One of the trends in attempts to provide more affordable
housing is the growth of accessory dwelling units (ADUs) such as granny flats,
garage apartments, or in-law suites.
These aren’t a new thing, Freddie Mac
points out, in a research paper on the subject, that Fonzie occupied an
above-garage apartment at the Cunningham home, but they have been somewhat
invisible, and often illegal.

The invisibility was often linked to their illegality.
Zoning laws passed during the postwar rise of suburbs often limited
construction of high-density housing
and because so many ADUs were built against city ordinances,
without required permits, little research literature was published. Freddie Mac
could account for only three or four papers in the 1980s and 1990s and they
were mostly small in scale and based on limited data.

The data for
the new paper was gathered from property descriptions on Multiple Listing
Service (MLS) boards. It looks at the growth of these units, the various structural
types of ADUs in use (both permitted and illegal) and discusses the measurable
benefits of having ADUs in our communities.

ADUs are
broadly defined as secondary, self-contained housing units located on the same
lots as the primary single-family home. Size and structural form vary, but in
most cases, ADUs include the following amenities: a bathroom, kitchenette,
living area, and separate entrance

Freddie Mac’s
Economic and Housing Research Group, which authored the paper, said the biggest
challenge of collecting ADU data from MLS unstructured text was understanding
the multitude of terminology and physical forms applicable to ADUs in different
locales. In addition to the three mentioned above, these included guest
cottage, guest quarters, carriage house, separate entrances, and a number of variations using either in-law or
garage.

The authors mined a national
database of 600 million MLS transactions dating back to the late 1990s, Once
the terms were identified, parsed into different parts of speech and frequency
distributions determined, they were left with a total of 1.4 million distinct
single-family properties with accessory dwellings.

Prior studies on numbers of newly
built ADUs have typically used building permits, but that data is for permits
issued, not units completed. Also, illegal or shadow housing is not represented
in the data and most studies agree those are prevalent in neighborhoods that
lack affordable housing. A 2009 field survey of three foreclosure plagued
neighborhoods in Los Angeles found that 34 to 80 percent of the single-family houses
were likely to have illegal ADUs. A survey in San Francisco in 2011 found that
more than 90 percent of secondary units lacked building permits.

Using first-time listings on MLS,
Freddie Mac estimated that there was a national growth rate of ADUs averaging
8.6 percent annually between 2009 and 2019.
They found additional evidence of a
rise in supply and demand by looking at the percentages of total homes listed
and closed. In 2000, 1.6 percent of active MLS listings had ADUs. That grew to
6.8 percent in 2019.

 

 

In terms of numbers sold, less than
9 thousand or 1.1 percent of homes sold on MLS in 2000 had ADUs. By 2019, sales
of homes with ADUs grew to nearly 70 thousand or 4.2 percent.

 

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From 2003 to 2019, the percentage of
active rental listings increased from 1.8 percent 4.1 percent and the number of
leased rental listings increased from 1.2 percent to 2.9 percent.

Freddie Mac admits
that their research methods has several sources of error. If, after
construction is completed, owners hold on to their units, rent or sell them
outside of MLS, or the listing descriptions do not match search phrases, then
activity will be understated. Overstatement
bias will occur when existing, older units are listed for the first time on
MLS.
However, these figures are backed by permit data from numerous “ADU-reformed”
cities. By “ADU-reformed,” Freddie Mac means cities
where ordinanes have been pased to reduce restrictive zoning.

The demand for accessory dwellings
is highest in the fastest growing regions of the country and population growth,
in both absolute numbers and percentages has been overwhelmingly higher in the
South (11 million net increase; 9.6 percent growth) and the West (6.4 million and
8.9 percent) according to Census Bureau estimates for 2010 through 2019. The
number of for-sale listings that mention ADUs has risen correspondingly,
increasing in the Sun Belt (from 4.3 percent in 2010 to 9.2 percent in 2019) faster
than in the North (2.7 percent to 4.1 percent). Similarly, shares of sold
listings for those homes rose in the Sun Belt from 3.2 percent to 5.6 percent while
in the Northern they increased from 2.2 percent to 2.6 percent. Half of the 1.4
million ADUs Freddie Mac identified are in the Sun Belt states of California,
Florida, Texas, and Georgia.

 

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The same trend was observed in
rental listings and for leases. The share of the latter declined slightly in
the North.

Drilling down to metropolitan-level
detail, 23 of the top 25 metro areas with the highest number of first-time ADU
listings occurring between 2015 and 2018, are in the South and West regions.
Portland, Dallas, and Seattle metro areas rank highest in terms of
year-over-year growth, at 22.3 percent, 18.8 percent, and 17.5 percent, respectively.

The authors also looked at the ways
in which ADUs are produced in different parts of the country. They can be
attached or detached, carved out of interior space, or connected to the main
structure such as basement apartments or above garage units. Others are
free-standing, such as guest cottages and carriage houses, typically located in
a backyard or over a detached garage.

In Exhibit 9, states with
green-shaded circles have higher shares of detached ADUs, while states with
blue-shaded circles have higher shares of attached ADUs. The highest
concentrations of accessory dwellings, as noted by the size of the circles on
the map, are located mainly in coastal regions, where most of U.S. households
reside. As expected, detached ADU housing stock occurs more prevalently in
sprawling western cities, characterized by large, low-density lots and plenty
of open space.
 Homeowners living in older, denser industrial cities along
the East Coast, by contrast, are more land-constrained and more commonly create
units through conversion of existing space in basements or attics.

 

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Opponents of ADU development argue
that they mainly serve as extra living spaces, offices, or sources of
short-term rental income for the owners, not long-term housing for additional
families, however, a survey of ADU owners in Portland, Oregon in 2013 found
nearly 80 percent of units were used as long-term residences. Costs to build an
ADU were also significantly cheaper in Portland than traditional single-family
housing because no extra land needed to be purchased. The median cost of
attached units was $45,500 and the median cost of detached units was $90,000. Portland’s
median home price at the time was $290,000. At less than one-third of the price
of traditional primary residences, ADUs are an affordable alternative for
families wishing to provide living spaces for family members who are elderly,
young adults, or single.

Freddie Mac tested whether the same
long-term use applied to other locales and found about 40 thousand repeat or
paired rental listings between 2015 and 2018. About three quarters were in
Texas, California, Florida, Georgia, and Arizona. The median number of days
between paired listings in these 5 states ranged from 262 days to 371 days, and
shares of short-term rentals-defined as properties reposted in less than 30
days-ranged from 7 percent to 15 percent. These estimates do not account for
properties that are solely posted on short-term rental sites. Nonetheless, the
results support the view that ADUs are helping to fill the gaps in long-term
affordable rentals.

By Jann Swanson , dated 2020-07-21 11:53:01

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Courtesy of Mortgage News Daily

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