California Accessory Dwelling Unit: Reshaping Housing

California accessory dwelling unit (ADU) provides a small, independent housing alternative in the same location as a family home. ADUs are addressed differently across the US, with names including secondary suites, granny flats, and accessory apartments. 

An existing home can be converted into internal ADUs; additions can be made to form attached ADUs or new stand-alone (detached) ADUs can be obtained. Detached, attached, and internal ADUs can increase housing affordability for tenants and homeowners. Seniors can stay near their families as they age and make better use of the housing fabric in established neighborhoods.

Overview of Accessory Dwelling Units in California

Accessory dwelling units have become a significant part of inventive housing solutions in California. This has resulted from homeowners’ attempts to maximize the potential of their properties amidst the nationwide housing shortage. ADUs offer Californians additional dwelling spaces while avoiding land acquisition costs and infrastructure set-ups. 

The Golden State has adopted a proactive stance in crafting ADU zoning laws to facilitate the smooth inception of ADUs in the community. The laws continuously evolve to make ADU inception smoother and encourage homeowners to embark on such projects. 

Planning for Accessory Dwelling Units

Even though allowing ADUs in single-family areas has benefits, it may change the neighborhood’s character and overburden the existing infrastructure. There is, however, no substantial proof that these projects may lead to parking shortages or lower property values. By increasing the supply of affordable housing, ADUs contribute positively to the host community’s economy through property taxes and construction activities. 

A residential design study helps identify the challenges of integrating ADUs into single-family neighborhoods. By assessing your housing needs, you can highlight the spatial and demographic mismatches between the available housing supply and the demand. 

Cities often include policy recommendations on updating zoning regulations when addressing ADUs in their comprehensive plans. Some communities categorize land use, indicating where certain types of ADUs are appropriate. 

Zoning for Accessory Dwelling Units

Many cities allow ADUs in single-family zoning districts depending on usage. Common provisions include off-street parking requirements, design and dimensional standards for neighborhood compatibility, and an owner-occupancy requirement. Other provisions limit the number of bedrooms, occupants, or the allowed lot sizes. Some occupancy restriction codes allow ADUs to house domestic employees or family members only. 

The Role of ADUs in Alleviating Housing Shortages

The housing shortage in the US is characterized by a difference in the housing demand and supply. This imbalance causes rental inflation and increased housing costs. Population growth and rapid urbanization in urban centers further contribute to the issue and make it difficult for individuals to secure suitable and affordable housing. ADUs offer a viable solution to these issues by offering the following benefits:

• ADUs optimize land use since homeowners build additional houses on their existing properties. 
• Homeowners can rent out the additional units for some extra income. 
• ADUs can be customized in different ways to cater to the various needs of individuals. They can serve young adults and senior family members conveniently. 
• They allow extended families to live together without the members sacrificing their privacy. 
• Since ADUs are constructed on existing properties, they alleviate the need for new projects, thus reducing the environmental impact associated with construction. 
• ADUs increase urban population without compromising access to amenities, transportation, and public services. 

The Impact of ADU Laws on Affordable Housing in California

California continuously lifts restrictions and passes new ADU laws to simplify building accessory dwelling units.  Some laws impacting the ADUs include AB 1033, AB 976, AB 434, and AB 2221. These laws translate to the following:

• Assembly Bill 1033 allows homeowners to sell their ADUs separately from their primary residence. Local agencies are authorized to adopt ordinances approved by the California Department of Real Estate, allowing the sale of ADUs as condominiums separately from the primary dwelling. 
• Assembly Bill 976 prohibits local agencies from imposing owner-occupancy requirements for ADU projects. 
• Assembly Bill 434 requires the municipalities and cities in California to have a pre-approved ADU plan scheme. 

Senate Bill 897 eliminates restrictions on non-conforming zoning conditions and building code violations. This law stands except when the unpermitted condition poses a safety or health concern. Moreover, fire sprinklers are no longer a requirement for the main dwelling when an ADU is permitted. Various state laws are still in effect, prohibiting local governments from imposing restrictions on lot coverage, replacement parking, and impact fees on ADUs under 750 sq. ft. 

How ADUs Contribute to Diverse Housing Options 

ADUs offer diverse, affordable housing solutions that are compliant with health and safety codes. These units encourage shared living arrangements, facilitating multi-generational living. Elders can live comfortably close to their children and grandchildren. Their closeness allows them to support each other and foster stronger familial bonds. 

ADUs offer an affordable living option for younger adults starting their careers. They act as a stepping stone that can lead to home ownership in the future. The units increase the neighborhood’s density and promote an interactive community life. ADUs diversify housing in neighborhoods, providing an alternative to traditional homes that suit individuals of different socio-economic backgrounds. This enriches the community and offers varied perspectives and experiences. 

California’s Framework for Evaluating ADU Permit Applications

Homeowners can build or modify an ADU on their property once they obtain an ADU permit. It grants legal approval for constructing, renovating, or converting an idle space into an ADU. Failing to obtain a permit results in legal complications, fines, and structure demolitions. Obtaining an ADU permit in California involves parking requirements, zoning restrictions, and parking requirements. 

ADU regulations outline the design’s minimum requirements, including essential amenities and the number of rooms. These include bedroom, bathroom, and kitchen specifications to ensure the units are functional and provide adequate space for occupants. Cities may restrict the unit size, the number of occupants allowed, and the duration for renting out the unit. 

