Category Archive: ADUs

  1. Promising Innovations: Shared Permanent Supportive Housing

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    Across California, the heightened urgency associated with addressing the housing crisis has prompted a range of innovations. In Los Angeles, Flyaway Homes has become one of those innovators. They are using shipping containers – the corrugated steel metal boxes you see hauled around on semi-trucks and freight trains – to develop a model of shared-unit Permanent Supportive Housing (PSH) to reduce homelessness.

    While shipping containers have been used for everything from boutique homes to commercial development, they have not factored significantly into efforts to reduce the slow pace and high cost of PSH development. Last month, LDC had an opportunity to attend an open house at Flyaway’s first shared-unit PSH development, located at 820 West Colden Avenue in Los Angeles. We got a feel for the place (it’s nice) and talked a little shop about how the model improves upon traditional PSH development.

    Colden Avenue DevelopmentThe shipping containers, which are used for modular construction, are the most obvious innovation. This approach allows PSH units to be permitted prior to construction and assembled quickly, eliminating a portion of the soft costs associated with most new construction. For example, the Colden project took approximately 10 months to plan and develop, as compared to traditional approaches, which can take years.

    The nine-unit development also uses a shared housing model, providing a home for 32 tenants (and an onsite property manager) who each have their own room and share a kitchen and bathroom with three other neighbors.

    Shared housing is an important resource in the effort to reduce homelessness, but it’s rare to see a developer integrate the model into the budget and design of a newly-constructed property. Doing this has allowed the developer to finish the project at a similar price point to other PSH developments, but at a much lower cost per tenant – $109,000, including the cost of the land.

    Flyaway COO Kevin HiraiFlyaway COO Kevin Hirai explained that to make the project financially sustainable the company secured a 20-year master lease with local homeless services provider the People Concern, which guarantees supportive services for the tenants and rental income for the property for the duration of the lease. The services will be paid for by the Los Angeles Department of Health Services’ Flexible Housing Subsidy Pool program, which offers versatile rental subsidies for individuals experiencing homelessness.

    Flyaway’s model relies solely on private equity to fund development, another way it differs significantly from the majority of PSH development. For the Colden Avenue project, investors contributed to the $3.6 million budget with a guaranteed return of 4.5-5 percent, paid for with the rental income generated by the property. Hirai explained that this approach to financing allowed the company to raise the initial capital very quickly and avoid some of the red tape often associated with securing government funds.

    With the low cost, rapid production time, and flexibility of the project, the most exciting aspect of Flyaway’s model is its potential scalability. Flyaway anticipates that using shared modular housing to produce PSH will become an important resource within the continuum of housing solutions for a significant portion of the population experiencing homelessness. If the model proves successful, Flyaway and other similar companies could build thousands of units relatively quickly. This is one project LDC will be watching closely.

    —————–
    Flyaway Home’s Colden Avenue development combines several innovative approaches to housing people experiencing homelessness under one roof:

    1. Modular construction
    2. Private equity financing
    3. Shared housing
    4. Master leasing
    5. A flexible subsidy pool

     

    Brian GrutersBrian Gruters, Associate, focuses on designing systems that respond to homelessness quickly and efficiently, emphasizing harm reduction and trauma‐informed care. Before joining LDC, Mr. Gruters led development of the City of San Diego’s coordinated entry system (CES) for the San Diego Regional Task Force on the Homeless. He has also worked for Breaking Ground (formerly Common Ground) and the Urban Homesteading Assistance Board in New York City, where his work centered on permanent supportive housing management. Mr. Gruters holds a master’s degree in Environmental Studies from the University of Waterloo, in Ontario, Canada, where he studied ecology and rural anti‐poverty movements. He can be reached at brian@lesardevelopment.com.

  2. California House, Senate Continue Efforts to Increase Supply of Affordable Housing

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    Picking up where they left off at the end of the 2017 legislative session, California lawmakers in both the House and Senate advanced several bills aimed at increasing the supply of affordable housing. These include efforts to modify laws related to the Regional Housing Needs Assessment (RHNA) and Housing Element, override local zoning requirements, and produce accessory dwelling units.

