Want to create more housing without changing the neighborhood? Build an ADU

There are many ways to add housing. Here are six of them now possible with Cincinnati’s new ADU ordinance.

Podcast: Can Backyard Cottages Fill A Gap In Housing?

As the nation grapples with a lack of housing, interest is building in a concept already popular on the West Coast and parts of New England-Accessory Dwelling Units or ADUs.  

Think granny flat, carriage house, attic or basement apartment, tiny house, even a manufactured home on your property that has its own entrance, a kitchen with sink and stove, bathroom and a place to sleep according to Fannie Mae requirements. Cities may have additional guidelines. 

Cincinnati Council voted to allow them in June 2023 by changing the zoning code. Here’s what you need to know to build one. In 2022 Dayton decided to allow them conditionally and included the importance of ADUs in its Future of City Planning Report. Yellow Springs also allows them conditionally and as early as this fall may consider permitting them outright.  

An ADU boom, but not in Southwest Ohio 

With high interest rates and expensive construction materials not a lot of homeowners are rushing to build an ADU in Cincinnati, Dayton and Yellow Springs.  

Also, it’s only been a year since Cincinnati changed its code. But before that some residents did get special permission to build a backyard cottage and Brick by Brick’s Emiko Moore talked to two of them about why they decided to do it. 

What other states and cities are doing 

Most backyard cottages are in California, Oregon and Washington. Buildinganadu.com estimates there are 100,000 permitted ones in those three states and about 10,000 for the rest of the nation. The government, combing through real estate data, identified 1.4 million informal ADUs. Buildinganadu.com says that is wildly inaccurate. 

ADU expert Kol Peterson who runs buildinganadu.com, has this prediction. “Colorado has passed very strong statewide reform and they will have an ADU explosion in two to five years, same goes for Arizona.” He says, “Washington’s code is about to go into effect starting next year. They’ll have an ADU explosion.” 

He’s not as hot on Hawaii because its zoning code still lets local governments require parking. (This Brick by Brick article explains the challenges with required parking

Hawaiian lawmakers see ADUs as a possible housing solution for Maui wildfire survivors. They are looking to increase the number of accessory dwelling units and have offered to subsidize construction. And on the island of Oahu, there is also a push to build more.  

Boston’s Mayor touted ADUs in her 2024 State of the City Address and said the city would change zoning laws to make it easier to build them. The group Abundant Housing Massachusetts praised the idea.  

Executive Director Jesse Kanson-Benanav says in this article, “On behalf of pro-housing advocates across the city we applaud Mayor Wu and her administration for working to expand zoning to allow Accessory Dwelling Units (ADUs) to be built as-of-right in neighborhoods across Boston. Our city has an extreme shortage of affordable homes and this action will help ensure the City has all the tools at its disposal necessary to tackle this crisis.” 

ADUs are already popular in San Diego, California where the city allows owners to sell them as a separate house on their property. There’s also a provision that if the property owner keeps the rent low enough for tenants who make a certain income, they can build another ADU unit. The “bonus” ADU rent can be whatever the landlord wants to charge. Cal Matters reports because of San Diego’s “hack” there are now ADU “apartment buildings.” 

How do you pay for an ADU? 

The mortgage industry is becoming more friendly towards ADUs. Nerd Wallet reports you can refinance your loan or replace it with a construction or renovation loan.  

With backyard cottages costing at least $100,000, and upwards of $200,00 on the West Coast, few people have the cash to pay for it. Banks are trying to pivot. The future value home equity loan uses an appraiser to determine the value of your home after renovations, or in this case, after the addition of an ADU. 

KeyBank Vice President Kenya Taylor says, “I think we’re in a really unique situation which is kind of unprecedented. I do see at some point in time banks evolving where maybe they might become more product accessible in the mortgage world.” 

Who is building ADUs and why? 

  •  Some homeowners are simply looking to collect a rent check. 
  •  Others bring their parents on the premises to keep them out of a nursing home.  
  • While others let their kids live in an ADU so their son or daughter can save up to buy a house. 
  • The National Association of Realtors says it can add 35-percent to your home value, depending upon the area, according to a 2021 study. 
  • San Jose, California homeowner Joyce Higashi rents her backyard home to traveling nurses for $3,000 per month. And Eugene Chu built an ADU on a rental property in San Diego to increase the number of bedrooms. 

Miami University Architects make case for ADUs in Southwest Ohio and beyond 

In the non-profit independent news publication, The Conversation, Miami University assistant architecture professor Jeff Kruth says owning a home is becoming increasingly unattainable.  

He says, “These development prescriptions are so pervasive that it is now illegal to build anything other than a single-family house on 75-percent of residential land in American cities.” 

