California Turns to Homeowners to Help Solve a Crisis

(Bloomberg Opinion) -- Policies to address California’s housing crisis have to take into account two stubborn facts: Homeowners are much less likely than renters to want to see more housing. And three-quarters of the state’s voters are homeowners.

Part 1: The roots of California’s housing shortage

In a Public Policy Institute of California survey, 55 percent of homeowners said they support new construction in their communities, versus 73 percent of renters. On the more specific question of whether they favor changing environmental regulations and local permitting processes to make housing more affordable, half of homeowners said yes, compared with 70 percent of renters. For likely voters, those numbers dropped to 46 percent and 49 percent respectively.

So the trick to adding new housing, especially in expensive cities, is finding policies that appeal to the interests of homeowners. One such policy is showing promise.

In 2016, the California Legislature enacted a law requiring cities to allow homeowners to build accessory dwelling units, or ADUs — otherwise known as granny flats, guest houses or garage apartments. The new structures simply have to be in residential areas and meet such basic requirements as setbacks and height limits. Cities can’t ban the units altogether, and they can’t force homeowners who want to build them to go through planning commissions or city councils. The law also loosened parking requirements.

Known as SB 1069, “It essentially removed the biggest regulatory barrier that a lot of cities have, which was having to go through the planning approval process,” says David Garcia, policy director at the Terner Center for Housing Innovation at the University of California at Berkeley and the author of an analysis of the law’s early effects. Although the deregulation was sweeping, it hasn’t been especially controversial — and it’s getting results.

For the single-family homeowners who drive the state’s housing policy, ADUs offer obvious advantages. A separate apartment can provide rental income, space for relatives or caregivers, or a more manageable place for an aging homeowner to live while renting out the larger dwelling. Having an accessory unit can make it easier for people to stay in their homes as they get older, or to afford new homes when they’re young. Even people who don’t want to build their own accessory units can appreciate having the option to do so. It makes their property more valuable.

Equally important, the new units leave neighborhoods looking largely undisturbed. They make the housing market more dynamic while appeasing the demand for stability. “An accessory unit in the backyard, you don’t really see it,” says Garcia. “It’s probably not going to be taller than the primary residence. It’s easier for people to accept as a way to add housing to their neighborhood.” Instead of them — big, bad developers — the builders are likely to be us, people who live down the street. A Terner Center study of ADUs in Seattle; Vancouver; and Portland, Oregon; found that most units rented for below-market prices, often because tenants were friends or relatives.

The immediate market response has been extraordinarily quick. Last year, the number of building permits for ADUs in California shot up 63 percent, to 4,352, according to Attom Data Solutions, an Irvine-based real estate data company. House flippers are starting to see adding accessory units as a way to increase value enough to make investing in larger houses in particular pay off.

You can see the effects in cities large and small. The city of Los Angeles issued 1,684 ADU permits in 2017, compared with just 80 the previous year. (The law also encourages the legalization of the city’s many unpermitted units.) Burbank, an L.A. suburb with 105,000 residents, changed its planning law to accord with SB 1069 in April 2017. Since then, the city has received more than 140 permit applications — compared with fewer than 100 in the previous five years combined. The demand was three times what the city expected, says Federico Ramirez, Burbank’s assistant community development director for planning.

Housing-strapped San Francisco was an ADU pioneer, allowing the units throughout the city beginning in 2016. That year, homeowners filed permits for 384 new units, compared with 41 the previous year. In 2017, the number shot to 581, including some in multi-unit buildings, mostly garage conversions. (The state law applies only to single-family homeowners, but San Francisco has loosened restrictions for multi-unit properties as well.) In the first quarter of 2018, homeowners filed permits for another 150 units.

One question hanging over the future of ADUs is whether cities will resist the temptation to excessively control how homeowners use the space. As an extension of the home, an accessory unit brings expectations of flexibility. No official body tells you whether you can convert your grown kid’s bedroom into a study, after all. People need to be able to adjust uses as their lives evolve.

“Homeowners appear to greatly value the ability to use an ADU flexibly — an ADU could be rented to a stranger today, used to house an aging parent tomorrow, and rented nightly to out-of-town visitors sometime later,” observes the Terner Center study. “For this reason, local governments need to resist the inevitable pressures to unduly restrict not only how they are built, but how they are used after they are built.” As if to prove the point, the first Los Angeles homeowner to get his unauthorized unit legalized had converted a former office into rental property.

Compared to permitting large-scale development, of course, letting homeowners build guest houses or turn their garages into apartments sounds like an excruciatingly slow way to increase the housing supply in a state that, according to official estimates, needs to add about 180,000 units a year. ADUs still face some regulatory barriers, particularly from energy codes that weren’t written with them in mind.

But the trend is definitely upward. And in a state known for its suburban lifestyle, the potential is enormous. The 1.7 million single-family homes in Los Angeles County make up about half the total housing units and take up about three-quarters of residential land. If one in 10 added an ADU, that would more than equal all the housing units added in the city of L.A. from 2000 to 2016. As unlikely as that response might be, it puts the numbers into perspective. Turning millions of homeowners into potential developers is an excellent way to create a constituency for new housing.

©2018 Bloomberg L.P.

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