I worry about investment consortiums putting up ADUs on properties in their portfolios to pack even more people and profit into their holdings. The current law does not require owner occupancy of the primary residence.
What percentage of single-family homes in California are owned by investment consortiums?
The article highlights markets outside of CA, but regions of the state that had high rates of foreclosure were attractive to investors.
Most of those “regions of the state that had high rates of foreclosure“ were places like the Central Valley and exurbs around LA. Not the places with a shortage of land for housing. Moreover, the PE investor purchases were generally made in places with a good cap rate from rentals, and the Bay Area in particular doesn’t deliver that.
Apparently institutional investors own only about 50,000 homes in CA, according to this article: https://calmatters.org/housing/2018/04/data-dig-big-investment-firms-have-stopped-gobbling-up-california-homes/
If it were the case that investors were snapping up homes for rental in areas of California that have housing scarcity, and if they were then putting up ADUs in the back yard and renting them out too, that will drive down rental prices. And that would be a great thing. I don’t myself think it will happen to any great extent, but if it did, I’d be happy that they were creating desperately needed housing. They’d better hurry, though. Local agencies can’t require the houses with ADUs to be owner-occupied , but that prohibition expires in 2025.
And if house-flippers find that putting up ADUs in the back yards of houses they are flipping is a profitable venture, and they do it in areas of housing scarcity, that too would be creating desperately needed housing. I hope it happens. I believe in capitalism and am happy to see entrepreneurs noticing a demand and satisfying it. I don’t follow @coralbrook closely, but I thought she was selling her houses to people who were happy to buy them. House flippers who installed ADUs would, I presume, have equally happy buyers.
@ProfessorPlum168 Many, many of those “cheap tract homes” have been, and continue to be, demolished with new larger homes built in their place. The land is so valuable and those “cheap tract homes” represent a very small portion of the lot’s value.
If I were to spend the money, then I’d go ground up custom build.
What makes the area unattractive for private equity can make it attractive for a homeowner/investor. For a homeowner in the Bay Area, who already has the land, the return on building and then renting an ADU looks good.
Higher density housing is the only long-term solution to California’s housing shortage, but Wall Street does not have a good track record as a responsible landlord. However the fees and other costs associated with new construction in CA is likely to ensure that most ADUs will be built by individual homeowners and mom & pop landlords.
Or having elderly relatives live there instead of in an expensive assisted living place or on their own where commuting to provide assistance would be necessary (and assistance goes both ways, such as grandparents providing care for grandkids).
Actually, even many years ago, house builders sometimes had ADU as an option on a new house, because they realized that some families wanted a place for the grandparents that was mutually convenient but still separate when they want to be.
This is amazing:
https://www.latimes.com/california/story/2019-10-21/affordable-housing-activists-push-back-real-estate-capitalism
This is a heck of a good deal, for homeowners.
Let’s say I live in Menlo Park, where Facebook has its headquarters. I’ve owned my house for 20 years. I like it in Menlo Park: my friends are there, I like to take my dog hiking in Windy Hill, and I don’t want to move.
And let’s say I like money. So I decide to put a 400 square foot ADU in my back yard, and rent it out at market rates. The county of San Mateo provides a handy calculator:
https://secondunitcentersmc.org/calculator/
The calculator lets me put in my own numbers, but I’ll believe theirs. Those of you who know the housing business better than I do can try your own numbers. I suspect with the new law eliminating impact fees, the soft fees will be less than what the calculator estimates.
I could use a prefab, but I decide on new construction instead. The calculator doesn’t seem to think there is much difference in cost. I’ll shop around; maybe I’ll pick prefab instead, because I think the prefab units look fine and are well constructed. Probably prefab is faster for me.
I like quality, so I’ll put in high-end appliances and finishes.
I put in $50K of my own money, and borrow the rest.
I hire a property manager, because what do I know about being a landlord?
The minute I start renting out my backyard cottage, I clear $465 a month. The whole thing pays for itself in seven years.
What’s true in Menlo Park is true up and down the Peninsula; an ADU is a moneymaker.
In the article posted in #110, I question the ‘deed restriction which will keep the property affordable in perpetuity’. They don’t say what that deed restriction is but there is a well known, but complicated rule in law called The Rule Against Perpetuities meaning that deeds cannot restrict what is done with property for years and years and years.
Once the most recent laws take effect Jan. 1, cities and counties will generally only be able to prohibit the construction of accessory dwellings for health and safety reasons, including on properties at high risk of wildfires.
The above is a quote from an article in the LA Times dated 10/10/19.
This basically eliminates backyard dwellings on hill property, the Hollywood Hills, the San Gabriels, Porter Ranch, Sylmar, Santa Clarita, Calabasas, Malibu, Agoura Hills, Thousand Oaks, parts of Glendale, etc. etc.
It remains to be seen whether the courts will accept the idea that the law doesn’t apply in the hills. But even if it doesn’t, the intent is to put up housing where the jobs are, and that’s largely on the flats, not in the hills.
The article gives several examples of how this will be achieved. The properties will be held in Trust, sometimes with local government oversight:
January 1, 2020 all new homes built in California - up to three stories - will be required to have solar. Does this also apply to the ADU’s?
Yeah, new ADUs will have to have solar starting in 2020. The rule exempts new construction that is shaded, I believe. No sense in putting in solar panels if there is no sun on the panels.
It will be interesting to see if this new ADU law changes anything in my neighborhood. My town recently approved new more permissive ADU rules. My neighborhood was excluded from the rules due to fire hazard. If post 113 is correct it might not change.
The LAFD has a fire danger zone map. Google it and see how much of the city is covered by this including the Palisades where a brush fire is burning now.