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News + PoliticsHousingAre ADUs affordable housing?

Are ADUs affordable housing?

The NYTimes says yes—but even the Chron agrees that the data shows these units are not a very effective way to address the housing crisis.

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The California growth machine rarely breaks ranks. As a rule, its members toe the supply-side line: To solve the state’s housing affordability crisis, build everything except single-family homes—the more the better, because according to the “laws” of supply and demand, increasing supply lowers prices.

One of the machine’s favored housing types is the accessory dwelling unit, also known as an ADU, plannerese for granny flat. The state of California allows a city to count ADUs toward fulfilling its Regional Housing Needs Allocation, “based on the actual or anticipated affordability.”

A garage converted to an ADU in San Francisco, Are these new units really part of an affordable housing strategy?

In April 2019 the Bay Area Council launched the Casita Coalition “to promote ADUs.” A year later, the Chan Zuckerberg Initiative gave BAC $400,000 “to support and expand the Coalition’s work.” The membership of Casita’s statewide advisory board reflects ADUs’ popularity among growth boosters. The roster includes representatives of SPUR, the Terner Center for Housing Innovation at UC Berkeley, and the California Building Industry Association, as well as Alameda County Treasurer-Tax Collector Hank Levy, City of Los Angeles Planner Matthew Glesne, and other state and local officials.

Though the Casita Coalition features ADUs, it also advocates a range of “small homes”—duplexes, triplexes/fourplexes, “cottage clusters,” and town houses—calling them “naturally affordable…for both renters and homeowners because they cost less to build.”

The Chronicle’s exposé

On January 10 the Chronicle, a growth-machine stalwart, went rogue and ran a story that questioned ADU affordability. Under the headline “San Francisco ADUs are being built mostly in the richest parts of the city,” data reporter Susie Neilson wrote:

Proponents of ADUs tout them as relatively low-impact tools to both help address California’s housing shortage and to enable lower- and middle-income homeowners to increase wealth and income by renting out the units. State legislators passed numerous laws aimed at making ADUs easier to build in recent years, including one [SB 1069] that legalized units on single-family lots in 2020.

San Francisco has been liberalizing its ADU rules since 2014, when it passed an ordinance authored by then-Supervisor Scott Wiener that allowed ADUs in Wiener’s Castro district. The passage of Ordinance 162-16 in 2016, legalized ADUs in all of San Francisco’s zoning districts that allow residential use except in places zoned for detached, single-family dwellings (RH-1D parcels), where state law would apply.

“[D]espite these policies,” Neilson reported, “only 622 ADUs have been built in the city since 2014, representing less than 0.2% of the city. And those units are disproportionately located in wealthier neighborhoods, a Chronicle analysis has found.”

The article included a map showing the rate of ADUs per 10,000 existing units of housing by neighborhood. Most of the city’s ADUs “are being built in neighborhoods in the northern and central portions of the city,” with the Haight having “the highest rate of ADU construction relative to its available housing stock.”

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Neilson solicited comments on the Chronicle’s analysis from three housing experts. The one who hewed most closely to the growth party line was Mark Hogan, principal architect at OpenScope Studio. Hogan, who “helped shape San Francisco’s ADU program and has built numerous ADU projects in the city,” blamed the lack of ADU production on onerous local regulations. San Francisco’s ADU laws, he said, “are less streamlined than the state’s,” citing as an example the city’s exemption from the state’s 2020 requirement that local governments respond to ADU permit applications within 60 days.

Neilson also spoke with David Garcia, Policy Director at the Terner Center, the neoliberal think tank that since its 2015 founding has become the most influential source of housing policy in the state. Garcia did not dispute the Chronicle’s analysis. Indeed, he told Neilson that “ADUs are being disproportionately constructed in wealthier neighborhoods across the state, not just in San Francisco.” He put a brave face on the matter: “‘These neighborhoods are (traditionally) housing-exclusive, so I actually think that’s positive.’”

To the uninitiated, “housing-exclusive” may sound weird: After all, there’s lots of housing in all of these places. What Garcia means, I presume, is that these neighborhoods have been zoned to exclude all sorts of residences but single-family homes. Garcia added that Terner “and other policy experts” are working on financial fixes to the “ADU wealth gap.”

Neilson’s third commenter, Berkeley architect and Opticos Design CEO Daniel Parolek, was less sanguine about ADUs. Parolek originated the term “missing middle housing,” which, according to his firm’s website, refers to housing projects with two to nineteen units. He’s built a nationwide reputation on that kind of development, and his comments reflected that history. “It’s good that we’re adding houses in this way,” he told the Chronicle. “But a city like San Francisco needs a lot more tools to enable a volume of housing that has an impact.” Translation: ADUs can’t make much of a difference.

