A Small Solution to the Big Housing Crisis

Call them ADUs, backyard cottages or garage conversions but accessory houses may be becoming builders’ best friends.

The shortage of housing in America has been well documented but now new research is showing that accessory dwelling units – ADUs – are rapidly gaining in popularity and could represent a major opportunity for the construction industry and builders frustrated by the lack of activity in more conventional homebuilding. 

A study from Freddie Mac, the federal financing agency, found that 1.4 million single-family U.S. homes now have ADUs, though it admitted the actual number could be higher given the difficulty in keeping track of these units. Homeowners sometimes build them without permits and conversions of once-non-residential spaces like garages are often done as unregulated side projects.

“It’s gone from a small niche in the market to really a much more impactful part of new housing,” Scott Wild, senior vice president of consulting at John Burns Research and Consulting, said in a recent Wall Street Journal report on ADUs. “Municipalities love it, existing homeowners love it, developers love it.”

Now a number of states, including California, Oregon and Maine have passed laws over the past few years to encourage ADU construction. The WSJ report cited one development in California where about 20% of home buyers have picked designs that include an ADU, usually above the garage. At another development, in Utah, the newspaper reported, “half of the 16 homes sold include an ADU in the basement at an added price of $35,000 to $70,000.”

An average ADU can be built for around $100,000 by local contractors, according to building-permit data company Builty, but some are being made using factories and modular construction techniques, the Journal said. San Francisco-based company Villa offers factory-built backyard ADUs in California with base prices from $95,000 to $180,000, it said.

“For some buyers it’s really becoming a strategy, how to afford the home they want or maybe a little more home than they otherwise would have gotten,” Daniel Faina, chief marketing officer at California builder Williams Homes, said.

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