    RHNA/Housing Accountability

    SB 828 Land Use: Housing Element, authored by Sen. Scott Wiener (D-San Francisco), would require the State’s Housing and Community Development Department (HCD) to address the underproduction of housing.  This bill would require cities and counties to meet 125% of their RHNA requirements in their inventories.  Where that is not possible, cities and counties would be required to identify ways in which it will accommodate their RHNA, such as through rezoning. HCD would be required to complete a comprehensive assessment on the unmet needs for each region, and include the results of the assessment in regional allocations for the next housing element cycle. HCD would have to establish a methodology for the comprehensive assessment on unmet need that considers median rent or home prices and, in communities with high rates of income growth, sets a high rate of new housing production for all income levels to ensure equity and stabilize home prices. SB 828 would also prohibit a Council of Government (COG) from underestimating allocations for local jurisdictions based on predicted additional unmet need allocations.  This bill would require the final regional housing need plan to reflect equitable allocations for housing of all income levels, and not demonstrate disparities that promote racial or wealth disparities throughout a region.

    SB 1771 Planning and Zoning: Regional Housing Needs Assessment, authored by Sen. Richard Bloom (D-Santa Monica), would require jurisdictions to adopt long-term plans that address the development of land not only inside their jurisdiction, but in some cases, outside local boundaries as well.  As is currently the law, COGs would be required to create and adopt a “Final Regional Housing Needs Allocation Plan,” but which would now  be required to allocate housing needs according to certain specified objectives, including doing so in an equitable manner by dispersing housing typologies, affordability levels, and housing tenure  (whether owner or rental) across the region. It would also revise many of the current requirements of the RHNA plan.  Plans would be required to further objectives, rather than simply be consistent with them as is currently required.  COGs would be required to include data showing both the number of low-wage jobs within a jurisdiction as well as the number of housing units which are affordable to those workers.  In addition, COGs will be required to project the number of low wage workers and the number of housing units needed to house them during the planning period.   This would be a new focus on existing and projected demand, replacing the previous requirement to respond to housing demand. It would also limit the grounds upon which a jurisdiction could appeal to the COG to these three: the methodology was not informed by survey information submitted by the jurisdiction; the jurisdiction has undergone significant and unforeseen changes; and, the methodology used to calculate the RHNA was in violation of state law.

    AB 3194 Housing Accountability Act: Project Approval, authored by Assemblymember Tom Daly (D-Santa Ana), would prohibit a jurisdiction from disapproving, or placing infeasible conditions upon, a development of very low-income, low-income, or moderate-income housing (including emergency shelters), unless a preponderance of the evidence shows that the development would have a “specific, adverse impact upon the public health or safety.”  The State of California defines “preponderance of the evidence” as evidence that outweighs, not in its quantity but rather in its effect, the evidence of the other side.[1]  In 2017, AB 1515 (Daly) added the requirement for “substantial evidence,” which is defined as “being of ponderable legal significance,” and “which is reasonable in nature, credible, and of solid value.”[2] The proposed requirement for a preponderance of the evidence is a higher standard and could result in a higher number of housing developments being covered by the Housing Accountability Act (HAA). If approved, this bill would impart the protections of the HAA to projects that are both inconsistent with zoning and consistent with the objective general plan standards. Such projects would be deemed approved without having been rezoned.

    Overriding Local Zoning Requirements

    AB 2923 San Francisco Bay Area Rapid Transit District: Transit-Oriented Development, introduced by Assemblymembers David Chiu (D-San Francisco) and Timothy Grayson (D-Concord) and coauthored by Kevin Mullin (D-San Mateo), Richard Bloom (D-Santa Monica), and Phil Ting (D-San Francisco), would require the board of the San Francisco Bay Area Rapid Transit District (BART) to adopt new TOD guidelines for certain BART-owned land.  The new guidelines would establish minimum zoning requirements for land within 1/2 mile of a current or future BART entrance, on contiguous parcels that are at least .25 acres in size.  The bill would also require the board to adopt streamlining measures for TOD projects, and require that projects within these areas include 20 percent affordable housing. The effect of this bill, if approved, could be that jurisdictions where BART stations are located would have little control over what is built in their communities.

