city officials are calling them the key to easing the housing shortage.

Freddie Mac estimates that the US is short 3.8 million homes, and though construction rates are finally picking up following a decade-long slowdown, the 1.446 million residential housing starts in July still may not make a dent in this deficit.

The lack of affordable single-family homes is causing prospective homeowners from coast to coast to stay in or enter the rental market. But increased demand for rental properties combined with low inventory means there are fewer units available to rent, sending the national rental vacancy rate plummeting to 5.6% in Q2 2022. However, there could be a solution right in your own backyard.

Accessory dwelling units are secondary living quarters located on the same grounds as a single-family lot. They can either be attached or detached from the main building. Regardless, they must have their own kitchen, bathroom, and entrance.

For example, basements or garages can be turned into studio or one-bedroom rental units, increasing both housing stock and affordability without the cost or delay of starting from scratch. Since conversion is typically more cost-, space- and time-efficient than construction, industry experts are pushing for an ADU revival to remedy this housing shortage.

Indeed, ADUs are not new; they were especially popular in the early 20century up until the development of the modern suburb after World War II. However, while most states permit the building of ADUs, regulations vary depending on the region and some are stricter than others. Meanwhile, California passed legislation that loosened ADU regulations back in 2016 and 2017, making it one of the more progressive states when it comes to auxiliary homes.

Since then, cities across the country from Portland to Chicago to Jacksonville have or are considering updating their zoning laws and restrictions, and/or providing funding for ADU production. A (different) Freddie Mac survey identified 1.4 million single-family properties with ADUs in the US in 2020, with nearly 70,000 of them having been sold in just 2019 compared to less than 9,000 in 2000.

Accessory dwelling units will not solve the housing shortage on their own, but they could alleviate some of the demand for affordable long-term housing from low-income tenants, including struggling families and “boomerang kids” – adult children who moved back in with their parents because they can’t afford to buy a home. As barriers for ADU construction continue to be removed, investment in this type of rental unit may promote portfolio expansion without needing to purchase new properties. Relevant permits must be obtained before attempting to realize the potential of one property’s unused garage or another’s unoccupied basement.

More ADU headlines

Everyone agrees accessory dwelling units can help Denver’s housing crunch. So why are so few being built? – The Denver Post

Pittsburgh City Council digs deeper into possible options to boost affordable housing – Pittsburgh Post-Gazette

Tiny homes, big dreams: How some activists are reimagining shelter for the homeless – NPR

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