Housing is an election concern that deserves both parties’ attention. Reckless federal spending over the past few years has exacerbated a housing crisis decades in the making.
High interest rates aside, the housing market faces a classic demand-supply problem that will not be solved by more cash, but by more construction. One solution to expanding the housing supply is in our backyards: Expanding accessory dwelling units. This will require localities and states, and even Washington, D.C., to change how they approach housing policy.
ADUs are small primary living units located on single-family plots. Think of the Cunningham family’s garage apartment that Fonzie lived in from “Happy Days” or Danny Tanner’s converted attic and basement apartments, which his best friend and brother-in-law called home on the show “Full House.” These units commonly facilitate intergenerational living. Aging parents or adult children can retain some independence while providing or receiving care.
ADUs are a win-win for property owners and renters. Homeowners can generate needed primary or supplemental income, which helps with the rising cost of living and high interest rates on home loans. Homeowners can also enjoy a boost of 35% or more to the value of their homes by maintaining an ADU. In some markets, such as Houston, Texas, homes with ADUs are valued 157% higher than an average home, according to the National Realtors Association.
Renters gain access to affordable dwellings that are often less expensive than traditional apartments of similar size. For example, in D.C., English basements can be rented for hundreds of dollars below standard one-bedroom apartment listings. ADU renters in Los Angeles County can pay $400 less per month than the median rent.
These savings are attractive to the nation’s renting class. Given that nearly half of renters, 12.1 million households, paid more than 50% of their income on rent, they have little room in their budgets to enjoy life, souring their view of their financial situation and the economy.
Younger Americans, especially, are locked out of the housing market by high interest rates but are stuck with unaffordable rent prices. Generation Z is even worse off than millennials, as it reportedly pays “31% more for housing than its counterparts were a decade ago, after adjusting for inflation.”
In surveys, the majority of middle-class Americans view multifamily housing as a path forward to affordability and financial flexibility.
ADUs may also be attractive to the rising population of property-owning women. As they outlive their spouses or never marry, a cohort of women seek passive income to guard against inflation’s corrosive effect on their savings and retirement income. ADUs allow these too-often-forgotten women to age in place.
However, restrictive housing policies, including zoning regulations, land-use restrictions, and even outright bans, impede the expansion of ADUs. For example, mandating lot sizes of an acre or more and off-street parking requirements make ADUs impossible. Size limits on ADUs, owner-occupancy requirements, and prohibitions on using ADUs as short-term rentals can also make them infeasible.
Regulatory hurdles aside, the costs of building and renovation, which range from $60,000 to $220,000 depending on the size and type, as well as the uncertain permitting process, can be insurmountable for property owners.
State and local regulatory bodies should embrace reforms to clear the way for ADUs. By lessening zoning and land-use regulations, streamlining permitting processes, and creating financial incentives to defray some of the costs, property owners could more easily overcome the red tape that sinks such projects. Even the liberal state of California implemented reforms easing restrictions on ADUs in 2016, leading to the blossoming of 80,000 new housing units and expanding affordable housing options.
The federal government has a role to play as well. So far, the Biden administration’s solution to housing is to throw more taxpayer funds at the housing market to spark buying, even as the Federal Reserve seeks to destimulate the housing market by keeping interest rates high.
The Biden administration’s housing plans have focused on home-buyer subsidies, developer subsidies, low-income tax credits, and expanding housing vouchers, all of which tend to be slow to affect current housing shortages but drive up demand and construction costs, which push house prices higher.
To its credit, the Biden administration has acknowledged that states and localities need to embrace regulatory reforms. President Joe Biden has proposed an innovation fund to spur the construction of affordable housing. ADUs were even included in a housing supply plan.
However, these grant programs face challenges from other parts of the Biden regulatory agenda, such as made-in-America requirements on construction materials that will drive up construction costs.
Instead, federal policymakers should consider conditioning federal grants for housing programs on local permitting reforms or ADU incentive programs.
Expanding the housing supply doesn’t necessarily require more public money, but it does demand less government heavy-handedness. ADU expansion presents an opportunity to bring conservatives and liberals together to advance a tested policy that will get more Americans into homes at a price they can afford.