Significant Brakes on the Development of ADUs

One of these brakes could be fairly easily remedied:

Unreliable appraisals: if someone is going to spend about $200,000-$225,000 for a 500 square foot ADU, how much value will it add to the property?  This, of course, will affect the taxes and insurance as well.

Some say the square footage will count the same as if just added to the main dwelling. However, there is not a standard for appraisals since there are few comps, as homes with supplemental dwellings are not that common and homes with new ADUs are just for the most part coming onto the market and not something you can easily comp on the MLS.  That is the theory as to why comps are unreliable.  However, appraisers could just add the total square footage of combined dwellings on the property and say that is the value. Nothing else makes much sense unless the value is HIGHER because of the ease of adding another rental stream to the cost of the property, the desirability of the second unit, the needs of an extended family or friends, etc.  Ultimately, of course, any property is worth whatever a buyer will pay for it. Since the return on investment is critical in the decision to build for financial reasons, standardizing the appraisal process & valuation would be a stabilizing force in making Accessory Dwelling Units look very appealing to investors & builders who need to know the value will be there before they decide to spend the money to build. Flippers, for example, could easily be adding ADUs to their flips if they know it would help their ROI.  The down side to this also is that some fear that investors buying single family homes to get 2-3 streams of income per property ( 1 adu + a “junior adu” which is part of the primary house) will create more scarcity for buyers.

This is the tough one: Traffic.  While people are leaving because of congestion and countless hours wasted sitting on freeways, it is just not fair to people who have made their home here to be driven out because of the congestion caused by way too much traffic.  It is less safe and our communities are not as nice when you add 50,000 cars to the same roads. Now we are being asked to pay for driving in the fast track lane that our tax money was used to build. Anyone who figures this one out will deserve a gold medal.

The time & complexity it takes for approval.  A local ADU builder mentioned spending 5 hours waiting at a planning department in order to move forward on a project. San Jose is taking the lead on facilitating the permitting process locally with their program to empower people to walk in the door w/ an appointment on Tuesdays and potentially receive over the counter approval.  They are collecting standardized plans & products that are already pre-approved for people to use. This also saves the homeowner the cost of hiring an architect. They were immediately booked for two months in advance.  This will not work for flippers and seems like a long time for people to wait just to talk to a planner for their potential 1 - day approval.  Ultimately, I believe, there will soon be a surge of permit applications this spring and planning departments will be even more crowded, a good reason to start early in the year with the planning process.  It would be nice if local governments anticipate this need and add staff early in the game.

Well, San Jose’s  example sets a standard for other cities to consider. However all cities are not so aggressive about taking steps to facilitate the ADU development process.  Since requirements vary from city to city, there are some cities where you would have difficulty building a pre-fab unit for example because the city wants the style to match the original residence. This is going to takes some time to sort out.

Still, to have inventory growing for a segment of the market that has been underserved for years is exciting!  As a nation, we have built apartments, condos & McMansions because that is where the money has been.  Now we have a niche developing that serves small builders and individual property owners and renters who would like their own little place to live that is not in a big apartment or condo complex. Besides that, they are often very cute.