The Impact of Informal ADUs on Affordable Housing
More and more North American jurisdictions are turning to accessory dwelling units (ADUs) to stimulate construction of infill housing and, they hope, relieve pressure on housing markets. Advocates celebrate these separate residential units that homeowners add to existing single-family houses through additions, conversions of existing spaces like basements or garages, or new backyard structures. Chief among their benefits is that they allow owners to stay in place by generating rental income. Moreover, they offer a source of relatively low-cost housing, given that ADUs are typically modest in size. Preliminary research also suggests that unlike other forms of “upzoning” (for higher densities of housing), laws encouraging ADUs do not lead to significant increases in property values that might offset program goals.
On the strength of these assumptions cities and states have passed rafts of legislation since the Great Recession to ease permitting of ADUs. The early results are impressive.
Although there are still many regulatory barriers, evidence from the West Coast, where ADU legislation has been most permissive, shows that the number of annual permits issued for ADUs skyrocketed after ADU-friendly legislative and policy reforms went into effect. In Portland, Oregon, where ADUs on single-family lots have been legal since 1997, a 2010 waiver of city development fees for ADUs prompted a steady increase in permits over the next decade. In the three years after they instituted reforms in 2019, both California and Seattle experienced an increase in permits — of 88 percent and 253 percent, respectively.
Figure 1. Living over a garage? Portland, Or. Photograph by Rebecca Summer, 2024.
Yet, questions remain. Most notably, is ADU legalization actually increasing housing supply? And, of particular concern to many housing advocates, to what degree is the increase in permits directly benefiting those at the bottom of the housing market?
One key to answering these questions is not to look at new construction but instead at the hundreds of thousands of already existing ADUs — most of which are unpermitted. Rather than custom-built structures that grace the pages of design magazines, these illegal ADUs are often converted garages or basements. Like other types of informal housing, they may violate building codes or occupancy requirements; owners might not report rental income or offer leases. They are popular because they are a flexible housing arrangement that owners can easily create (and, when needs change, decommission). Many house multigenerational family members of property owners or those experiencing transitions in their lives, like newly arrived immigrants.
Unfortunately, little is known about these ADUs beyond these broad strokes. The greatest challenge is that unpermitted ADUs are difficult to identify and quantify. Because they are illegal, they don’t appear in official records typically used to understand housing supply, like construction permits or tax records. They are difficult to quantify in field surveys, not only because that method is extremely labor-intensive but because ADUs are often obscured visually: hidden within houses or behind fences. Additionally, owners are reluctant to reveal their units, while many tenants do not know the legal status of the units where they live. As a result, the few studies that attempt to quantify informal ADUs occur at a small scale and are imprecise.
Figure 2. A cottage at the end of the driveway? Portland, Or. Photograph by Rebecca Summer, 2024.
Still, the studies are instructive. At the least they suggest that the overwhelming majority of ADUs are unpermitted. For example, a 2009 study of Vancouver, British Columbia, found that 80 percent of the city’s estimated twenty-six thousand ADUs lacked permits, while a 2011 study of the San Francisco Bay Area, in which researchers surveyed homeowners and analyzed classified ads for rentals on Craigslist, concluded that upwards of 90 percent of ADUs were unpermitted. A 2012 study of Los Angeles using data from the city’s MLS (Multiple Listing Service) estimated that the city had as many as fifty thousand informal units in single-family houses.[1] According to one of the largest studies of ADUs yet, a 2020 report by U.S. mortgage operator Freddie Mac that mined 600 million MLS transactions nationwide from the late 1990s to present, the country has 1.4 million ADUs. Trends from other studies and the timeline of legislation suggest that most of these units were unpermitted.
Why do already existing informal ADUs matter to discussions about legalization and housing supply? A grasp on the informal sector can help answer the question of whether the high numbers of ADU permits in recent years represent new housing units or are simply efforts to formalize what’s already there. Research from Canadian cities suggests that even when paths to legalization exist — such as the many new bills across the United States, from Montana to Vermont — many owners choose to stay under the radar for fear of retroactive fines, formal leases, and the costs of retrofitting units to comply with the law. But it would be helpful to know.
“It’s time to bring existing ADUs out of the shadows.”
Figure 3. A new construction ADU? Portland, Or. Photograph by Rebecca Summer, 2024.
As ADU legislation proliferates — in North America and beyond — the public deserves to better understand who benefits. How does permitting existing informal units affect broader affordability? It is essential to understand why owners of existing informal ADUs chose to pursue or avoid permits and how these decisions affect rents and property values. And to ensure that legalization does the most benefit — including in regard to physical safety and tenant protections — pundits and legislators should include in their discussions those who have already been providing and securing housing through this newly celebrated housing form.
Meanwhile, owners of unpermitted ADUs may need special provisions of their own, including to avoid incurring fines and having to evict tenants when pursuing legalization. Surely, too, owners of existing units need assistance with financing, permitting, and construction to bring their units into compliance (and the official record), just as those building new ADUs also need and receive this help.
It seems clear that both formal and informal ADUs play an important role in expanding housing stock and, perhaps, easing homeownership costs and rents. But with most programs for new ADUs still in their infancy and so many unanswered questions, it’s time to bring existing ADUs out of the shadows.
Citation
Rebecca Summer, “The Impact of Informal ADUs on Affordable Housing,” PLATFORM, February 19, 2024.
Notes
[1] Mukhija, Vinit. “Outlaw In-Laws: Informal Second Units and the Stealth Reinvention of Single-Family Housing,” in The Informal American City: Beyond Taco Trucks and Day Labor, ed. Vinit Mukhija and Anastasia Loukaitou-Sideris (MIT, 2014).
