California towns with cute ‘backyard cottages’ are booming – but not everyone is happy about it

Californians bypass the state’s acute housing shortage and rising real estate prices by building cute little houses in their backyards – but not everyone is happy with this new development.

Advocates say in-law suites or accessory dwelling units (ADUs) are the fastest and easiest way to get people into livable homes.

But some experts warn that ADUs could drive down the price of single-family homes in neighborhoods because potential buyers may not want to live near the backyard tenant.

Others complain that these small houses are not a comparable substitute for building more traditional houses to combat housing shortages.

Despite this, many people continue to build ADUs – often to house elderly relatives who need assistance and no longer want a large home.

After Teddy Gray King’s mother passed away in 2021, she decided to move her 88-year-old father into a prefabricated home on her property in Piedmont, a small Bay Area town just outside of Oakland.

He lived in a 3,000-square-foot house in Millbrae, which King said he could sell so it could be freed up for another family.

King said she bought the prefab home from an Oakland-based company for $268,000 and had it flown to her backyard in 2022.

“In a place like Piedmont, where many houses have large backyards, this is a perfect way for infill (and) from a visual perspective it is quite low impact,” she told the San Francisco Chronicle.

Wealthy communities like Piedmont – where the median household income is more than $250,000 – are the main areas where these backyard cottages are being built, according to government data that keeps track of the type of housing being built in the state.

After all, King paid almost $270,000 for the one-bedroom house her father now lives in, which is higher than the average sales price for an entire house in Cleveland, Ohio or Buffalo, New York.

However, King still walked away with a discount because there isn’t a single one-bedroom house on the market in Piedmont for less than $389,000.

However, if the goal of ADUs is to house more people pressured by California’s rising rents, it is unlikely to succeed.

A brief announcement from the Virginia Housing Commission found that a significant percentage of ADUs are not renting at below-market rates.

Scott Wild, the senior vice president of real estate-focused firm John Burns Research & Consultingrecently written a report who agreed with this assessment.

“When rented, ADUs typically command significant premiums over nearby multifamily properties, placing them at the high end of the comparable rental spectrum,” Wild claimed.

A 2021 bill of the New York Assembly attempted to address this problem by creating an ADU financing program for homeowners who wanted to build one on their property.

But if they were to take out a loan from the program, they would have to rent the unit at a rate that is below market in their area.

This proposal never left the committee.

Meanwhile, California is steamrolling ahead and leading the nation in the number of ADUs built.

Piedmont Mayor Jennifer Cavenaugh said the city doesn’t have many unused lots available for housing, which could be why no new housing has been built in Piedmont in the past three years, except for ADUs.

ADUs were the only new homes built in 2022 and 2023 in two other Bay Area cities: Los Altos and Hillsborough.

Matt Lewis, a spokesperson for California YIMBY (which stands for Yes in My Back Yard), supports easing restrictions on ADUs in Piedmont, but said cities should also repurpose existing buildings to house more people.

“Every city has the opportunity to increase the number of housing units within its borders,” Lewis told the Chronicle. “We have the lowest density cities out there and that’s because of the restrictions that cities have placed, not just on building, but on the number of homes you can put in a building.”

The backyard cottage craze is a result of California passing legislation in 2016 that required cities to approve ADUs if they met parking and size requirements.

More than 31,000 homeowners applied for an ADU permit in 2023, up from 7,000 in 2018, state data show.

The momentum could only get stronger thanks to two new bills signed by Governor Gavin Newsom last year that would allow property owners to sell ADUs separately from their primary residences and prohibit local governments from forcing owners into their cottages in to live in the backyard.

Even though they have become a fad, one San Francisco real estate agent expressed serious concerns about ADUs and their potential impact on the housing market.

Rohin Dhar said he sees many single-family home owners building ADUs to rent out for some extra income.

The problem comes, he says, when they put their home on the market, especially if there is a tenant in the extra unit.

“But when they go to sell the house, it will sell for *much less* than if they had never built the ADU,” he wrote in a message about X. ‘You are actually selling a single-family home with someone who lives with the in-laws. That’s a hard sell!’

Another San Francisco real estate agent told DailyMail.com that the buyers she interacts with generally respond favorably when presented with properties with ADUs.

“For buyers, they open up possibilities with properties for extended guests or additional income,” Naomi Lempert Lopez said. “There’s so much you can do with an ADU and they add flexibility.”

She also said that homes with ADUs fetch more than homes without ADUs, although it is important to note that an additional unit adds square footage, which almost by definition would increase the price of a property.

However, Lopez advises her clients to sell their ADU-equipped home if there is no tenant occupying the extra space to avoid complications.

“San Francisco is a city with extremely strong tenant protections, and so anything that’s renter-occupied, whether it’s a house, whether it’s the ADU, whether it’s a multifamily property, is certainly going to give buyers pause.” , she said.

‘I would definitely say that selling empty has a much greater added value.’