From an evolutionary standpoint, land and shelter have always meant safety and longevity, but as time goes on, the cost of both have become untenable.
In 2019, California was reported to have the country’s highest poverty rate, with Los Angeles County having the highest rate at 24.3%. California’s housing crisis isn’t new and it’s not going anywhere—in fact, it’s actually getting worse.
The 2020 Greater Los Angeles Homeless Count, showed 66,436 people in Los Angeles County experiencing temporary homelessness—a 12.7% rise from last year, while the city of Los Angeles saw a 16.1% rise. The coronavirus pandemic, increasing wildfires, and a lack of affordable housing have amplified a critical housing market need for smaller, less expensive housing like accessory dwelling units (ADUs).
ADUs are self-contained housing units located on the same property as a single-family home. When more than half of the land in Los Angeles is filled by neighborhoods with 90% single-family homes, ADU’s provide an opportunity for these homeowners to help solve the larger housing crisis and generate additional cash flow.
From granny flats to guest houses and casitas—ADU’s can also provide multi-generational housing by simply converting a garage or building a tiny home on the property, and they’ve been growing in popularity exponentially. In 2016, California passed a bill to adjust regulations and encourage people to build ADUs, and two years later, Los Angeles ADU building permits rose by a factor of 30.
Pandemic quarantines have magnified the renewed interest in ADU development. Parents are using ADU’s to keep families closer to home with children enrolled in online classes and keeping elderly parents out of nursing homes – with privacy. Record low-interest rates have encouraged a wave of refinancing, which homeowners are using to invest back into their primary property with ADU’s. Last fiscal year our sales grew over 101 %, and this year we’re on track to exceed 200% by the end of our fourth quarter. This isn’t just good for EcoSmart, though, it’s good for the community.
Addressing the affordable housing crisis not only helps those who are unhoused, but also drives an important part of California’s economy. The creation and operation of affordable homes in California supports 293,000 jobs annually, creates more than $12.9 billion in wages and business income annually, and generates more than $3.7 billion in tax revenue. Designated as essential workers, construction jobs insulated the overall economy from greater unemployment shocks in the COVID-19 lockdowns.
ADUs make sense for current homeowners because they don’t require additional land cost and can offer passive income to offset current mortgage needs. The second stream of passive income is vital during tumultuous economic periods with the added benefit of increasing the value of your home.
The benefits outweigh the minimal costs—for single homeowners and for the city. The government should reinvest in these options, as well—encouraging homeowners as they did in 2018 with the Bloomberg Mayor’s Challenge. While the program had its issues, the concept was compelling and by pairing homeless citizens with homeowners with ADUs, we saw a powerful new answer to the crisis. Our fellow citizens who are currently homeless are some of the most vulnerable in our community. From inordinately affecting marginalized populations to being linked to discrimination and chronic illness, solving the housing crisis is an issue that we can all do our part to help solve. By increasing the amount of affordable housing available with ADUs, we can make a big dent in this issue.
We’re grateful 2020 is ending, but who knows what 2021 will bring. Unemployment numbers are still record-high, the financial markets seem completely devoid of economic reality, and renters protected by Governor Newsome’s eviction moratorium will eventually need to pay back their rent. For tenants and landlords alike, ADU’s fill a critical market need for smaller one-bedroom spaces that are affordable and provide steady passive income.
Freddie Zamani is the President and CEO of EcoSmart Builders, a Los Angeles-based vertically integrated ADU developer. Freddie has 15+ years’ experience in Los Angeles real estate working as an Executive VP and property expert.