Bay Area embracing ADUs amid housing crisis – are they worth the investment?

SAN FRANCISCO (KGO) — California’s housing crisis is forcing lawmakers to think of new ways to get more people into neighborhoods that are already well established.

Just last month, San Jose reported the median home price was nearly $1.4 million – that’s an increase of 10% from the previous year.

“I couldn’t afford to live here if I didn’t buy my house 25 years ago,” expressed Joyce Higashi a San Jose homeowner who just added an accessory dwelling unit in her backyard.

Many young people or families will never be able to live in San Jose. That is, unless they consider buying an ADU.

“That ADU pricing will be much lower than a traditional single-family home,” explained Assemblymember Phil Ting. He created legislation allowing homeowners the option to not only build an ADU but eventually sell it, like you would a condo.

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And San Jose is leading that trend.

“When we had the idea to develop the ADU, we wanted to make sure whoever lived in the back had the option to have a lot of space,” said Dan Kearnan, who had an ADU installed in his large backyard in San Jose.

Kearnan bought this property with the intention of building another structure. An ADU was the most sensible option.

He paid $250,000 prior to the pandemic.

For now, he rents out the 500 square-foot ADU but he is thinking of subdividing the property and selling it, ADU and all, to his in-laws who otherwise couldn’t afford to move to San Jose.

“This now gives them the opportunity to actually own in San Jose at a lower price point and also be closer to us, so it’s kind of a win-win,” he added.

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San Jose has allowed the fast-tracking of ADUs. Since 2019 1,310 ADUs have been built here.

“Literally from start to finish, it took four months.”

Higashi wanted the extra rental income. The company who sold her the modular unit took care of the plumbing and electricity.

“They came in, laid the foundation, they did all the trenching for the utilities,” she explained.

When it was time to deliver the unit, a giant crane lifted the ADU over her main house and onto its foundation. It took a total of four minutes.

The City of Berkeley, meanwhile, is expected to allow homeowners to sell ADUs like a condo.

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Councilmember Rashi Kesarwani says it may happen this year.

“It would essentially work in the way a homeowner’s association would for a condo. I actually grew up in a condo so my parents paid property taxes, we had our trash bins, everything was if we owned just like a single-family home,” outlined Kesarwani.

Kol Peterson is an expert on the process of building ADUs. He’s based in Portland where there are more ADUs per capita than anywhere in the country.

“That’s kind of the biggest misconception is just like how much it’s going to cost but then the important thing to understand is well, even if it costs $500,000 , what’s my return on my investment and so in the Bay Area obviously things are expensive to build but you can always get huge amount of rental income from these things, so it may be a very rational investment,” said Peterson.

San Jose has received four times as many applications to build ADUs as San Francisco has. So far, San Francisco has built 939 ADUs since 2019.

The San Francisco Planning Department acknowledged that ADUs are easier to build in San Jose, with large lots more easily lending themselves to modular structures and pre-approved designs.

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Here’s one reason.

Higashi and Kearnan’s properties have separate entrances to their ADUs. But San Francisco homes usually have no access to the rear yard from the street and there isn’t always room to build them.

But the city is allowing some homeowners to convert a garage into a small ADU.

“Accessory dwelling units are fully individual dwellings. They have to have their own kitchen, their own bathroom,” added Ryan O’Connell, the founder of “How-to-ADU,” a website that helps people understand the process of building or buying an ADU.

He says California is on the cutting edge of the ADU movement.

“One in five units last year for new home construction were ADU permits in the state of California. That’s really exciting because that’s incremental homes, that’s a lot of housing that wouldn’t exist otherwise,” said O’Connell.