Accessory Dwelling Units (ADUs) in California

Background

California’s housing supply shortage is among the worst in the nation, with a deficit of nearly 1 million homes. Increasing the supply of affordable housing is an enormous challenge for the state, with construction costs for affordable units regularly exceeding $1 million.

While California has enacted a slate of major zoning and land use reforms statewide in recent years, this case study focuses only on laws to permit accessory dwelling units (ADUs)—independent residences located on the same lot as a single-family house. Since 1982, statewide law has granted cities the ability to permit ADUs, while still allowing cities to limit where ADUs can be located and the standards by which they had to abide. For decades, cities largely obstructed their development due to concerns about parking, neighborhood change, and other characteristics associated with development.

In 2016, a little over 1,000 ADUs were permitted across the state. However, ADUs were widely utilized as housing even before California took steps to legalize them: in 2014, there were 50,000 unpermitted ADUs in Los Angeles alone, by one estimate.

Reforms Implemented

In 2016, the state legislature passed a pair of statewide bills (A.B. 2299 and S.B. 1069) that required cities and counties to allow ADUs on most residential lots, preempting local zoning ordinances and permitting processes. While the legislation was a major achievement, cities continued to employ an array of strategies to limit ADU development, including fees, parking requirements, and HOA restrictions. To address local efforts to prevent ADU development, the state legislature passed a dozen bills over the next six years to make ADUs possible for homeowners, summarized below.

This slate of reforms has prevented cities and towns from using zoning and other restrictions to block ADUs, facilitated a more efficient permitting process for ADUs, and given the state more power to enforce ADU-related laws. The number of provisions passed by the state legislature demonstrates the level of detail that lawmakers felt they needed to provide to compel local jurisdictions to permit ADUs.

Statewide reforms have also complemented and encouraged local government policy reforms. For example, San Diego’s City Council voted to expand on state laws through a density bonus policy, allowing homeowners to add an extra ADU to their property beyond what is already allowed if they rent it at a reduced rate to low- or moderate-income residents.

Early Evidence

As soon as the first reforms from 2016 took effect, ADU development rapidly and steadily increased, growing from just over 1,000 ADUs permitted in 2016 to over 24,000 permitted in 2022, about 19% of new housing permits. In Los Angeles, ADUs have seen a substantial rise, from fewer than 100 permits in 2016 to over 7,000 in 2022, about 30% of newly permitted units in the city.

In all, over 80,000 ADUs have been permitted since 2016, though some of these units likely already existed illegally. While this figure will not solve California’s housing shortage, it adds a number of affordable units at no cost to the state.

The majority of ADUs coming online provide affordable housing for California’s most vulnerable populations. Since 2018, 27% of completed ADUs have qualified as low- or moderate-income units (affordable to households making below 120% of area median income), compared to 20% for all new permitted housing.

Recent research by the New York University’s Furman Center found ADUs in California were more likely to be permitted on larger parcels of land and in neighborhoods with low to medium housing costs, rather than communities with very low or high housing costs. Cities with more HOAs also permitted fewer ADUs, a sign that HOAs may continue to discourage ADUs notwithstanding new laws.

Despite the changes to allow the permitting of more ADUs, they can still be relatively expensive to construct and difficult to finance. The median construction cost for an ADU in California is $150,000, making them prohibitively expensive for many homeowners. Few loan products are available to support ADUs in California, and studies have shown that obtaining financing for construction is one of the biggest obstacles for homeowners that want to develop ADUs.

Read more zoning and land use case studies here.