RSG Solutions

March 14, 2022

By Alejandra Martinez, Analyst

In the past years, Accessory Dwelling Unit (ADU) development restrictions have begun to ease across California, providing a new opportunity for homeowners wishing to create income-generating units or provide housing to relatives on their existing homes. As a result, there is a general excitement that new ADU laws will facilitate the production of affordable housing and help address the housing supply shortage. Developers and investors have hopped into the mix and taken advantage of a different way to add value to their property assets. Across the state, all types of actors are embracing this possibility for putting more housing on the map.

The easement of ADU development restrictions invites a conversation on the state’s existing informal housing market and how cities can ensure homeowners with informal units also access the benefits and gains of converting or creating ADUs. Supporting homeowners with informal units means expanding housing opportunity, as it ensures safe living conditions for these units’ tenants and creates permanent housing. It also gives homeowners peace of mind if they can be compliant with city and state law. According to researchers at UCLA, in LA County alone, there are at least 200,000 informal units—now consider what that number might be for California. Legalizing them all would significantly impact the housing market and residents’ living conditions, but the process for legalizing informal units isn’t easy.

While developing an ADU may not be straightforward or cheap, homeowners, developers, and investors now have access to legal avenues if they are beginning this venture. Cities have started to create streamlined ADU review processes, hired dedicated staff to review applications, and developed design guidelines to facilitate the development process. If homeowners have the capital to finance new construction now permitted by law, they can benefit from an added income source and an increase in the value of their homes.

Meanwhile, homeowners that have developed informal units prior to ADU easements face challenges in bringing their units out of the shadows and gaining the same benefits. This process is considerably more difficult for lower-income homeowners who may lack the financial means to bring their units up to code. They may also fear that bringing a city’s attention to their units will impact their ability to provide shelter or obtain financial help for their mortgage if a legal conversion is not possible.

Cities such as Los Angeles and Long Beach have started to lead the way to address this gap, having created ordinances that allow for unpermitted units in apartments to be legalized, but cities likely have to go beyond these measures to encourage homeowners to get permitted. As Silvia González, director of research at the Latino Policy and Politics Initiative at UCLA, recommends, cities and the state should create low-cost financing mechanisms to support homeowners that face the challenge of converting their informal units. Easing ADU restrictions was a first step towards increasing the supply of housing, but creative funding will be the next step in lifting more housing opportunities out of the shadows.