Parolek didn’t address the affordability issue.  Instead, he took another jab at ADUs, stating that “in his experience, many California cities are ‘prioritizing [them] at the expense of other needed housing efforts,’ in part because they’re less politically controversial than other development options, like rezoning neighborhoods or approving large apartment buildings.”

The New York Times’ hype

The Chronicle’s heterodoxy becomes clear when Neilson’s piece is read in tandem with the story about San Diego’s ADU scene that appeared in The New York Times in October. In November 2020 San Diego loosened its ADU rules much further than the state’s. The changes sparked an ADU boom. That drew the attention of Times reporter Conor Dougherty, who visited San Diego and then wrote the October story. As his article indicates, The Times is an unwavering growth-machine loyalist.

To illustrate the boom, Dougherty showcased the enterprise of Christian Spicer. A former house-flipper, Spicer now runs an unnamed LLC that buys homes “with abnormally large lots with a flat, neglected yard that is primed to start building on.” In November 2020, he paid $700,000 for a four-bedroom house at 5120 Baxter Street. Spicer split the building into two apartments and built a two-story house behind it.

He estimates the house would rent for $3,300 a month with a few renovations. Instead he spent about $400,000 building the new units and splitting the house, and believes he will get between $9,000 and $10,000 a month in rent across the property.

“That,” Dougherty reckoned, “would increase the property’s value to about $1.7 million,” a price that “would be galling to an aspiring homeowner who might have outbid another family before losing to Mr. Spicer and now feels cheated out of the American dream.” He rationalized their loss: “the 10 to 12 people who move in are unlikely to think the world would be better off if their homes had remained dirt and only one family lived there. Housing is complicated.” Yes, it is—a lot more complicated than Dougherty indicated.

Supply-side proponents say permitting denser development, aka upzoning, lowers the price of housing by increasing the potential number of homes. Accordingly, California’s ADU laws lack affordability requirements. But as the history of development at 5120 Baxter shows, the more units allowed on a parcel of land, the more profit that can be squeezed out of that parcel, which means higher real-estate values and housing prices.

Dougherty tried to finesse the issue by conjuring up Spicer’s grateful future tenants and linking to two surveys that, he said, show that ADU rents “are affordable compared with similarly sized units in the area”—“not because they are undesirable,” but because “a lot of them are discounted for friends and free to family.”

Those surveys show nothing of the sort. One, published in April 2021 by the Center for Community Innovation at UC Berkeley, another pro-growth and pro-ADU think tank at that campus, includes median ADU rents in Los Angeles County but doesn’t compare those figures to rents for homes of any size.

The other study, published by the UCLA Ziman Center for Real Estate in December 2020 and conducted by Dr. Rebecca Crane, a UCLA Lecturer in Public Affairs, offers a nuanced analysis of ADU affordability in LA that confutes Dougherty’s claim. (Crane’s study is no longer online.)

Crane notes that “despite frequent assertions in both the [academic] literature on ADUs and [in] current legislation that ADUs are a form of low-cost housing,” “the question of affordability remains unclear.” For one thing, the data, including her own, is “still limited.” She surveyed the 6,500 homeowners who, between 2013 and 2018, had pulled a permit from the city of Los Angeles to build an ADU. Her research was based on 321 responses.

The Center for Community Innovation’s data is even more limited than Crane’s. CCI queried 15,745 ADU owners throughout California; it got 752 responses.

The murkiness of ADU affordability also stems from ADU’s peculiar character as a type of rental property. Crane observes that “a potential landlord, at least one who also lives on the property, “must sacrifice some amount of private space to the tenant.” Since “not all homeowners wish to use their ADU as a rental unit …construction does not imply entry into the housing market.” Moreover, not all landlords who use ADUs as residential space “are willing to house strangers” there. Thirty-six percent of Crane’s 321 respondents had “no plans to use the ADU as a rental unit for strangers. Sixty-eight had “either a family member (67) or caregiver (1 participant) living in the ADU.”

The lack-of-privacy factor influences rents. Crane’s survey of homeowners in Los Angeles

found that family members and friends pay less than non-related tenants, and the median rental price for family members and friends is less than the median rental price in Los Angeles. In fact, most family members do not pay at all.

If Dougherty had just written that friends and family members who reside in ADUs pay below market rents or no rent at all, he would be on solid ground. What he wrote, however, was that ADU rents “are affordable compared to similarly sized units in the area” because “a lot of them are discounted for friends and free to family.”

