MARKETS & TRENDS
On the Radar: Accessory Dwelling Units
AN IN-DEPTH LOOK AT AN UP-AN-COMING INVESTMENT STRATEGY
by Aaron Norris
WHYNOW? LOW INVENTORY If builders could build more, they would. Despite high builder sentiment and consumer demand, builders have yet to return to the glory days experienced in peak years like 2004-2006. According to the National Association of Home Builders (NAHB), the top five issues builders face in 2021 include building material prices, timelines to receive materials, cost and availability of labor, concerns about employment and the economic situation, and the cost of the availability of building lots. That last point is a little con- cerning. It wasn’t just the builders who took a breather after the Great Recession. Developers weren’t focused on developing land, which is a long, expensive, and often political process. POLITICS Affordable housing is a known issue at the state and local levels. It’s not unusual to see politicians run on grand campaigns of bringing new affordable housing to market only to realize once in office that development is a complex, painful, and political process that can take decades. States like California simply gave up and started regulating at the state level. Not all cities were happy that the state forced their hand, but the new rules help solve their NIMBY problem.
reative real estate comes in all shapes and sizes. Seller
NIMBYS The not-in-my-backyard movement has more impact than most appreciate. Local electeds are put into office by local citizens. When anything different is introduced that may change the character of a neighborhood, these local advocates come out loud, ultimately stopping projects. However, it’s not just fear that a neighborhood may change. A supply-constrained market is also one where prices typically escalate. So, while some of NIMBYism is fear-based, we can’t ignore econom- ics. When California gave all proper- ty owners, by right, the ability to build at least one ADU without the interference of the municipality, it stripped NIMBYism along with it. As municipalities tried to find ways around the rules, state legislators have continually come back to make clear that ADUs would remain a viable option to meet statewide housing goals. Updated rules have included a limit to impact fees, blocking requirements of owner occupancy, and stripping HOAs from blocking JADUs. MONEY Some cities have com- plained about losing local zoning control and the ability to charge impact fees. However, ADUs solve numerous money-related issues for cities. ADUs leverage existing infrastructure and prevent sprawl
carryback, wraps, master leasing, and lot splits are a few that come to mind. However, there’s one creative strategy I’ve been following closely since 2017: accessory dwelling units or ADUs. The strategy is becoming more popular due to government intervention, societal trends, and a red-hot real estate market. It may not be in your backyard yet (pun intended), but homeowners and investors alike will want to put this strategy on their radar. WHAT ISANACCESSORY DWELLINGUNIT? Generally speaking, an accesso- ry dwelling unit (ADU) is a second structure on a property with its own separate cooking, sleeping, and living facilities. The structure can be attached, detached, or located in attics or basements. Some states and municipalities allow owners to convert garages called an efficiency unit or Junior Accessory Dwelling Units (JADUs). For multifamily and commercial, ADUs can be the con- version of underutilized areas within the building like parking or unused amenity spaces. ADUs can be stick-built, modular, manufactured, 3D printed, and if a city allows, tiny homes.
78 | think realty magazine :: may 2021
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