    SB 827 Planning and Zoning: Transit-Rich Housing Bonus, authored by Sen. Wiener (D-San Francisco), the bill would have promoted multi-family housing near transit. Among other things, SB 827 would have allowed developers to circumvent zoning in transit areas, and build to height, parking, and density levels that exceed zoning limits. The proposed height limit would have been five stories in areas within a half mile of a transit or subway station, and developers would also have benefited from reduced parking and density restrictions. Advocates of the bill purported it to be a nail in the coffin of residential racial segregation, forcing housing into neighborhoods that were historically zoned low-density in order to perpetuate the segregation of race and class.  The bill failed to pass in the Committee on Transportation and Housing.

    Accessory Dwelling Unit Requirements

    Interior view of an accessory dwelling unitAB 2890, authored by Sen. Ting (D-San Francisco), would require local jurisdictions to consider permit applications for ADUs within 60 days of receipt.  Current law allows jurisdictions up to 120 days to consider such permits.  It would also require that jurisdictions that condition permits on owner-occupancy to not monitor those units more than once per year. This bill would expand the law to allow for ministerial approval of ADUs on both single-family and multifamily lots, and prohibit certain requirements such as lot coverage standards, minimum lot size, and floor area ratio. If passed, HCD would be required to proposed small building standards by 2020, which would provide further oversight into  local ordinances.  If an ordinance is found to be in violation of the law, HCD could additionally notify the Attorney General.

    SB 831 Land Use: Accessory Dwelling Units, introduced by Sen. Wieckowski (D-Fremont) and coauthored by Sen. Toni Atkins (D-San Diego), Sen. Nancy Skinner (D-Berkeley), and Sen. Wiener (D-San Francisco), would require jurisdictions to designate, in their ADU ordinances, any areas where ADUs would be excluded because of certain health and safety concerns.  It would delete the authority to include lot coverage standards.  It would also prohibit jurisdictions from taking the square footage of the proposed ADU into account when determining the allowable FAR or lot coverage. In addition, a permit for the development of an ADU would be automatically approved if not considered within 60 days of its submittal.  It would prohibit requirements to replace off-street parking that is lost due to the development of an ADU. It would also prohibit the use of any other local policy, ordinance, or regulation as a means to inhibit the development of ADUs. This bill would not only prohibit local ordinances from owner-occupancy conditions, but also make void any such existing requirements. It would also prohibit a jurisdiction from considering an ADU as a “new residential use,” for purposes of determining fees.  School fees would be an exception; however, they would be limited to $3,000.

    Artemis Spyridonidis, Senior Associate, covers housing policy issues, including structural solutions to the housing affordability crisis, consolidated plans, housing elements, accessory dwelling unit policy implementation, and regional issues across the state of California. For information about linkage fees and other housing policy issues, contact Artemis Spyridonidis, at artemis@lesardevelopment.com.

    [1] Glage v. Hawes Firearms Co. (1990), 226 Cal.App.3d 314, 325, quoting People v. Miller (1916), 171 Cal. 6149, 652.

    [2] Kuhn v. Department of General Services, (1994) 22 Cal.App.4th 1627, 1633, 29 Cal.Rptr.2d 191; Mohilef v. Janovici, (1996) 51 Cal.App.4th 267, 305, fn. 28, 58 Cal.Rptr.2d 721.

  3. San Diego City Council Drastically Reduces ADU Fees

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    The San Diego City Council voted unanimously on April 30 to drastically reduce permitting fees in the city for both accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs).  LDC Senior Associate Artemis Spyridonidis attended the meeting to share the firm’s research findings and support the reduction in fees. LDC’s research on fees and production rates throughout California demonstrates a positive correlation between low permit fees and higher production of ADUs.

    Councilmember Scott Sherman lauded the reduction in fees: “It’s so hard in San Diego to find a place you can afford when you’re first starting out…This is a great first step. It’s not going to solve the problem overnight, but it’s going to make it a lot easier for people to afford to be able to build these, providing housing stock.”

