ADUs are gaining momentum — can they help fix the housing shortage? 

Editor's note: The United States needs more housing. It's not a new problem, but new solutions are emerging — and some old ones are getting another look. How are they shaping the future of housing? What is showing the most promise?

This series explores a few different approaches and where they might lead.

It's been a slow and steady process, but more cities and states are allowing accessory dwelling units — which some see as a small but meaningful step toward addressing the housing deficit and affordability crisis in the U.S.

Efforts to build ADUs — also known as backyard cottages or granny flats — on the same lot as a single-family home have been hampered in part by zoning laws, which can be difficult to change. Advocates also have to win the hearts and minds of local policymakers and homeowners; convincing neighborhoods that more density is needed can sometimes be an uphill battle. 

But the tide may be turning. 

To date, 14 states have enacted ADU reform bills, according to a policy brief from the Mercatus Center at George Mason University. California and Washington state have been most active in pushing for changes, but others have also recently loosened restrictions. 

The West Coast leads the way

Washington state has passed some of the strongest reforms, the Mercatus brief noted. Under state law, localities are now required to allow at least two ADUs per lot, and impact fees — which are levied by local governments for new developments — are limited to half of what would be required for a single-family house.

Some cities in Washington and California are even allowing ADUs to be sold separately, like condominiums, which has led to a sharp increase in building permit applications. The Seattle-area NPR news affiliate KUOW reported that in 2023, the city of Seattle issued twice as many permits for ADUs as for single-family homes. 

So how are all these units being used? A report by the Seattle planning office found that about a third of the city's ADUs are long-term rentals, while 44% are condominiums with a median price of $757,500. That might sound steep, but the median price for a newly built single-family home in Seattle was $1.61 million in 2023, according to the report.

California has also seen a rapid rise in ADU construction, with the number of permits increasing from around 1,000 in 2016 to more than 24,000 in 2022. That represents about 19% of all new housing permits, according to bipartisanpolicy.org, and some real estate agents in the state believe the ADU boom is creating opportunities to bring in more buyers.

ADU momentum is also picking up on the East Coast, with Massachusetts loosening its restrictions in August. Governor Maura Healey's administration estimates between 8,000 and 10,000 ADUs will be built across the state in the next five years.

Adoption at the local level

Some municipalities, including New York City and Denver, have recently adopted reforms that could increase the number of ADUs in those metros. 

Earlier this month, the New York City Council passed a package of zoning reforms, dubbed "City of Yes," aimed at increasing affordable housing across the city's five boroughs. 

The package includes the legalization of ADUs in most neighborhoods and a $4 million state grant "to help New York City homeowners create ADUs that will not only help them to afford to remain in the communities they call home, but also to build generational wealth for families," the mayor's office said.

In Denver, the city council approved changes that allow homeowners to build an ADU without going through a rezoning process. One analysis estimated the rule changes, which go into effect Dec. 16, will result in a few hundred new units each year, according to the local news site Denverite.

Robin Kniech, director at the University of Colorado Denver's Center for New Directions in Politics & Public Policy, expects ADU-friendly reforms to become more common as cities and states look for solutions to housing shortages.

In a paper published in April for The Bell Policy Center, Kniech said ADU zoning reform "can provide a gradual and modest supply of new, moderately affordable housing for a segment of Colorado renters."

She noted, however, that it will be difficult for ADUs "to make a significant dent in the housing crisis" without additional policy changes, such as enforcement of state zoning reforms, improved financing options, and grants for low-to-moderate income homeowners looking to build ADUs. 

Some agencies have already taken a fresh look at their policies, including the Federal Housing Administration. Last year, the FHA began allowing borrowers to include rental income from ADUs when applying for certain types of loans.

What's next for ADUs 

Areas ripe for ADU growth include those near job centers, in communities without homeowner associations, in moderate-income neighborhoods and on larger lots that have other accessory structures, like a garage, Kniech noted, citing previous research.

Attached ADUs, such as converted basements, are less common, but Kniech believes they will become more popular since they are cheaper and faster to create.

"Internal or attached ADUs just don't get the attention or photo spreads that detached homes do, so owners on tighter budgets are missing the opportunity to consider them as a result," Kniech said in an email.

What real estate agents need to know

If a buyer is interested in adding an ADU to a property, "due diligence upfront is important," Kniech said. So is managing expectations. Even in a city or state that allows ADUs, zoning ordinances vary, so things like setbacks and historic districts may create hurdles.

Buyers should also be reminded that while an ADU might boost the overall property value and provide rental income, it could make the home more difficult to sell. 

"A more expensive property will shrink the pool of buyers that can qualify and/or who want to manage a second unit," Kniech said, something that should be "weighed against the benefits of increased value and attracting buyers who are looking for that ADU."