BY JON HEALEY

UTILITY JOURNALISM SENIOR EDITOR 

MARCH 29, 2023 8 AM PT

https://www.latimes.com/business/real-estate/newsletter/2023-03-29/how-to-decide-whether-to-build-an-adu-in-california-you-do-adu

Accessory dwelling units are one of the hottest items in California’s housing industry, inspiring a slew of companies to try their hand at designing and building them. So amid the hype, you may be asking yourself whether you should ride the cresting wave and put an ADU on your property too.

Less than a decade ago, a better question would have been, “Can I even get a permit for an ADU?” And in many communities, the answer would have been “No” — local land-use rules, building requirements and permit fees were designed to make such projects prohibitively expensive or to just prohibit them.

Desperate for more housing, however, state lawmakers started bulldozing obstacles to ADUs in 2017. Under state law, if the ADU is no more than 800 square feet and 16 feet tall and is set back at least 4 feet from the property line, it’s eligible for a permit in any residential or mixed-use zone. Nor do you need to replace the off-street parking you lose when you convert your garage to an ADU, removing what once was an “insurmountable mountain,” in the words of Gordon Stott of Connect Homes, a manufacturer of prefabricated homes.

Today, local officials have to green-light any ADU project that meets a list of objective standards, even if local rules would ordinarily prohibit adding floor space on that lot. Yet a city’s list of requirements may be long, affecting such things as how far the ADU must be from the main house, how tall it can be and what building materials may be used.

As a result, there’s a big difference from city to city when it comes to getting permits, said Alex Czarnecki, CEO of Cottage, a firm that designs and builds ADUs. While the city of Los Angeles has really embraced these units, he said, some other jurisdictions still find ways to make it hard to build one.

Nevertheless, the push from Sacramento all but guarantees that you can eventually get a permit to build an ADU. So should you?

Stan Acton, a developer in Campbell, Calif., who specializes in ADUs, said last year that for half to two-thirds of his potential customers, building an ADU was “really not a good idea.” That’s because they had assumed things about the project that just weren’t true — for example, they grossly underestimated the cost, the place they wanted to put it on their lot wasn’t feasible, or they hadn’t considered other possible investments with better returns.

Experts say the first question you should ask yourself is what need you’re trying to meet with an ADU. In other words, what’s your goal? And then you need to figure out whether you can meet that goal without busting your budget.

Matching an ADU to your needs

Developers say that their customers usually have one or more of the following goals:

• Creating a rental unit to generate income.
• Providing space for a daughter, son or other young-adult relation working on a degree or starting a career.
• Providing an apartment for a caregiver looking after someone in the house.
• Housing an older relative.
• Having a scaled-down home to live in after the kids move out.

If you see your goal(s) on that list, there may very well be an ADU that works for you. But if your goal is to generate income through Airbnb or Vrbo rentals, these structures may not be the solution you’re hoping for. That’s because California bars short-term rentals for ADUs built under the authority of state law, and multiple cities (including Los Angeles and San Francisco) have similar bans.

In many cases, homeowners will have different short-term and long-term goals. For example, they might want to rent out the unit until it’s time to move their parents in. “That’s the beautiful thing about ADUs,” said Robert Berry, founder of ADU Homes in Long Beach. “[Their] use changes over the life of the property and the life of the property owner. Aging in place, multigenerational living — all these concepts blend with an ADU.”

Your goals affect how much you need to spend on your ADU and whether the project will fit your budget. For example, you may need an ADU big enough to have more than one bedroom, or sufficiently separated from your house to provide mutual privacy, or comfortable enough for you to live in someday.

If you’re just trying to generate cash in the short term with a rental unit, a prefab might be the way to go, Acton said. “You can get them faster and cheaper. They’re not really considered a long-term asset,” he said, adding, “That’s a perfectly legitimate solution in many regards.” (Keep in mind that Acton’s business is “stick-built” units — custom dwellings built on site — so he’s not an impartial observer.)

And there are other ways to trim the cost of a project; other builders suggested choosing less expensive materials and finishes if you’re planning to rent out your ADU rather than putting a family member in it (or living there yourself).

Another option is a junior ADU, which can be as large as 500 square feet within an existing house. JADUs can share the house’s bathrooms, but they must have a separate entrance and a kitchen with a sink, a food preparation counter, cabinets and electrical appliances.

You might think that JADUs would be a great way to create a rental unit and generate extra income. But Acton said that “in general, we have advised people against them” because “they often pencil out to be an expense instead of an investment.” Given all the retrofitting required, he said, “you’re spending a lot of money and you’re not getting any new square footage.”

If you’re an empty-nester with one or more now-vacant bedrooms, the approach might nevertheless be a good fit. Ditto for elderly homeowners who might want a space for a live-in caretaker.

Jennifer Palmer, director of housing and homeless services for Napa County, said she’s found the primary motivator for ADUs to be the rental income they can bring. And there are plenty of reasons a homeowner might be eager for a revenue boost, including a child heading to college and an aging parent needing more care. The possibility of extra cash from an ADU “can start to change the economics of how people look at their property,” she said.

Yet it can take time for people to warm up to the idea of sharing their property with a tenant. A few years ago, Palmer said, Napa County held workshops on a new loan program for junior ADUs. Although a lot of people attended, she said, not many sought permits right away. Instead, the surge in applications came in year two. Initially, people may not like the idea of walling off the bedroom that their grown son or daughter no longer occupies. But as they walk by it for the 40th time, she said, they come around.

There are a few other factors to consider.