Twenty-one percent of Crane’s respondents (69 of 321) had a friend or family member in their ADU.  The Center for Community Innovation says that “18% of the state’s new ADUs provide no-cost housing for family members (16%) or friends (2%),” which jibes with Crane’s results. Do those percentages qualify as “a lot”?

As for neighborhood and size-of-unit factors: Crane found that “[o]n the whole, rents for ADUs are higher than the nearby rental prices for a one-bedroom unit.” She elaborated:

The median rent for ADUs with non-related tenants is higher than the median rental price for the whole of Los Angeles, and this is truer after factoring the size of the units. Rent for non-related tenants is comparable to or even lower than the listed price for the average rental unit found through rental listing website like Zillow, and it is lower than the median rental price for recently constructed units But ADUs are smaller on average than rental units in the city, and ADUs are less affordable than other rental units after taking the number of bedrooms into account. Prices for ADUs rented to non-related tenants are similar in price or more expensive than one-bedroom rental units in the same neighborhood.

Her conclusion: “After factoring in the tenant-homeowner relationship and the size of the unit, ADUs do not appear to be a low-cost alternative to other types of rental units nearby.”

Nor do ADUs appear to be a vehicle of opportunity for would-be family landlords. Until 2020, the ADU business, Dougherty wrote, “was driven by homeowners building ADUs on their property.” Today, “interviews with planners, lenders, and contractors” indicate that “over the past year there has been a surge in interest from upstart developers like Mr. Spicer,” deep-pocketed entrepreneurs who are outbidding families for single-family homes, and who do not live on the properties they rent out.

Dougherty downplayed families’ disadvantage, calling “[l]egalized ADUs … just a higher-end version” of the more than 300,000 unpermitted accessory units in the Los Angeles metropolitan area.


Higher-end indeed. Crane’s respondents have an average annual household income of $146,760, which, she notes, is “significantly higher” than the Los Angeles median household income of $62,474. That shouldn’t be surprising. “[C]onstructing an ADU is expensive: on average, [survey] participants spent over $100,000 on their ADU, and that figure includes homeowners who reduced costs by using free labor (their own or someone else’s).”

A few days after Dougherty’s article was posted, the San Diego Housing Commission released a report that estimated that the costs of building an ADU in San Diego range from $116,803 for a 224-square-foot studio to $342,098 for a 1,199-square-foot, three-bedroom unit.

It might sound as if ADUs come cheap. But cheapness depends on what you can afford to spend. “In order to be able to afford an ADU,” Crane wrote, “a homeowner must have some financial security, suggesting that even in low-income neighborhoods, homeowners with ADUs might be higher income than the median.”

The Center for Community Innovation came to a similar conclusion. CCI found that the median construction cost of the ADUs in the CCI sample was $150,000 or $250/sf. “[C]ompared to the statewide average construction cost of $480,000 per unit ($700/sf) for affordable housing units that received Low-Income Housing Tax Credits (LIHTC) in 2019,” that is a “significant savings.” A crucial caveat: Some of the cost difference “may be attributed to the fact that the cost of an LIHTC unit includes the price of land, and “the cost of an ADU does not.”

Even so, “ADUs still require significant financial investment to build.” The CCI survey found that “[h]omeowners across all races and economic status rely heavily on cash savings.” It concluded that financing ADU construction is “a significant barrier.”

On January 20, I invited Dougherty to discuss the treatment of ADU affordability in the San Diego piece. He was game, but The Times’ corporate side wasn’t. Here’s our email exchange, starting with his initial reply:

On Jan 20, 2022, at 11:23 AM, Conor Dougherty wrote:

Zelda! How have you been? I’m happy to discuss but if you want to quote me I have to call our handlers. 

On Thu, Jan 20, 2022 at 11:47 AM Zelda wrote:

Hi Conor:

I’m fine. Hope you are, too.

What do you mean by “handlers”? And by “our”—is that the NYT?

I would like to quote you, but if the handlers say No, I’d still like to chat.

Please let me know what’s possible.

Thanks.

Zelda

On Jan 20, 2022, at 11:56 AM, Conor Dougherty wrote:

Yes our PR people have to clear outside media. They are not really comfortable with me being quoted in local media but I of course always love talking housing with you so happy to chat off record. There’s lots of studies I’m happy to point you to though I’m sure you have found all of them already! 

On Thu, Jan 20, 2022 at 12:10 PM Zelda wrote:

Please see what they say and let me know. Worst case scenario, we can talk off the record.

On Jan 20, 2022, at 12:11 PM, Conor Dougherty wrote:

They said no. Does off record work? Can you give me a preview of what interests? 

It did work for me, and we had a collegial off-the-record chat. I would still be happy to have an on-the-record discussion with him, should the handlers allow it.

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