HOUSING NEWS REPORT
ATTOM DATA SOLUTIONS
THE ADUADVANTAGE Focusing on ADUs provides real estate investors a competitive advantage on several fronts, according to the Southern California developer. First, it provides a less risky alternative for investing in a housing market boom that has overstayed its welcome. “We are far closer to the top of this real estate cycle than we are to the bottom … how can we get in and out of things quickly so if the party ends we aren’t left holding the bag,” he said, noting that ADU development allows for this because it typically involves little or no actual addition of square footage. “The envelope is already there so the construction time is relatively short compared to adding square footage from scratch.” Secondly, because most homeowners and other investors aren’t familiar with the law, they often undervalue properties that are prime for ADU development.
“Most developers don’t know the ADU law exists. Homeowners don’t know it exists … it isn’t priced into the home,” said the Southern California developer, adding that most flippers avoid oversized homes, but those overdeveloped homes could now be good candidates for a streamlined ADU. “You can’t just keep doing the same thing all the time and expect the world is going to remain the same.” developer also believes the end-product of a home with an ADU will be in high demand in highly unaffordable housing markets such as Southern California. “In certain demographic pools, multi- generational housing is common and coveted. … Now we’ve just given them a legal way to do it,” he said. “It could allow some people to get ADDRESSING AFFORDABILITY Lastly, the Southern California
into neighborhoods that they otherwise could not afford,” he continued, noting that as of January 1, 2018, Freddie Mac will allow income from an ADU to be counted when qualifying for a mortgage. “When you’re done with it you’re going to have two properties to rent rather than one.” The promise of more affordable housing inventory with streamlined ADU development was echoed in the December 2016 memorandum published by the California Department of Housing and Community Development. “ADUs are a unique opportunity to address a variety of housing needs and provide affordable housing options for family members, friends, students, the elderly, in-home health care providers, the disabled, and others,” the memorandum reads. “Further, ADUs offer an opportunity to maximize and integrate housing choices within existing neighborhoods.”
Going a step further, Los Angeles County last year launched a pilot program to incentivize homeowners to build ADUs to house the homeless. The program, approved by the LA County board of Supervisors in August 2016, allows qualifying homeowners to receive up to $75,000 to construct an ADU — as long as they agree to rent to formerly homeless individuals, according to Curbed Los Angeles. ADU PITFALLS IN PORTLAND But the promise of ADUs as a solution to homelessness or even affordable housing has fallen flat further up the coast in Portland, according to local real estate investor and developer Justin Grubb. “Portland is one of those cohesive love-thy-neighbor, liberal type of towns. Let the homeless guy live in your backyard. But there was a certain naivete to letting someone live on your property,” said Grubb, managing partner with Bulldog Capital, a real estate investment firm based in Portland. According to Grubb, Portland made a big push for more ADUs about three to five years ago, promoting them as a way to create more affordable housing in the city. “They discounted the cost for permitting the ADU. …They really were encouraging them,” he said, noting that his firm initially jumped on the ADU bandwagon. “We were doing them, we were putting ADUs in the basement; we weren’t ever doing stand-alones.” But then some realities hit for homeowners and real estate developers — particularly in predominantly single family residential areas attractive to families, according to Grubb, who said that because single family homes in Portland tend to fall on the smaller side, it severely limits the size of the ADU that
could be built given that an ADU cannot exceed 30 percent of the existing home’s square footage. “If I have a 1940s home that is 900 square feet, there’s not much you can do,” said Grubb, adding that homeowners with children quickly cooled to the idea of having a stranger living in their backyard, even if that stranger represented a source of rental income. “A lot of people may see it as a rosy upside, but you don’t want to deal with it every day; especially if you have children you don’t want strangers living in the backyard. “People thought they could Airbnb these things, but then they found out that this wasn’t legal to do or if you did it you had to pay hotel tax, and that kind of wilted it a bit,” he added. “It all depends where your home is and who your client is. As far as homeowners building ADUs on their lots, I think it’s more of a nice-to- talk about sort of thing.” Grubb recounted that he recently acquired two similar properties, one with an ADU and one without. The one without an ADU sold quickly for $775,000; the one with an ADU is still on the market listed at $759,000. “Three years ago people were asking for ADUS. Now three years later I have an ADU and I can’t sell it,” he said. Grubb noted that ADUs continue to be popular in parts of Portland that already have more dense development and cater to younger, creative types. “They absolutely do want an ADU. There are two different types of generations. The families, they don’t want it. Those in the gentrifying areas, they want the ADU and they want top rent for the ADU,” he said, recalling a recent property with an ADU that he sold. “The one I did was four stories high, ADU behind the back. Those areas have always been must- have ADUs.”
The continued popularity of ADUs in select parts of Portland is evident in the building permit data from Buildfax, which shows ADU building permits in the greater Portland metro area increased 21 percent in 2017 compared to 2016. Portland’s 1,540 ADU building permits in 2017 were the most of any metro area nationwide, ahead of Los Angeles, Washington D.C., San Francisco and Seattle. STILL HOPEFUL IN SEATTLE Building permits issued for ADUs increased 20 percent in Seattle in 2017 to 845, according to the ATTOM Data Solutions analysis of Buildfax building permit data. Bryan Copley would like to see at least two zeros added to that ADU building permit number. Copley, CEO and co-founder of CityBldr, a company that identifies underdeveloped properties for ADUS ARE A UNIQUE OPPORTUNITY TO ADDRESS A VARIETY OF HOUSING NEEDS AND PROVIDE AFFORDABLE HOUSING OPTIONS FOR FAMILY MEMBERS, FRIENDS, STUDENTS, THE ELDERLY, IN- HOME HEALTH CARE PROVIDERS, THE DISABLED, AND OTHERS.” ACCESSORY DWELLING UNIT EMORANDIM PUBLISHED IN DECEMBER 2016 BY THE CALIFORNIA DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
METROS WITH MOST 2017 ADU BUILDING PERMITS
1,540
1,475
1,027
1,007
845
534
352
321
308
291
Portland, OR
Los Angeles, CA
Washington, DC
San Francis- co, CA
Seattle, WA
Philadelphia, PA
Santa Barbara, CA
Boulder, CO
New York, NY
Austin, TX
32 | think realty magazine :: may 2018
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