ADUs: Housing Crisis Solution or Expensive Standalone Projects?

Accessory dwelling units, which are independent residential spaces located on the same lot as a single-family home, are often discussed as a potential solution to prolonged housing shortages and affordability issues. However, most ADU projects tend to be high-end, standalone projects that lack economies of scale and sometimes present access challenges. As a result, they have so far done little to offset affordability challenges, according to a think tank hosted by John Burns Research and Consulting’s New Home Trends Institute.

Typically, ADUs are less than 1,000 square feet, have 1-2 bedrooms, and provide private entrances and HVAC. They are often touted as an ideal solution for seniors.

California has led the nation in ADU construction in large part thanks to supportive legislation enacted in 2016. Construction spiked in the state from 3,000 units in 2018 to nearly 23,000 units in 2023.

However, of the 69,000 ADU permits pulled in California since 2019, only 40% have been built, according to JBREC. This could reflect work still in progress or projects on hold, or it could signal a rise in speculative permits that were never intended to be built. California has made ADU permits easy and inexpensive to obtain and as such they are sometimes used as a marketing tool to add value to a property listing, the firm said.

ADU volume is gaining traction in other locations, including Colorado, Arizona and Hawaii, which enacted broad ADU mandates this year, joining Oregon, Washington, Montana and Vermont. Most ADU initiatives have been at the city or county level rather than statewide. For example, Denver has historically relied on neighborhood-by-neighborhood rezoning efforts, and although 35% of the city is currently zoned to allow ADUs, only 278 have been built since 2018.

Hawaii recently passed legislation that allows up to two of those units on residential properties and eases owner-occupancy requirements. Still, local oversight regarding parking is allowed and planned communities can prohibit ADUs. Both of these caveats could impact construction.

Today, most ADUs are essentially replacing move-up home alternatives as homeowners are using them to extend their existing homes to accommodate the changing needs of growing families. If the spaces have a true impact on housing availability and affordability, they need to become easier and less expensive to build, said JBREC. This could be accomplished with an off-site modular construction approach in which ADUs are dropped in at properties, or by designing new home communities from the start with the units included.