Kruth wrote the article with fellow architecture professor Murali Paranandi. They say, “We believe ADUs-with their social, economic and environmental benefits-should become a more common housing option.” 

And they argue, “ADUs can also fill the gap of much-needed “missing middle” housing. (Brick by Brick episode 3 focused on this missing middle housing) Affordable housing is typically developed by government housing authorities and nonprofit developers who attempt to meet the pressing housing needs at the lower end of the economic spectrum.” 

Incentives 

Cincinnati gives a residential tax abatement. Under the tax exemption program, people who build an ADU can get a tax reduction for up to 15 years.  

In New York City the Department of Housing Preservation and Development has launched a new pilot program. The “Plus One ADU” program provides qualified homeowners money to build an ADU. It aims to “support working and middle-class families, including seniors hoping to spend their retirement years in their chosen neighborhood, young parents in need of space for their in-laws, families with children returning from college, and homeowners looking for an extra source of income.” 

Los Angeles identifies homeowners who already have an ADU on their property and covers the cost of the operations if they are renting to a low-income tenant. This is through the LA Accelerator Program. 

Limitations 

The cost of building a backyard cottage is prohibitive to many. While they range in price, taking in the cost of pouring a foundation, utility hook-ups, permits and other expenses (even with a prefab building) could cost more than $100.000. On the West Coast the minimum is $200,000. 

UC Berkeley researchers sought to understand the barriers to ADU construction for low- and moderate-income BIPOC (Black, Indigenous, and People of Color) households in California and wrote this paper. Cost was the number barrier. Homeowners in this community may not have enough equity to build a backyard cottage. The Terner Center for Housing Innovation (at UC Berkeley) recommends: 

  • Better equip community organizations to facilitate ADU interest and engagement. 
  • Expand and invest in programs that provide targeted financial resources to BIPOC and/or low- and moderate-income homeowners. 
  • Reduce the cost of the permitting process and streamline it. 
  • Provide specific training for appraisers 

Some experts, including Kol Peterson, say an owner-occupancy rule limits the flexibility of the property owner and limits the ability for ADUs to scale up in a community. In addition, there are concerns that this rule is a back-door attempt to block renters. It’s explained in this Brookings commentary. 

The Joint Center for Housing Studies (JCHS) at Harvard says, “On its own, the increased production of ADUs would not fully address a host of housing-related problems, in Massachusetts or any other state. However, increased ADU production could help alleviate those problems, particularly if it is a part of larger, more comprehensive efforts to provide more affordable, accessible and sustainable housing.” 

Results 

JCHS is studying the impact of ADUs and wrote a paper, looking at lessons from around the country. 

It says that places that have liberalized them generally have seen a noticeable uptick in production of ADUs. Co-Author David Luberoff points out ADU production in California was at an all-time high in 2023. Here is data until 2022

He wrote in the paper, “….any effort to significantly increase the production of ADUs requires that states – which establish the frameworks for local zoning – mandate by-right local approval processes for new ADUs that meet meaningful state standards for size, massing, design, and use. These provisions and approaches can provide the foundation for other measures needed to increase production of ADUs, notably public outreach efforts that will ensure that homeowners know about ADUs, the development and marketing of loan products making it possible for low – and moderate-income homeowners to build ADUs, and the emergence of a network of affordable and skilled builders and designers familiar with the particular challenges related to building ADUs.” 

Experts say any additional housing holds rents down. Austin, Texas is one place people are building ADUs. It saw a 12-percent decrease in rent and it’s just one of three U.S. cities nationwide that do have enough housing supply to meet demand. The others are New Orleans and Nashville, according to global developer Hines. But those cities are not Cincinnati and Dayton and our zoning laws are different, so Brick by Brick will be following what difference adding this incremental housing option here is making and keep you posted. Our team will also be watching to see if Cincinnati makes any changes to its ADU ordinance, like eliminating the owner-occupancy rule, even with concerns about institutional investors. 

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Ann Thompson – Host, Producer

Over the last thirty years in Cincinnati, Ann Thompson has brought a wealth of knowledge and expertise to her reporting. She has reported and anchored for WVXU, WKRC, WCKY, WHIO-TV and Metro Networks and freelanced for NPR, CBS and ABC Radio. Her work has been recognized by the Associated Press and she has won awards from the Association of Women in Communications and the Alliance for Women in Media. She is a former News Director and Operations Manager. Ann has reported from India, Japan, South Korea, Germany and Belgium as part of fellowships. Ann thinks of the Brick by Brick project as “journalism for good.” She serves as host and producer. Ann lives in Anderson Township with her husband Scott. They have two boys. Jake graduated from the Air Force Academy in 2022 and Kurt attends West Point.