    Councilmember Georgette Gomez celebrated the Council’s vote: “This will have a positive outcome at the end of the day…we’re going to see more of these permits being requested to develop these units that are going to be naturally affordable, that are going to help more San Diegans with a bit of income but also to make housing affordable…”

    The vote, which included both fee reductions and waivers, will help the city achieve the goal it adopted in March 2018 to build 6,000 ADUs in the next 10 years. Table 1 below compares the previous costs associated of permitting ADUs with the new cost structure approved by City Council on April 30:

    Table 1. REDUCED/WAIVED FEES[1] 

    Fee Type Previous ADU Fees

    Approved ADUs Fees(as of April 30, 2018)

    Water Capacity Fee $1,524 $0
    Sewer Capacity Fee $2,062 $0
    General Plan Maintenance Fee $275 $0
    Developmental Impact Fee $24,000-29,000

    $8,000-13,000

    Total Fees for Established Communities

    $27,861-32,861

    $8,000-13,000

    Proposed Facilities Benefit Fees*

    $44,000-49,000

    $8,000-13,000

    Total Fees for Newer Communities $76,681-81,681 $16,000-26,000
    *Levied only in newer communities

    To keep the City’s Development Services Department at full cost recovery, $100,000 will be transferred from the General Fund.

    Homeowner Elizabeth DeWitt spoke of the benefit to her family: “The $30,000 it costs now – they told me it might cost me about $50 to build the room – I can’t do that if the fees are $30,000.  We’re in a housing crisis in San Diego. This would help me with my son, and I’m sure it would help a lot of others.”  There were no speakers in opposition.

    [1] Additional fees, such as School Fees and SANDAG’s Regional Transportation Congestion Improvement Program Fees, are not included in this table.

    Artemis Spyridonidis, Senior Associate, covers housing policy issues, including structural solutions to the housing affordability crisis, consolidated plans, housing elements, accessory dwelling unit policy implementation, and regional issues across the state of California. For information about ADUs and other housing policy issues, contact Artemis Spyridonidis, at artemis@lesardevelopment.com.

  4. State Lawmakers Continue Push for ADU Development

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    ADU demonstration at the Jacobs Center for Neighborhood Innovation on Oct. 26th 2017.

    Two years ago, in an effort to increase the housing supply statewide, California state lawmakers began laying the legislative foundation to stimulate the development of accessory dwelling units, or ADUs. Defined by California State law to be secondary units, ADUs are typically built on a single-family home lot and smaller than the primary dwelling; according to state law, they cannot exceed the lesser of 50 percent of the square footage of the primary home, or 1200 square feet. While ADUs are not explicitly defined as affordable housing, available data suggests that the permanent expansion of the rental housing stock through ADUs can lead to a reduction in prices in a given area.  This is due in part to their size and to not having to pay for land to build the unit.

    The first bills Assembly Bill 2299/Senate Bill 1069, which were signed by Gov. Jerry Brown in September 2016, relaxed ADU requirements by nullifying existing local ordinances and giving jurisdictions 60 days to adopt new ordinances in compliance with the law. ADU laws were further clarified in September 2017 when Gov. Brown signed Senate Bill 229/Assembly Bill 494 into law. Together, the four bills focused specifically on streamlining the approval process and easing construction standards for ADUs.

    Since these laws went into effect, California has seen the greatest increase in ADU permits issued nationwide. The Legislature’s first set of ADU bills went into effect in January 2017, and the following year saw 4,352 building permits issued, a 63% increase over the previous year. Both Los Angeles and San Francisco were among the top five metropolitan areas issuing the highest number of permits, with 1,475 and 1,007, respectively.

    These gains reflect substantial changes to building codes in many California regions. Recently, the County of Los Angeles implemented a pilot program that allowed homeowners to receive up to $75,000 for building an ADU, as well as implementing a streamlined permitting process. These incentives are conditional on renting the ADU to the formerly homeless, an effort to increase development and address the region’s homelessness crisis. San Francisco has spent the past several years removing barriers to ADU development and now has some of the most relaxed requirements. Notably, San Francisco is one of the few cities that allows ADU development on multi-family lots.

    Promoting ADU Development, Enforcing Local Compliance

    While California is leading the way on ADUs, lawmakers are continuing to remove barriers to ADU development. In January 2018, Sen. Wieckowski (D-Fremont) along with Sens. Atkins (D-San Diego) and Wiener (D-San Francisco) introduced SB 831, which creates “carrots” to promote ADU development and “sticks” for local jurisdictions that unlawfully disapprove them. If passed, the law would allow ADUs to be built in more zones, incur fewer fees, and be permitted more easily. It would also empower the California Department of Housing and Community Development (HCD) and the courts to address local jurisdictions that inappropriately refrain to act on or erroneously disapprove ADU applications.

