State-By-State: Giving ADUs Another Look In Tight Housing Market

While Accessory Dwelling Units (ADUs) have gained significant traction in California as both an investment opportunity and one way to help ease the housing crunch, it’s important to recognize that ADUs are not confined to the Golden State alone. ADUs are emerging as valuable development and investment tools nationwide for real estate owners, builders, and developers. In fact, Enact Partners has worked with investors in California and other states to turn single-family homes into multiple units that generate additional income.

How how the states in which Enact Partners does business are giving ADUs another look in this tight housing market

We thought it would be helpful to borrowers and potential borrowers to learn about how the states in which we do business are giving ADUs another look in this tight housing market. Of course, laws and regulations change and vary greatly by state, county, and municipality. If there’s a specific locale you are curious about, it’s best to contact local officials directly for specific information or to reach out to Enact Partners to get started.


California has been a leader in streamlining ADU permitting and construction to address the affordable housing crisis, with a significant increase in ADU permits issued in recent years. The Washington Post reported recently that 23,000 ADU permits were issued in California in 2022, compared to fewer than 5,000 in 2017. For more information on ADUs in CA and specifically San Diego, check out these blogs from Enact Partners, Success: ADUs Turned An SFR Into 6 Rental Units and Use Accessory Dwelling Units (ADUs) To Turn A Single-Family House Into 8+ Units.


Oregon allows ADUs on various types of residential properties. However, counties and municipalities can tailor their ADU ordinances. In 2021, the Oregon Legislature adopted SB 391 into law, authorizing counties to allow owners of lots or parcel within rural residential zones to construct one ADU, subject to certain restrictions and limitations. However, SB 391 does not obligate a county to allow ADUs, nor does it prohibit counties from imposing additional restrictions.


Two recent housing bills aim to expand housing supply and address affordability issues by allowing more housing types, including ADUs, in traditionally single-family zones. Both bills take effect on July 23, 2023, but local governments are not required to update their local regulations to be in compliance until six months afterwards.


Denver has adjusted ADU regulations to make the process more affordable and flexible. As a result, more than 3,500 additional homeowners in Denver should be able to build ADUs on their properties if they so desire. Similarly, the Grand Junction City Council unanimously voted in June to approve an ADU production program that includes impact fee waivers for police, fire, transportation, water, wastewater, and parks, plus incentives for NOT allowing short term rentals.


Salt Lake City has approved an ordinance that eliminates conditional use requirements for detached ADUs and expands where internal or detached ADUs are allowed. Only one ADU is allowed per property, and the homeowner (with a few exceptions) must also remain on the main property.


While legislation aimed at loosening rules on ADU construction faced resistance, Texas has designated zones where ADUs are permitted with specific requirements to help address its shortage of affordable rental housing. In Austin, for example, lots must be a minimum of 5,750 square feet to construct a single ADU, which can be no bigger than 15% of the lot size or 1,100 square feet, whichever is smaller.


Arizona is considering legislation to override city control and streamline the ADU development application process to address a portion of its housing crisis, which estimates a shortfall of some 200,000 homes to meet demand. A new ordinance in Phoenix permits one ADU on properties with single-family units that are less than 15 feet in height if detached from the main home. They can also be in multi-family zoning areas as long as the ADU is used for one family.


Wyoming is considering proposals to make it easier for property owners to have ADUs, although barriers to ADU construction in some communities persist. In Arapahoe County, the Board of County Commissioners unanimously voted to approve ADUs in unincorporated areas of the county effective September 12, 2023. Meanwhile, the Wyoming Legislature’s brand-new Regulatory Reduction Task Force is expected next month to discuss proposals intended to make it easier for property owners to have ADUs.


Legislation is being introduced to prevent HOAs and local governments from banning ADUs, removing local restrictions in the process. Numerous other municipalities, like Boise, have relaxed requirements for building ADUs.


Montana has passed zoning changes to encourage the construction of affordable starter homes, including ADUs, with cities required to adopt certain recommendations. These recommendations range from reducing minimum lot sizes to allowing taller buildings and reducing setbacks from property lines.

New Mexico

New Mexico allows ADUs with local jurisdictions establishing their own rules and zoning ordinances. For example, Albuquerque recently adopted changes to allow ADUs in more areas, including areas zoned as R-1, which only permits single family construction.

How Enact Partners Sees It

With a shortage of housing in many states and municipalities persisting, Enact Partners expects to see ADUs remain an important tool for both investing and for boosting the supply of affordable housing. States and municipalities are dealing with ADUs in a variety of ways, though, which underscores the need for borrowers and real estate investors to research, plan, and prepare their projects accordingly.

ADU laws and regulations can be complicated. Consulting an attorney or even an experienced ADU contractor, such as SnapADU or ADUGeeks, may be a good starting point for even seasoned developers. Working with an experienced lending partner such as Enact Partners, with our decades of collective real estate development and lending experience, is also highly recommended.

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