Attached housing units (ADUs) have surged in popularity during the pandemic. With interest rates hitting record lows, interest in adding elbow space to everything from his office to well-equipped living spaces has skyrocketed.
But the pandemic is now over and interest rates have risen significantly. So where is ADU now? Short answer: a lot. But things are changing, and ADU buyers (and ADU builders and manufacturers) are adapting. Here are some of the major trends we’ve been keeping an eye on.
Customers are interested in getting bigger
“Large” is always a relative term, as the maximum size of an ADU is approximately 1,000 square feet. An interest in small structures that was a hot seller during the pandemic has been replaced by a surge in inquiries for his ADU, which features a full suite of bathrooms, kitchenettes, HVAC, plumbing and electrical services.
However, it is understandable that the increased costs associated with rising interest rates are putting the brakes on the conversion to selling these full-featured ADUs. In early 2022, people were pegged to 3% and 4% interest rates. These numbers are now like 8% or 9%.
For a fully reserved $240,000 ADU, a 30-year loan with an interest rate of 8% is more than $600 per month more than the same loan with an interest rate of 4%. As cost becomes more of a concern, interest in his modular, factory-assembled ADUs grows. This ADU tends to be cheaper and faster to build than a custom onsite build.
Still, ADU is a big investment and potential customers are thinking hard before pulling the trigger. That said, ADU still benefits many homeowners. It depends on her ROI for a particular project.
ROI is difficult to calculate, but there are rules of thumb
If you look around the web, you’ll find ADU ROI estimates (and rules of thumb to help you estimate ROI) all over the place.
a pouch dot com study We found that homes with ADUs were on average about 35% more expensive than homes without ADUs.home light investigated Real estate agents determined that ADU ROI was neutral to negative, depending on location. Assuming ADU is a full-time rental, cymbium Estimate The ADU owner’s property value is 100 times the monthly rent of the ADU.
Many customers are interested in adding an ADU for full-time rentals, but most customers prefer a flexible space for personal use as a private separate room for visitors. and seems keen on short-term rentals when convenient.
Since the majority will not be renting ADUs full-time, let’s use the cost of ADUs as the basis for estimating earnings.
An all-in ADU typically costs about $400 per square foot. According to the estimate, this will include site works, foundation works, utility connections, etc. We also saw that, in the eyes of the real estate market, the floor space of his independent ADU would be added to the total square footage of the main building. Also of greatest interest is his ADU in areas where real estate values range from $600 to $800 per square foot of him.
So from a narrower perspective of short-term real estate valuations (that is, excluding potential rental income), we’re looking at an ROI of 1.5x or more in these markets. Conversely, if he lives in an area where property prices are less than $400 per square foot, the ROI can be flat to negative.
Permissions are getting easier, but there is room for improvement
City leaders are familiar with the ADU’s potential to deal with long-term, stubborn urban housing across the country. shortage – especially when it comes to affordable housing. The list of urban centers that have adopted or are in the process of adopting ADU is long and growing Denver, Austin, Los Angelesand Seattle As an example).
Geographically, ADU hotbeds such as California and the Pacific Northwest are joining Colorado, the Washington DC area of the metropolitan area, North Carolina, and Georgia. The more liberal ADU zoning is playing a role in all these places.
Zoning is liberalizing as a national trend, with housing-short cities leading the way. But cities are made up of neighborhoods, and ADU acceptance may boil down to delineating neighborhood or homeowners association parking, setbacks, and other requirements.
In many cases, the hyperlocal nature of ADU permits can act as a deterrent to potential ADU purchasers who lack the expertise (or time and energy) to navigate the regulatory maze. I have. ADU builders are stepping into the void as part of another trend.
ADU Builder is working towards a turnkey vision.
Building an ADU is building a small house. This includes permitting, financing and managing all details related to the physical infrastructure. Surveying, grading, foundation work, connecting electrical and plumbing lines, etc. There are many moving parts.
Most people interested in building ADUs have jobs that allow them to buy them. However, you have limited time to digest and work on the details.
Leading ADU builders have established internal teams and networks of external partners to help customers build ADUs with minimal time and effort. This includes providing competitive financing, tracking local permit whims, and assisting customers through the permit process. Also, for his ADUs manufactured, the team has vetted local contractors and packaged third-party bids for field work. The vision is to provide customers with a hassle-free (or at least minimal hassle) turnkey ADU construction process.
That vision is still being built, so to speak. But for homeowners and the cities and towns in which they live to reap the many rewards ADU promises, it is worth pursuing.
Jeremy Nova is the founder of Studio Shed.
This column does not necessarily reflect the opinions of the Editorial Board of HousingWire and its owners.
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