What New ADU Laws Mean For You

ADU’s… They have been one of the biggest trends in real estate recently. If you have been looking to buy or sell a house in California, you may have heard of the term ADU. It seems like every listing has the sentence “potential for ADU” or “existing ADU” in the property description. Is this new trend a good thing? Are there possible consequences to the new legislation surrounding ADU’s in California? Do you even know what an ADU is? Don’t worry, we will dive deep into the world of ADU’s, and their impact on the California real estate market.

 

Let’s first start off by fully understanding what an ADU is. According to Investopedia, “An accessory dwelling unit (ADU) is a legal and regulatory term for a secondary house or apartment that shares the building lot of a larger, primary home.” It can be easily comparable to what we have historically known guesthouses/mother in-law suites to be. But if forms of ADU’s have existed before, why is there so much hype around them now? Well that is partially due to the impact they have on the current California real estate market, and new laws being introduced involving ADU’s. Let’s now take a look at their impact on the real estate market.

 

First of all California has a housing shortage, there simply just isn’t enough housing to support the population. However, organizations like California YIMBY have been working to solve this issue. California YIMBY is a statewide advocacy group focused on addressing the housing shortage. According to an article posted by the group they went on to say, “By one estimate, California must build 3.5 million housing units by 2025 to end the state’s housing shortage. This shortage has resulted in rising rents and prices, closed access to homeownership for many families, and forced many Californians to leave the state altogether”. There are many factors that contribute to this shortage, but nonetheless there is a shortage that needs to be addressed. This is where ADU’s come in.

 

One of the benefits to ADU’s is they do not require additional land. ADU’s are placed on developed land/lots so the efficiency of ADU’s are attractive to investors and homeowners. While ADU’s are not a new concept, they are now being used in new ways. ADU’s have been used primarily only as rentals. However, a new law is allowing ADU’s to be sold separately similar to condos. AB-1033 is a bill that permits California cities the option to allow homeowners to sell their ADU’s separately from their main house. So for example a homeowner could get their detached garage zoned to be an ADU. They can then sell their detached garage as if it were a condo/house.

 

Just recently I was helping a buyer locate a property, and we stumbled upon a TIC (tenants in common) sale. Tenancy in Common (TIC) is a legal arrangement in which two or more parties share ownership rights in a real estate property or parcel of land. To make a long story short, there was a front house and a back house. The front house was a 3 bedroom 4 bathroom home, and the back house was a 2 bedroom 2 bathroom 800 sq ft ADU. This effectively would mean two separate owners having their own home on the same plot of land. 

 

But will this example I previously mentioned, along with additional legislation be enough to solve the housing shortage crisis? In my professional opinion I think it is a good start. But in order to really solve this issue there is going to need to be more housing developed. Simply put this is a supply and demand issue. There are too many people fighting over limited amounts of housing. This is why home prices are higher in California than just about any other state in the country. There needs to be more housing communities developed, more apartment complexes, and more overall housing in construction in order to combat this issue. Increasing the housing density by adding ADU’s on developed lots may help, but it will not solve the problem. 

 

ADU’s can be a bit complex, and there are many more details regarding them. The purpose of this article was to give you an understanding of ADU’s, and how they affect the real estate market. As ADU’s are becoming more popular, we will need to stay tuned to see how this new legislation will affect the market. There will undoubtedly be pros and cons to the usage of ADU’s in the near future. But just like everything else in this world, things are always changing. It is my job as a real estate professional to help my clients maneuver the ever-shifting real estate market. Whether you are a buyer or seller, you will need to have a basic understanding of ADU’s, and how they affect your transaction. If you are curious about ADU’s or have general real estate questions, feel free to reach out and I will gladly assist you.

Lee Pitts

Realtor®

Enabl Realty

Lee@enablrealty.com

818-809-6983

DRE #02227090

 

About Lee Pitts

Lee firmly believes that the American dream of homeownership is within reach more than people may think, and takes immense pride in helping individuals achieve their real estate goals.