    Carrots

    ADUs in More Zones: This bill would eliminate the requirement that ADUs be built in single-family or multifamily zones only.

    Fewer Fees: If passed, ADUs would no long be treated as “new construction” for the purpose of collecting fees, and therefore would not incur new construction impact fees, connection fees, capacity charges, or any other new construction fees levied by a local agency, special district, or water corporation. This change would be especially impactful in jurisdictions with high ADU permitting fees, such as San Diego, where fees can be as high as $28,000.

    Streamlined Permitting: This bill would prohibit local jurisdictions from requiring owner occupancy by the permit applicant. It would prohibit off-street parking requirements for ADUs that are created through the demolition of a garage, carport, or covered parking.  If a jurisdiction fails to act on an application within 120 days, that application will be deemed approved.  Prohibit consideration of the square footage of the proposed ADU when calculating allowable FAR on the lot.

     Sticks                                               

    Written Findings: HCD would be authorized to submit written findings to the local jurisdiction regarding whether or not the local ordinance complies with the law.

    Court Judgments and Fines: If a Court finds that a local jurisdiction acted in violation of the law when it disapproved or conditioned a permit, the Court may issue an order requiring the local jurisdiction to come into compliance within 60 days. The court may even issue an order requiring the local jurisdiction to take action on a specific ADU permit application. Jurisdictions that don’t comply within 60 days may be fined, and any fines collected would be used to fund the local housing trust fund in the Building Homes and Jobs Trust Fund.

    Artemis Spyridonidis covers housing policy issues, including structural solutions to the housing affordability crisis, consolidated plans, housing elements, accessory dwelling unit policy implementation, and regional issues across the state of California. For information about ADUs and other housing alternatives, contact Artemis Spyridonidis, at artemis@lesardevelopment.com.

  5. San Diego Considering Pilot Program to Reduce ADU Fees

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    ArtemisSenior Associate Artemis Spyridonidis addressed the San Diego City Council on July 24th, before it approved amendments to the Land Development Code and the Local Coastal Program to modify the City’s accessory dwelling unit (ADU) regulations.

    Her comments focused on the Smart Growth and Land Use Committee’s recommendation that the City Council approve a two-year pilot program during which ADU fees would be reduced to a flat fee of $2,000 – down from the current fees of approximately $28,300. Although it wasn’t part of the resolution that day, the City Council may still have an opportunity to approve this program, and it’s our hope that the pilot program will be created, as it could create a great boost in ADU production.

    LDC studied San Diego’s ADU fees and compared them to the fees of several other major cities. We found that there is a direct correlation between fees and the number of units built; the lower the fees, the more units built.

    For example, Portland, Oregon, charges approximately $1,300 in fees and approximately 350 ADUs have been built there each year since 2015. Santa Cruz charges around $12,800 in fees and approximately 50 units have been built each year since 2015. Finally, in San Diego, fees are approximately $28,300, and the city estimates that only 10 ADUs are built here each year. A two-year pilot program establishing a flat fee of $2,000 is a much needed policy change to encourage ADU development.

    As naturally occurring affordable housing (NOAH), ADUs can help fight the displacement that typically occurs when neighborhoods gentrify and rents and housing prices climb, as they have in recent years in San Diego. This type of urban infill is also environmentally friendly, reducing commute times and urban sprawl. By allowing people to stay in their own communities, among their own neighbors, families, and friends, ADU development will help maintain networks that create wellbeing for all San Diegans.

    To learn more about LDC’s policy services, contact Artemis Spyridonidis, Senior Associate, at artemis@lesardevelopment.com.

    LeSar-Artemis-4x5Artemis Spyridonidis is covering housing policy issues, including structural solutions to the housing affordability crisis, consolidated plans, housing elements, accessory dwelling unit policy implementation, and regional issues across the state of California.

  6. Harvard Report Calls for Expanded Range of Housing Options

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    Harvard_2017_Housing_ReportNational home prices reached pre-recession peaks last year despite home prices exceeding previous highs in only 41 of the nation’s 100 largest metro areas, according to a recent report by Harvard University’s Joint Center for Housing Studies. High-income neighborhoods saw significantly greater gains than low-income neighborhoods, resulting in regional growth patterns that show price appreciation along the East and West Coasts and declines in the Midwest and South.

