Funding and Permission Still a Barrier for Homeowners, According to LA’s ADU Startups – dot.LA | Team Cansler

Can more residential units help a city with a chronic housing shortage?

A wave of new ADU startups based in LA or serving the region are banking on it. ADU companies like Otto (formerly known as Homestead), which focus on converting pre-existing structures (e.g., a garage) into housing, serve as a one-stop shop for homeowners with financing, design, permitting, and labor helps. Other companies such as Azure Printed Homes, Cover, United Dwelling, and Villa Homes offer factory-made ADUs that are built off-site — also known as “pre-engineered” ADUs. Still others, like Cottage (based in San Francisco), work with local contractors and help homeowners design, build, and obtain permits for their own custom ADUs.

ADUs (also known as granny flats, sister-in-law apartments, or backyard homes) describe a category of small, in most cases self-contained homes that can be built adjacent to the original lot. A prospect that’s currently trending in Los Angeles, where a chronic housing shortage and sky-high rents coupled with a 2017 state law are forcing cities to relax their ADU regulations.

But as novice ADU builders soon found out, building a small house is no easy task.

“I would not say that [..building an ADU] is very simple, almost everywhere,” said Celeste Goyer, political director of the Casita Coalition, an LA-based organization focused on expanding the use of ADUs for affordable housing across the state. “You can’t just go home and get a hammer and have your cousin help you build your ADU. Therefore, expectation management is important for everyone involved.”

The process of getting approved for an ADU typically takes months.

“In general, many people struggle with the length and complexity of the permitting process and feel that their jurisdiction imposes unnecessary bureaucracy in the permitting process,” said Alex Czarnecki, founder and CEO of custom ADU firm Cottage.

But a number of additional laws could make ADU construction in California easier. Last year, Gov. Gavin Newsom signed SB 9 into law, allowing California homeowners to build a second home on a fenced single-family lot. Another law known as AB 221 requires local authorities to respond to ADU permit requests within 60 days, failing which it will be automatically approved.

“It’s common for certain municipalities to take longer to respond to an application or provide incomplete comments,” Czarnecki said. “This is increasing approval deadlines and ultimately impacting the pace at which we can add housing.”

Despite the new laws, few homeowners should attempt to build an ADU themselves, Czarnecki said.

“The fact remains, the average homeowner is not a land developer and is not trained or willing to oversee and direct the design and construction of a new unit on their property,” Czarnecki added.

To that end, leaders at some ADU companies still believe more needs to be done to improve financing for the expensive construction projects — and make them more affordable for those on low and middle incomes. A typical pre-built ADU costs between $140,000 and $300,000. Custom ADUs are even more expensive. Remodeling a garage is cheaper, but in LA the process can easily add up to six figures. None of this takes into account the additional cost of permits, which Los Angeles-based ADU firm Modal estimates to be between $4,000 and $8,000.

There are few mainstream financing options for ADUs, and renovation loans or cash-out refinancing often don’t cover the full cost of the project. In a 2021 UC Berkeley survey of homeowners, nearly 62% said they rely on cash savings or a friend or relative’s money to pay for their ADU.

ADU advocates often tout it as an “affordable housing” solution – on the assumption that property owners will rent them out as an additional source of income. However, with the median price of a single family home in LA County approaching nearly a million dollars, building an ADU is likely an opportunity reserved for those with higher incomes.

“Funding is really the only thing I think the city of LA and everywhere else really needs to work on. I think LA has done great using ADU and hopefully it gets even better,” said Ross Maguire, CEO of Azure Printed Homes.

Otto’s CEO, Samuel Schnieder, said the ADU funding was a major impediment to expansion. Adding, “It’s often a catch-22 that the people who are best equipped or most enthusiastic about getting an ADU are the ones who can’t necessarily afford it.”

The California Housing Finance Authority this year began offering up to $40,000 in grants for such individuals, but it only covers new pre-construction ADU costs, which include everything from impact fees to permits to site preparation. In Los Angeles, homeowners with incomes under $180,000 qualify for such grants.

A total of 840 people in California have received grants since September — all but a fraction have received the full amount, a CHFA spokesman confirmed to dot.LA.

First launched in 2019, Culver City-based Azure Printed Homes relies on robotic printers to speed up the construction process. The company said it could 3D print the walls of a 120-square-foot unit in less than a day.

Maguire told dot.LA that Azure — which opened reservations earlier this year — has received pre-orders for 167 units from 119 customers, totaling over $19 million in pre-orders.

But you’re unlikely to see most of these units advertised as new rentals on Craigslist. According to Maguire, most Azure customers want an ADU to have more space for themselves or to house relatives, rather than renting it out as an additional source of income.

As a result, some homeowners are opting for factory-built ADUs over a more custom option, choosing to reduce the time frame for inspections.

“Because our units are pre-approved by the State of California, there is no building and security review that needs to be done at the local level with the City or County of LA,” Maguire told dot.LA.

But even prefabricated ADUs must be checked on site by the local planning authority. “(…LA’s planning department needs to look at how these modules interact with a given site itself, a process that cannot be pre-approved as they are site-specific,” confirmed an Azure spokesperson.

To expedite the ADU approval process, the City of Los Angeles last year instituted a series of “standard plans” that were pre-approved by LADBS. But such plans don’t come cheap — and they won’t exempt homeowners from inspections.

“It should be noted that regardless of which pre-approved plan you choose, pre-approved plans still need to go through the normal site-specific reviews in order for the project to receive approval,” Czarnecki said.

And if homeowners are unfortunate enough to build a Standard Plan ADU on an oddly shaped lot or in a location with atypical features, they may have to start all over again. In other words, their ADU is no longer considered “pre-approved” and must go through the longer approval process.

“While the standard plans are a good starting point for developing a product that anyone can use, they tend to end up being more expensive plans from what I’ve seen,” said Otto’s Schneider.

The Casita Coalition and groups like California YIMBY are calling for better financing options for ADUs, particularly those that benefit individual homeowners. Currently, new ADUs are being built predominantly in more affluent, whiter areas. For ADUs to actually help bridge the racial-wealth gap, policy experts have to say that they must actually be a viable option for the less affluent.

“I would be very happy about further financing possibilities [..for ADUs] developed by credit unions and community financial institutions to provide ADU-tailored loans to help low- and middle-income homeowners build ADUs,” Goyer told dot.LA.

Until then, Angelenos’ dream of generating income from their backyards may remain just that.

From your website articles

Related articles on the Internet

Leave a Comment