Impact of Accessory Dwelling Units Legislation

Impact of Accessory Dwelling Units Legislation

This article is part of a series discussing current research activities of the Affordable Housing Research and Technology Division within the Office of Policy Development and Research.

Overview

Accessory Dwelling Units (ADUs) are located on the same lot as a single-family home. ADUs can be either attached to a primary home or standalone structures and often are known as granny flats, in-law units, second units, or backyard cottages. ADUs are small, independent living spaces complete with kitchens and bathrooms. In 2021, the state of California passed laws aimed at increasing housing production and streamlining permitting. The Housing Opportunity and More Efficiency (HOME) Act, which became law on January 1, 2022, removes barriers to ADU construction, including eliminating owner-occupancy mandates for ADUs, streamlining the approval process, and requiring municipalities to offer preapproved ADU plans. 

The Office of Policy Development and Research (PD&R) is funding two studies with the University of California, Los Angeles (UCLA) and the University of California, Irvine to study the impact of California's ADU reforms. Both projects are expected to take 2 years to complete, with results anticipated in the spring of 2026.

As part of PD&R's continuous support of innovative research aimed at increasing the supply of affordable housing, these studies explore the potential of ADUs to address the nation's housing shortage. 

Project Outline

UCLA is researching the impact of California's ADU reforms on housing affordability. The study addresses two primary research questions:

1. How does ADU production affect rents and land prices (single-family homes)?
2. How has ADU legalization affected land values?

To answer these questions, researchers will analyze parcel-level data on single-family homes as well as neighborhood- and city-level data on rents, including other characteristics that may influence these rents and land prices. Parcel-level data on ADU permitting in single-family lots come from annual progress reports published by the California Department of Housing and Community Development. A similar study conducted by Marantz et al. (2023) used annual progress report data from 2018 to 2021 for all parcels zoned as single-family homes in the nine Bay Area counties and five counties in Southern California. This new study will update the analysis to incorporate data from 2018 to 2023 and include all urban areas in the state.

Although the short-term supply of new ADUs may not significantly affect rents for other units, the researchers anticipate that the permitting and production of ADUs could increase affordability, because they are often among the least expensive rental options in the cities where they are built.

To address the second research question, researchers will analyze how property and land prices have changed following ADU legalization. Using PropertyRadar sales data from before and after legalization, the study will test the hypothesis that ADU legalization may increase the value of single-family parcels (and thus single-family homes). The unit of analysis is the single-family parcel, and the dependent variable is the price of the home or the difference in price before and after legalization. However, this value increase also may vary based on the housing stock, local demand, municipal regulatory stringency, and the feasibility of ADU production.

The second project, conducted by the Regents of the University of California, Irvine, will address three research questions assessing the impact of California's state reforms on zoning and land use:

1. Have state laws effectively eliminated the restrictions that homeowners' associations (HOAs) impose on ADU permitting?
2. What proportion of ADUs permitted after state reforms are used as residences (rather than as home offices or short-term rentals)?
3. How do nonresidential ADU uses correlate with neighborhood characteristics?

In 2019 and 2020, the California legislature adopted laws to prevent HOAs from limiting ADU permitting. The first research question will evaluate whether these laws have been effective by analyzing how HOAs have affected state efforts to eliminate barriers to more affordable housing types. This project is the first research to analyze this question.

The study also will be the first to use parcel-level data to determine whether (and where) homeowners are using ADUs for residential purposes. ADUs can only help address housing affordability if they are used for housing rather than for home offices or short-term rentals. By answering the second and third research questions, the project will estimate the proportion of recently permitted ADUs used for housing and identify the neighborhood characteristics of areas where ADUs are less likely to be used for housing. If ADUs are used less frequently for housing in higher-resourced areas, housing affordability in those locations may be compromised.