Will California's New ADU Law Solve the State's Housing Crisis?

California has a housing crisis. Rents are rising faster than wages. 151,000 people were living on the streets in 2019. 1.5 million pay more than 50 percent toward rent. The problem is fueled by a housing shortage, in part because of exclusionary zoning laws dating back to the 1950s which continue to reduce high density development and so-called contract cities that strive to preserve suburban character.

  • Friday, May 15, 2020

  Matt Angerer

  California   Legal   

California has a housing crisis. Rents are rising faster than wages. 151,000 people were living on the streets in 2019. 1.5 million pay more than 50 percent toward rent. The problem is fueled by a housing shortage, in part because of exclusionary zoning laws dating back to the 1950s which continue to reduce high density development and so-called contract cities that strive to preserve suburban character.

A number of approaches have been taken to solve the problem. Los Angeles has raised sales tax to pay for short-term housing and more affordable housing. One State-wide initiative is a series of laws designed to encourage the development of accessory dwelling units (ADUs).

What is an ADU?

"Granny flat," "mother-in-law suite." They're called all kinds of things, but an accessory dwelling unit is a small dwelling that is built on a lot next to a main home. While ADUs have, as the colloquial name states, traditionally been used for intergenerational housing, allowing older relatives to maintain independence while being next to their kids, homeowners may also rent them out. In some cases, an ADU might be built for an older relative, then rented out when that person moves into a nursing home.

ADUs are generally between 350 and 1,200 square feet and are usually detached buildings, but the term is sometimes used to refer to basement flats or lofts over garages.

What New Laws Were Passed?

There were several measures including SB 330, which was also designed to prevent downsizing (cities only allowing apartment buildings to be replaced with single family homes). The laws include:

  • Limits on so-called impact fees. Some jurisdictions were charging over $50,000 in impact and permitting fees to people building ADUs. This was supposed to reflect increased impact on roads, utilities, and schools; but given ADUs are built on existing infrastructure and generally occupied by individuals or couples without children, the fees were often exorbitant.
  • Limits local control over the size of ADUs. Cities are restricted from saying no if the unit is less than  850 square feet,  less than 16 feet tall and 4 feet from property lines.
  • Requires that permits are approved within 60 days.
  • Requires that parking rules are clear and disallows parking as a reason to deny permits for sites within 1 mile of public transport.
  • Requires a five-year moratorium on owner-occupancy requirements, which would allow people to rent out both the main house and the ADU, or live in the ADU and rent out the main house.
  • Allows two ADUs per property rather than just one.
  • Prohibits cities from requiring that homeowners add parking if they convert their garage.
  • Requires ADU rentals be 30 days or more, in an attempt to prevent people from using the liberalized laws to create an ADU and then using it for Airbnb instead of renting it out long term.

Why ADUs?

The theory is that ADUs will attract less NIMBYism than building new apartment towers in areas traditionally zoned for single families. The buildings won't affect the skyline and most people are going to rent an ADU to people they know or whom they have carefully screened.

ADUs are also a lot faster to construct; often less than a year from the granting of a permit to a renter moving in. While they don't create as many new units as a large apartment building, they can create them a lot faster.

They are also a lot cheaper to build, especially as many are prefabricated or are simple garage conversions. Well-built ADUs allow for a reasonable increase in density and for cheaper housing in traditionally very expensive areas.

What Should Tenants Know?

The law will drive an increase in ADUs across California. Some ADUs in San Francisco that are technically illegal may now get proper permits. This means that this is an option renters should consider.

One thing to think about is whether you are comfortable living so close to your landlord; for some people that might be an appealing convenience, whilst others might wonder about privacy when it's so easy for them to just drop by. Also, many people renting ADUs will be landlords for the first time; they may not know your rights (or their own), and may be less experienced at knowing what they need to do in terms of keeping on top of unit maintenance, etc.

However, it does mean you will be dealing with an individual not a corporation (although with the moratorium on owner occupancy there may also be an increase in large companies buying properties with ADUs with the intent of renting out both properties, or building ADUs on existing rental properties), and may have more chance of being able to negotiate terms.

If you are renting an existing single family house, then you may be able to negotiate with your landlord for a reduction in, or stabilization of, rent if you lose access to part of the yard because they add an ADU.

What Should Landlords Know?

If you are planning on renting out an ADU for the first time, whether you are building one to rent or renting out one previously occupied by a family member, you need to familiarize yourself with California landlord and tenant law. You need to know how late fees and rent are regulated, how security deposits are handled, and when a tenant can withhold rent.

For existing landlords, adding an ADU can be a way to increase your profit from a property, but this may affect your existing tenants' right to quiet enjoyment. If possible, it's best to add an ADU when the property is unoccupied (and also do other renovations). You cannot ask tenants to move out temporarily during construction without offering reasonable compensation; it's better to offer compensation than face lawsuits. Just not charging rent is unlikely to be enough if they have to move out. If the work can be done with them in place then there will still be noise and nuisance, which may result in tenants withholding rent.

Landlords should also be aware that if they are renting a house and an ADU, they may end up drawn into conflict between the renters and should have it covered in the lease for both parties (make sure there is a clause in there about harassment and nuisance). However, in the long term, adding an ADU can increase your profit on the property.

The new laws in California are likely to result in ADUs sprouting up everywhere. Landlords will be able to, as long as they're careful, take advantage of this to increase their income, homeowners (especially aging ones) may be able to use it to keep their home, and renters will have more options.

If you are considering renting out an ADU on your property, VerticalRent offers software designed for landlords and we can help you get set up with everything you need to know. Contact us to find out more.

About the author

Matt Angerer is the Founder and President of VerticalRent. He enjoys writing on a variety of topics that help Landlords, Property Managers, and Renters across America. He is particularly interested in helping renters understand their local marketplace, pick the best places to live, and find an awesome roommate. Since 2011, VerticalRent has grown to service over 100,000 landlords and renters across America. 

Read more articles from Matt Angerer

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