Four Great Reasons to Build an ADU NOW

12/05/2018

By Jerome Madigan & Karim Sarraf


You may be already sold on building an ADU on your property and perhaps you are thinking you have plenty of time to do this. Unfortunately, the reality is that you don't have the luxury of 'time' and that you should take on these matters sooner than later. Here are great 4 reasons why the time to build an ADU is now:


1) The Affordable Housing Crisis is driving the Government to encourage building. The popular thing for a politician to say when asked about affordable housing is "we need to build more affordable housing". Their reasoning is that more 'inventory' will help prevent ever-increasing property values. This sweeping sentiment is part of the reason that state laws have changed to allow for the construction of ADU's on your property. Local governments in the Bay Area are quickly adapting and relaxing building codes so people can build these quickly. However, laws continue to change depending on who sits on the City Council, Board of Supervisors, State Assembly, and other branches of local government. Once we have more housing inventory, there may very well be a public backlash as well as market forces that cause politicians to change their sentiment and the laws for ADU's to once again tighten, such as rent control, inclusionary zoning, prevailing wages and more regulation, increasing utility rates, more fees (taxes) for infrastructure, or "rent sustainability" which all correlates to developers leaving those cities, states, or counties because their margins have decreased. Personally, I believe this window of opportunity will remain open for the next three to five years.

2) Money for Building is Getting Tight. With any size development project, money and financing is a key component. The clock is ticking for those that are looking to get good deals in financing home projects as interest rates continue to trend upwards and property and income tax laws are constantly changing. Combine these trends with the volatile nature of the stock market and you have a level of uncertainty that causes yields to go down and interest rates to go up regardless of how the economy is doing. There are also funds, loan programs, private equity, and "pools" of money available now (specifically) to build ADU's. These funds tend to expire once the money is used up. In other words, it's first come, first....

3) Demand for Rental Units at the ADU Price Point Remains High. There are 17 jobs created for every housing unit built in San Mateo County and the numbers are similar all over the Bay Area. Many of these jobs are right at the moderate income level filled by workers that have one-hour commutes, each way. These workers are great candidates for renting out an ADU. In other words, you will likely never have a problem getting renters and generating passive income from your ADU. The "problem" is getting the 'right' renter for your new unit, and before another landlord sweeps them up.

4) ADU's Keep Families in the Bay Area. Many people who grow up in the Bay Area have to move away when they start working because it is simply too expensive to live here. An ADU can help keep your children or your child's teacher, your caregiver, nurses, local police officer...in the area. If your family is like many in the Bay Area, you are genuinely concerned about the high costs of assisted living and health care, and whether you are going to have enough money for retirement. In some cases, aging parents have moved into the ADU and have their children and family move into and rent the main house. This is like creating your own retirement plan and long term health care plan all in one! There are other ways to mitigate these future concerns, but hopefully you get the picture. The main thing I want to point out is that we don't have that proverbial 'crystal ball', and we don't know when things are going to "hit" that proverbial 'fan', but you can get ready for it by having a practical plan that may include a functional and operational accessory dwelling unit.