    The impacts of historically low construction on housing supply have disproportionately affected the entry-level housing market and tightened the rental market where prices have far outpaced inflation. While household growth rates have picked up largely due to gains among the millennial generation and immigrants, rates are expected to slow again as the baby-boom generation declines.

    To meet the demand for affordable housing, the report calls for national policies to address the diversity of housing markets nationwide, and for state and local governments to take the lead on developing policies and securing resources to meet the unique needs of their communities. Read more…

    For more information about innovative approaches to policy and real estate development, contact Jennifer LeSar, President and CEO at Jennifer@lesardevelopment.com.

    Jennifer LeSarWith more than 25 years of experience in the real estate development and investment banking industries, Jennifer LeSar brings a diverse background to her work in community development and urban revitalization. Her technical expertise spans from policy and program development to the origination and underwriting of complex investments in equity funds, multi-family portfolios, and historic and low-income tax credit properties utilizing federal and state financing programs.

  7. New State Law on ADUs Takes Effect in Thirty Days – Are You Ready?

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    adumultipleAs we’ve written about before in our 1st of the Month and Social Impacter newsletters, Accessory Dwelling Units (ADUs) are an increasingly important part of cities’ housing strategies, helping to increase housing supply without impacting low-density neighborhoods, and offering homeowners options for rental income or family support. New state-mandated changes to Accessory Dwelling Unit laws are taking effect on January 1st, 2017, and will require all cities and counties to have local ADU laws that meet state standards. If your city doesn’t have an ADU law that complies with state law – or if your city has an ADU law that is not consistent with state law – the standards in state law will automatically be in effect in your city/county.

    Depending on the standards of your local rules, they may be deemed null and void, in whole or in part, and state standards may apply until the conflicts are resolved.

    These forthcoming state standards include new rules such as:

    • Minimum and maximum size of an ADU
    • Parking requirements (including exemptions for parking near transit, historic districts, and other areas)
    • Setbacks/Passageways
    • Garage conversions
    • Fees for utility connections

    LDC has been tracking this legislation closely, and is ready to help you understand the impact of the law on your city/county. Based on our deep research and thorough analysis of state law, we have developed a new tool to help cities/counties understand the impact of state law, the existing and potential development capacity for ADUs in your city, and key barriers to ADUs in your city.

    We are happy to announce that, for the first five cities/counties that reach out to us, we will provide a free comparison of your existing rules with the forthcoming state rules, and identify areas of conflict. We are also ready to assist your city to understand its current capacity for ADUs based on zoning, lot size, and other factors– using our newly created diagrammatic and mapping tools.

    We welcome the opportunity to help your city/county meet the requirements of State Law and help provide neighborhood-scaled housing solutions for your residents. Please contact Keryna Johnson (keryna@lesardevelopment.com) to request your free policy consultation.

    We look forward to hearing from you!

    For more information about innovative approaches to policy and real estate development, contact Jennifer LeSar, President and CEO at Jennifer@lesardevelopment.com.

    Jennifer LeSarWith more than 25 years of experience in the real estate development and investment banking industries, Jennifer LeSar brings a diverse background to her work in community development and urban revitalization. Her technical expertise spans from policy and program development to the origination and underwriting of complex investments in equity funds, multi-family portfolios, and historic and low-income tax credit properties utilizing federal and state financing programs. 

  8. Granny Flat Bills Approved! What are the Opportunities?

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    By Keryna Johnson, Senior Associate

    ADUOver the last few months we’ve written about a new opportunity to address San Diego’s housing crisis in the form of accessory dwelling units, better known as granny flats, garage apartments, or guesthouses. These ADUs are additional attached or detached living spaces built on lots that already have a single-family home. They represent an important opportunity to increase homeowner income while helping to ease San Diego’s alarmingly high cost of living and tight housing market. However, as we’ve mentioned previously, the current costs and process for ADU construction is prohibitive for many homeowners.

    Cities and counties charge permitting fees and set strict requirements for adding units to properties. These include items such as parking, water and sewage connection, and environmental impacts. The requirements can discourage homeowners from building an ADU, particularly if they have limited income. Even if their plans include using the ADU as a rental, it can be difficult to borrow against its future income to cover building and permit fees.

