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Could Accessory Dwelling Units (ADUs) Help Solve the Affordable Housing Crisis?

By Justin Kuepper
Oct 17, 2022
The U.S. housing market experienced its first decline in a decade last month, according to the Case-Shiller Index, but they remain sharply higher when you zoom out. And worse, soaring interest rates have made housing even more unaffordable for aspiring homeowners who are left paying near-record-high rent prices nationwide.

Many affordable housing advocates have begun promoting Accessory Dwelling Units, or ADUs, to modestly increase housing stock without altering neighborhoods or relying on new government funding. And over the past few years, there's been an increase in regulatory support for ADUs, opening the door to development opportunities.

Solving Multiple Problems

Accessory Dwelling Units are unique in the breadth of benefits they provide. While building a new affordable apartment building increases housing stock within a specific price range, ADUs shift the benefits from housing developers to existing homeowners in a neighborhood, helping them earn an income and stay in their homes.

In addition to helping homeowners generate rental income, ADUs add housing density to existing residential zones. These areas are often notoriously difficult to rezone to build higher-density apartments, meaning ADUs offer one of the only ways to effectively increase density – particularly in cities without a lot of high-density zoning.

And finally, ADUs are almost always smaller homes since they operate on limited land parcels. As a result, they could provide individuals stuck in a high-rent situation with an opportunity to buy an entry-level home. These kinds of homes have becomes very difficult to find in the current housing environment, which focuses on higher-value housing.

How to Invest in ADUs

A growing number of builders offer help to homeowners looking to build Accessory Dwelling Units on their properties. For example, Building Blocks helps build 350 to 1,200 sq. ft. housing units and converts garages into ADUs for homeowners in the Los Angeles area looking to earn rental income – at the cost of $300 per sq. ft. last year.

Non-homeowners, individuals that don't live in ADU-supportive locations, or those without the capital to invest in an entire project can also participate in the ADU revolution through Regulation A (crowdfunding) offerings. These offerings enable every day, non-accredited retail investors to participate in private investment opportunities.

For example, SYMBiHOM LLC is raising up to $250,000 to build ADUs in San Jose, California. After partnering with the City of San Jose, the company implemented a $50,000 incentive program using Measure E funds for ADUs that maintain 100% Area Median Income for 15 years, providing an incentive to construct affordable housing.

For more information, visit the company's SmallChange profile.

The Bottom Line

Accessory Dwelling Units offer a unique solution to the affordable housing crisis. In addition to increasing housing stock, they can help some lower-income homeowners pay their mortgages while enhancing affordability for renters. And investors have many opportunities to get involved in project-level developments or crowdfunding opportunities.

If you're interested in other ways to support affordable housing, check out our constantly growing list of affordable housing investment opportunities.