Many jurisdictions have parking restrictions that require enough space for tenants. Parking requirements aim to reduce congestion in residential areas. An ADU is exempt from parking requirements if it is close to public transportation or located in a historically significant district. It can also be exempt if it is part of a primary residence. California’s most required ADU permits include building permits, electrical and plumbing permits, and local permits. 

Implications of Selling ADU Separate From the Primary Residence

Selling ADU separately from the primary residence offers an appealing flexibility in high-demand housing markets. As a homeowner, you can convert your ADU into a condominium and sell the unit separately. This gives developers a new opportunity to capture a new market segment. Separate sales impact property valuations, which could increase the value of properties with ADUs. 

Process of Selling an ADU

Condominium conversion transforms a single property into many individually owned units. This process allows homeowners to sell them separately under AB 1033. It is also known as condo mapping and begins with a preliminary assessment to determine if the property meets the basic conversion requirements. It involves evaluating the property size, local ordinances, existing structures, and zoning regulations.

 After assessment, you need to submit a conversion application to your local department. The application must detail the property plans and division of units. You also need to prepare a declaration of covenants, conditions, and restrictions. This legal document governs the responsibilities and rights of the unit owners and the condo association. 

Your property must comply with safety standards and local building codes for habitation safety. A public report and a final map are created to help buyers understand what they are purchasing. The planning department views your application, and you can sell your units separately after approval. 

Aspects of the ADU Phenomenon

Accessory dwelling units have given hope to many individuals in California’s housing market. However, closer examination shows that the number of completed units is quite low despite the permit applications and increased interest in ADUs. 

The mismatch between ADU permits and completion raises interest concerning the barriers homeowners face when looking for alternative housing options. This disparity is often a result of regulation complexities and lengthy approval processes that deter most homeowners from completing them. Additionally, there are few reliable ADU contractors, leading to project delays and abandonment of projects in some cases. 

Bridging the gap between ADU permits and completion requires collaborative efforts among industry professionals and policymakers to overcome some of the existing barriers. 

A more simplified permit process and pre-approved ADU designs empower homeowners to complete their projects. Tax breaks, grants, and low-interest loans can facilitate the translation of permits into tangible living spaces. RenoFi loans offer a convenient option for financing your home renovation projects. 

Can the HOA Impose Restrictions on ADUs?

Homeowners are required to confirm the status of their residence before creating an ADU. Homeowner associations cannot impose restrictions on adding ADUs but can set up reasonable barriers. They can impose standards influencing ADU design and development. 

Homeowners may be required to follow specific architectural styles to protect the community’s property values. If you submit your ADU building permit to a HOA, they can deny or approve the project within 60 days. 

If your ADU complies with reasonable restrictions and the Accessory Dwelling Unit Law, HOAs should approve your request. Once ready to begin your project, you can seek financing options from RenoFi loans. 

Funding for ADUs

Recently, there has been an increased demand for ways to finance ADU constructions. This is facilitated by the changes in California law, allowing homeowners to build an accessory dwelling unit in a single-family zone. US municipalities have relaxed their previous restrictions and actively encouraged ADU development. 

The common obstacle when planning for ADU projects is financing the construction, given that the construction costs average between $100,000 and $300,000. When you opt for traditional mortgages, there is usually a gap between the construction cost and your borrowing power. 

The requirements for securing an ADU loan depend on your lender and location. Most lenders assess your income, credit score, and your ADU project’s feasibility. ADUs are common in California, with municipalities offering incentives and finance programs encouraging homeowners to venture into the project. Economic factors impact the interest rate charged on your loan. Different housing markets charge varying rates, with lower demands resulting in higher rates. 

The traditional ADU financing options depend on your available home equity, savings, creditworthiness, and household income. ADU construction is a larger project than simple home renovations; therefore, solely relying on equity and savings may be insufficient for project completion. 

Financing and ADU With RenoFi

RenoFi is a new way to finance your ADU project. ADUs not only increase your home’s value after renovation but can also generate rental income. However, ADUs are costly. If you don’t have enough equity in your current home, funding ADU construction with a home equity loan is impossible.

For example, let’s say your current home value is $500,000, and your outstanding mortgage balance is $400,000. You are planning on adding an ADU and expect the value of your home to increase to $640,000. Your current loan-to-value ratio (LTV) is already at 80%, which means that most home equity loans are out of reach because that’s the maximum LTV they allow. So, your borrowing power using your current equity is $0.

RenoFi, on the other hand, would allow you to go as high as 150% LTV of your current value or 90% of your after renovation value, whichever is lower. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 by using the after renovation value of your home!

Get started with your RenoFi loan here

How Fast Can I Build an ADU?

Often, ADU projects take more time on local permits than construction. Most permitting agencies are overwhelmed by the number of people seeking permits for ADU projects. Other factors that impact ADU construction duration include the ADU plans and the design complexity. Most projects last between seven to 18 months. 

Designing an ADU takes about eight weeks, where you work with an architect to create plans that suit your needs. Your revisions impact the duration of the planning phase. 

The permit process can last from two to eight months. Technical errors, incomplete applications, and the workload in the approval department can extend this time frame. During construction, material shortages, homeowner decisions, and weather conditions impact the ADU construction period.

Conclusion

RenoFi loans offer a smart way to finance your accessory dwelling unit. Since they are based on the final value of your home after ADU construction, you can borrow more funds and incur low interest rates. Visit the RenoFi website to get ADU financing today. 

RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.