    The new state legislation mandates that local officials reduce fees and relax requirements for homeowners. AB 2299 (Bloom) and SB 1069 (Wieckowski) revise ADU approval requirements to limit local agencies’ ability to impose parking requirements and installation of separate utility connections or related fees. They also require municipalities to designate areas where ADUs are permitted, limit their ability to approve on a case-by-case basis (called discretionary approvals) and require them to review and respond to applications within 120 days of submittal. The new legislation does not require California cities and counties to adopt ordinances specific to their areas but does allow them 60 days to develop their own ordinances in compliance with the state laws. A related measure, AB 2406 (Thurmond, pending), prohibits additional parking requirements and utility connection fees when building “junior” ADUs, which are separate units enclosed within an existing single-family home, such as converting an extra bedroom into an efficiency unit.

    The current fee structure requires homeowners in the City of San Diego who build an ADU (called “companion units” in the city code) to pay the same fees as new construction of a primary residence – approximately $30,000-$35,000. Coupled with limited opportunities for financial assistance, these fees add a substantial amount to an already expensive construction project.

    One opportunity for San Diego may lie in an area of southeastern San Diego that has recently been designated a federal Promise Zone. Among the key goals of the Promise Zone initiative is to improve access to quality affordable housing. The Promise Zone designation gives local agencies priority access to federal competitive funding sources and staff support to address these and other needs in the zone. Southeastern San Diego could be an ideal location to launch an ADU pilot program to help homeowners develop new ADUs or bring existing ADUs into compliance. It may be possible to use a portion of new federal resources to conduct ADU-related community outreach and provide technical support to homeowners and local builders.

    We’ll continue to track development of local ordinances in response to the new laws and how this translates to opportunities for San Diego homeowners, builders and renters. In the next issue we will take a closer look at ADU development from the homeowner’s perspective, including the types of ADUs that can be built, financing options, and neighborhood concerns.

    For more information about ADU development, existing requirements and new opportunities, contact Keryna Johnson, Senior Associate, at Keryna@lesardevelopment.com.

    Keryna JohnsonKeryna Johnson has worked with clients throughout California to support planning for housing, health, equity, and economic development. She brings several years of expertise in the creation of 5-Year Consolidated Plans and fair housing assessments.

  9. Opportunities in the Underground Housing Market

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    By Keryna Johnson, Senior Associate

    HousingSocialImpacterIn the last issue we introduced the concept of utilizing accessory dwelling units, or ADUs, as a means to add to our supply of low and moderately priced housing stock while also providing mortgage assistance to working-class homeowners. In this issue I will explore some innovative ways cities might finance the legalization and/or construction of these units.

    I’d like to start by reiterating what many of us already know – California has one of the tightest housing markets in the nation. With declining production, limited developable land, and stagnant incomes, the consequences can be felt in cities up and down the state. This has resulted in what some have labelled the “underground housing market” – or the large supply of unpermitted units. These converted garages, partitioned single-family homes, and permanently inhabited trailers are often in violation of local planning ordinances and might even present very real risks to those that live in them.

    A UC Berkeley Institute of Governmental Studies brief refers to this as a “blocked market” as homebuyers often have difficulty obtaining financing for properties that include ADUs, and homeowners attempting to add or even legalize an existing ADU to their home can have difficulty obtaining the loan needed to do so. This seems counterproductive, in that those most in need of the additional income are unable to find the financing that will increase their earning potential.

    Luckily, there are some financing options that show potential. Products such as the Marin Housing Authority’s Residential Rehabilitation Loan provide loans of up to $35,000 that can be used for ADU repairs and compliance. The loans offer 5% interest and a 15-year term; however, they require owners to be very low income (at or below 50% of area median income), which makes many residents ineligible for the loan. Another potential opportunity can be found with the California Housing Finance Agency (CALHFA), which already offers mortgages targeted to underserved populations, including first-time homebuyers and those purchasing in low-income communities. CALHFA’s mortgage terms do currently allow the purchase of homes with ADUs, but they must be “guest houses” and not income-generating; thus, the homebuyer cannot borrow against the expected future income generated by the ADU. There is a real need for financing agencies, whether local housing authorities or statewide entities, to aid in closing the funding gap for ADUs.