Or Michaelo, CEO of the Home Gallery in Malibu, said putting the foundation for an ADU on a hillside may require costly additional work. “When you find out that the foundation is more expensive than the ADU, then you have to really question yourself if it makes sense to build an ADU,” he said.

The locale is also a factor, Michaelo said. “It doesn’t make sense to bring a very high-end product into an area where the average home sold for $600,000, $700,000,” he said, unless it’s for a family member who really wants a luxury unit.

They’re not cheap

State law allows ADUs as small as 150 square feet, or roughly the size of a freshman’s room in a college dormitory. Experts caution, though, that a significant amount of the cost of an ADU isn’t affected by the size of the room(s) you build.

Every non-junior ADU must have a kitchen and a bathroom, which means plumbing and a sewer connection; a foundation fit for a dwelling, not a garage or a shed; lights, electrical outlets and a heating and cooling system, which will often require a new panel of circuit breakers; plus a full set of permits for the plans and construction if you’re going to get a certificate of occupancy. Those are fixed costs builders can’t avoid.

Yes, building a full-sized single family home would require a lot more money. But ADUs remain “quite expensive to build, especially at today’s material costs,” said Anthony P. Dedousis of Revival Homes, a startup that guides homeowners through ADU projects.

Even converting your garage into an ADU will probably cost you $100,000 or more, experts say. That’s because older structures tend to have issues with their foundations and their frames. “Some of the walls are not straight, the building has shifted, and you’re spending a lot of time and money squaring off the building,” said Billy Snow of Snow Construction.

Added Ben Galan, West Hollywood’s manager of building and safety, “You’re going from an uninhabitable building or space to a livable space,” he said, which means complying with newer, tougher mechanical, electrical, plumbing, fire safety and energy conservation requirements, along with insulation, light and ventilation codes. For example, if the garage is near the property line, its exterior materials must meet fire-safety standards “so fire doesn’t jump from building to building,” he said.

Dedousis said that a garage conversion might cost $150,000, and a detached ADU could go for $200,000 or $300,000, depending on the size. In Los Angeles, some homeowners say their ADUs cost significantly more than that.

One important factor, Berry said, is the quality of the finishes — that is, the grade of the surfaces you can see, such as the woodwork, flooring and tiles. “That moves the needle quite a bit in terms of your costs,” Berry said.

“It’s a very, very complicated project ... because there are hundreds of things that make it complicated,” Acton said. “An ADU for the Joneses is not going to work for the Jacksons next door. Every lot is different. Setbacks are different. Utility hookups are different. Motivations are different. Financing is different.”

And some needs can be met with much less extensive projects. For example, if you’re just looking for more living space, converting your garage to a bedroom or office would be considerably less expensive than turning it into an ADU.

Paradoxically, however, it may be a lot easier to get a permit for an ADU. Your plan to convert the garage into a home office could be met by a demand from your city to build a new garage or carport to preserve off-street parking spaces. Or your proposal to extend your back wall and add a bedroom could run afoul of land-use rules limiting the ratio of floor area to lot size. Neither of those strictures applies to an ADU.

They’re not quick

Prefab ADU manufacturers will tout how quickly they can wrap up construction on your lot. Once the foundation is in, they say, they can finish work in a matter of weeks, not the months required for many stick-built units.

And they may not be exaggerating about that! But in many cases, construction is the less time-consuming part of the process. Builders say that getting your project through the local permitting gantlet will usually require far longer than 60 days specified under state law.

“A lot of permitting agencies are just overwhelmed,” said Sean Phillips, founder of Otto ADU, whose company designs and oversees construction of ADUs. These projects typically make their way through the process much faster than other major home improvements, but that’s a relative measure, not an absolute one.

Lawmakers have barred local officials from using their discretion when deciding whether to approve a plan for an ADU. Instead, the review process is “ministerial,” which means reviewers can judge a plan only by a checklist of objective measures.

The catch is, each city can write its own checklist. And in some jurisdictions, there are a lot of boxes to tick.

Answering the call for more housing

If you already have an ADU but didn’t get a permit for it, the changes in state law make it easier for you to bring your unit into compliance and get a certificate of occupancy.

Renée Schomp, former director of the Napa Sonoma ADU Center, said this is an important issue in lower-income communities of color, particularly those that value having multiple family generations live together. “If people don’t have housing, they will create housing for themselves,” she said, adding that financial barriers and concerns about working with local officials led many households to build without a permit (and without inspections for code violations).

But while it’s easier to get permits, it can still be costly to convert an unpermitted ADU to one that can legally house people.

Paul Dashevsky, cofounder of GreatBuildz, said his firm is getting quite a few inquiries from people looking to bring unpermitted ADUs up to code. “Most folks come and think that, ‘I’ll just drop a set of plans’” with the city, then spend “a couple hundred here, a couple thousand there.” But it’s not that simple, he said; the ADU owners may have to upgrade their foundation and utility connections, and inspectors will want to make holes in the walls to look at the piping, wiring and other hidden work.

“Once they’re doing that, they’re opening up a can of worms,” he said, with costs running to $30,000 or more. “If you did it illegally the first time around, it’s quite possible you didn’t do it to code,” he said.

“Now you have to do it to today’s code.”

A few city and county governments across the state offer financial help for lower-income residents to upgrade an unpermitted ADU or build a new one, but the efforts are scattershot. More information on that topic will be in the next installment of this newsletter, which will be all about financing.

Schomp and other housing advocates see ADUs as an incremental but important piece in the state’s struggle to house its population. That’s why they’re eager for more homeowners to add units or get permits for the ones they built years ago.

“There’s no bad reasons to build more housing, in my opinion,” Schomp said, “as long as you can afford it, and you are realistic about what the return on investment is for you and your family.”

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