While creating more affordable housing is one of the main driving tenants behind ADU registration, there is another aspect that should also be included in the discussion. This would be the benefits available to “The forgotten middle-class homeowner”. Besides Californias critical housing shortage it is also suffering from an affordability crisis. Although the general economic headwinds are blowing in a very favorable direction now, our affordability problem is already having a major negative effect on the real estate market. When the prices get beyond the reach of the middle-class buyer, the market reacts and housing prices get driven down until the market reaches a new equilibrium point. This is where the ADU opportunity can help.
Let’s start with the existing homeowner. In California, the typical owner is paying 50% of their income on their mortgage and property taxes. This puts an incredible strain on their lives. When this homeowner now invests in building an ADU on their own land, they can produce additional income that will not only pay for the cost of building the ADU, it will give them much needed additional net income to help improve their overall financial health.
The prospective home buyer may use the rental income from the ADU unit to help them qualify for a larger loan and a larger purchase price. This could make the difference between them being able to buy an entry-level home or to continue being a renter. It could also enable a buyer to move into more desirable neighborhoods as an option.
The ADU opportunity that is the most exciting is a buyer having an option to purchase a fixer home and then adding an ADU unit. Through this process, a buyer can quickly generate impressive equity that can have dramatic financial effects on the rest of their lives. Imagine that, a government program that could actually improve the lives of middle-class Californians!
There are other housing alternatives out there that promote more building. As an example, the government has adjusted zoning requirements of downtown Los Angeles to allow higher skyscrapers with more units. This is also good. It incentifies builders to build, with the net result creating more housing. However, the only people that can directly financially benefit from that building process is big development companies. With ADU’s all single-family homeowners can benefit not just the big guys. I wish all government programs could work the same way!