    Don’t get me wrong – we know that ADUs are not the only solution to the housing shortage, yet they are an important tool that all cities should be taking better advantage of. As I mentioned in the last newsletter, as a result of lowering permitting barriers Vancouver now has ADUs on 35% of single-family homes. These ratios can help right the housing imbalances we find in our primarily low-density neighborhoods, while also bringing in additional property taxes for local municipalities. San Francisco is also finally following the tide, with their County Supervisors reaching a decision to legalize ADUS just this month. More ADUs means the creation of naturally affordable housing stock that is very much needed in California and other high-rent regions.

    For more information about new strategies, policies, and regulations to address fair housing, contact Keryna Johnson, Senior Associate at Keryna@lesardevelopment.com.

    Keryna JohnsonKeryna Johnson has worked with clients throughout California to support planning for housing, health, equity, and economic development. She brings several years of expertise in the creation of 5-Year Consolidated Plans and fair housing assessments.

  10. “Granny Flats” as a Tool for Equitable Economic Development?

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    By Jennifer LeSar
    GrannyFlatsDaily we read news stories about the housing crisis in California. Vacancy rates are consistently below 3% in many neighborhoods, with demand outpacing supply. It’s no surprise that more than one in five households pay over half of their income towards housing costs. These challenges are disproportionately felt by lower-income households, where rising housing costs create both economic and environmental barriers to quality of life, forcing them to move further from their jobs and in some cases even leave their homes.

    The good news is that there’s an opportunity to add to our supply of low-to-moderately priced units without putting an excessive burden on existing infrastructure or changing the character of our neighborhoods. That opportunity lies with accessory dwelling units, or ADUs.

    Vancouver is a great innovator in this regard, with some of the most permissive ADU policies in North America. In the six years since they relaxed their development barriers, they’ve seen almost 2000 applications for what they call laneway houses (located where a garage would normally go on a single-family lot), and almost 85% of those units have been built. All told, over one third (35%) of Vancouver’s single-family houses currently have ADUs.

    These additional units have many significant benefits – not least of which is their ability to provide mortgage assistance to working-class homeowners. This rings especially true in communities like Encanto in southeastern San Diego, where 62% of units are single-family detached and 57% are owner-occupied, yet median income is only about two-thirds of that of the city as a whole ($46,000 compared to $66,000). In neighborhoods such as these the additional rental income could mean a substantial boost for struggling homeowners, decreasing the likelihood of displacement and offering insurance against cost of living increases or foreclosure.

    One way cities could encourage these new units would be to implement a program similar to Seattle’s, which waives permitting fees for ADUs. It saves owners fees of $8,000-$11,000, which can be prohibitive for lower-income residents. The City of Santa Cruz has a similar program, only theirs waives fees if the owner agrees to rent the unit to only low and moderately low income renters. They estimate this waiver saves over $13,000 in permitting fees for a 500 sq. ft. ADU.

    In our research for the City of San Diego’s 5-Year Consolidated Plan we found that approximately 236,000 single-family detached homes exist within the city. If just 10% of those units were to add an ADU, over 23,000 units of moderately priced units could be added in a city struggling to find land and resources to build housing that’s both affordable and equitably distributed (as opposed to concentrating affordable housing in certain areas of the city, which can lead to racial segregation and disparities in access to jobs and education). All without the need for government subsidies. This could mean additional income for homeowners and increased property tax revenue for the city.

    Another exciting opportunity that lowers barriers for homeowners hoping to generate rental income with their existing property can be found in AB 2406 (Thurman). This bill allows for “junior accessory dwelling units” which are small units enclosed within an existing single-family home (junior unit must be less than 500 sq. feet but can have an efficiency kitchen). This bills prohibits local agencies from requiring additional parking or water and sewer connection fees.

    We’d love to help cities in the region explore these opportunities in more detail. In our next issue I’ll explore potential financing opportunities for ADUs and provide additional recommendations for policy changes to incentivize them.

    For more information about innovative approaches to real estate development, contact Jennifer LeSar, President and CEO at Jennifer@lesardevelopment.com.

    Jennifer LeSarWith more than 25 years of experience in the real estate development and investment banking industries, Jennifer LeSar brings a diverse background to her work in community development and urban revitalization. Her technical expertise spans from policy and program development to the origination and underwriting of complex investments in equity funds, multi-family portfolios, and historic and low-income tax credit properties utilizing federal and state financing programs.