‘Granny flats’ play surprising role in easing California’s housing woes

LOS ANGELES - When Heather Millstone moved from Baltimore to Los Angeles and started house-hunting, she had one major goal: A home with a yard big enough to build another, smaller house so she could rent out one of the properties to supplement her income.

A few blocks away, Lali Grewal and his wife, Anne Marie, made a similar calculation when they moved to the city last summer. They’re now living in a tiny but cozy home behind a bigger house they’re fixing up to rent out.

Millstone and the Grewals are part of a trend that’s busting out all over the state, and - somewhat to the surprise of policymakers - has potential to play a significant role in addressing California’s housing crisis: the accessory dwelling unit.

Multifamily properties are incredibly difficult to build in the state’s major cities for reasons including lack of space, environmental laws and neighborhood opposition. But build an ADU - a small detached house with its own utilities and entryway - and practically no one bats an eye. Multiplied thousands of times over, as has been occurring in recent years, and the structures begin to look like an important, if only partial, solution to the state’s affordable housing needs.

“The ability to be able to remove barriers and support the creation of ADUs has been a very important strategy in our ability to expand the supply of housing,” said Lourdes Castro Ramírez, California’s secretary of Business, Consumer Services and Housing. “I’ve been very pleased to see how communities have embraced this approach, and I think that folks have been able to recognize the social, economic and community benefits of ADUs.”

The numbers tell the tale: More than 23,000 ADU permits were issued in California last year, compared with fewer than 5,000 in 2017 - which was around when ADU permitting began to take off thanks to legislative and regulatory changes in the state. The state now requires faster permit approval by localities, and establishes that cities must allow ADUs of at least 850 square feet - though many are much bigger. A number of other bills are being debated in Sacramento, including one by Assemblymember Phil Ting (D) that would allow property owners to sell their ADUs separately from their main houses.

Los Angeles dwarfed other cities last year in ADU permitting, issuing 7,160 in 2022, compared with 662 in San Diego, the city with the next-highest total of ADUs. By comparison, just 1,387 permits were issued in L.A. last year for single-family homes. The number of ADU permits issued in L.A. was second only to the 13,400 permits issued for multiunit structures.

California isn’t the only state where ADUs are taking off. Oregon has embraced them as well, as have some cities in Montana, and Washington state recently passed a law making them easier to build. In all, some 40 laws have been introduced throughout the country addressing ADUs in one form or another, although some are as simple as providing for a study of the issue, according to Salim Furth, director of the Urbanity Project at the Mercatus Center at George Mason University.

ADUs offer multiple benefits, supporters say: They tend to rent at relatively low prices, and they can be dropped into neighborhoods that are already densely populated but that are desirable because of their proximity to jobs, public transportation, schools or other amenities. Although local ordinances in L.A. and elsewhere aim to prevent their use as short-term AirBnB-type rentals, owners can use them for extra rental income, or to house friends, family or even their own grandmothers - harkening back to the original “granny flat” moniker.

Experts note that even if an ADU is occupied by someone’s grandmother, that’s a home left available elsewhere, while at the same time keeping extended families together.

“The speed at which ADUs have been able to scale across the state has been really surprising,” said David Garcia, policy director for the Terner Center for Housing Innovation at the University of California at Berkeley. “It shows a pent-up demand from homeowners to want to do more with their land,” Garcia said, adding that “because of California’s affordability crisis a lot of Californians are personally connected with someone experiencing housing insecurity,” leading some homeowners to want to do something to help.

Largely due to lack of supply, the cost to rent or buy property in California has become prohibitive for many residents, with the median rental cost in the state 41 percent higher than in the rest of the country, according to real estate site Zillow. Home prices are more than twice the national average. Homelessness is at crisis levels, and in recent years California has begun to see residents flee to Texas, Florida or other lower-cost states.

The desire to make a personal contribution to lessen L.A.’s housing woes is a key motivator for the Grewals. Lali Grewal has grown so invested in the success of ADUs that he started his own company to help clients build and finance construction of them.

“The way people build wealth in America is by real estate,” Grewal said. “The whole idea was to create more housing - especially in poor neighborhoods.”

The cost to build an ADU can hover around $300,000, so financing can emerge as a barrier for many homeowners, especially since banks have little experience dealing with loans for these relatively new types of structure. A $100 million state program that made grants up to $40,000 to help people with the planning phase alone was exhausted within months, and with California experiencing a budget deficit no additional state assistance is expected, at least for now.

Nevertheless, a study from the NYU Furman Center found that ADUs are being built not in the wealthiest neighborhoods, but more often in low- to middle-income areas, and often in places with relatively good access to jobs.

“That suggests that it’s not rich people looking to build pool houses or work-from-home offices,” said Christopher Elmendorf, an author of the study at the UC Davis school of law. “That’s consistent with the theory that this is a viable form of development in places that you may not” otherwise be able to easily build.

Millstone and the Grewals live near Dodger Stadium in a neighborhood tucked between the Interstate 5 on one side and the L.A. River on the other. It’s official name is Elysian Valley, although it’s usually referred to as Frogtown. The area has largely escaped gentrification in recent years, although a couple of cafes have sprung up to serve the bicyclists who ride along the L.A. River.

For Millstone, making her ADU feel like part of the community was key. Small touches, such as tiling, hark back to the area’s Latino roots, while native California plants and materials are showcased. Although the ADU occupies a relatively small footprint of 650 square feet, high ceilings and carved terra cotta breeze blocks give it a roomy look and allow for airflow. She shares the space with her two little dogs, Stevie Nicks and Lindsey Buckingham.

Millstone hasn’t yet rented out the main house on her property. But she estimates that when she does put it on the market for full rental value she can easily pull in around $5,000 per month.

The ADU is separated from the main house by a small driveway and some bushes, making it feel like a separate residence. “It’s ideal,” Millstone said.

ADUs may eventually bring major change to this neighborhood, however. Developers have recently descended, snapping up properties for around $800,000 and selling them for twice that price - but only after adding an ADU.

“It’s creating a lot of value, especially in the Frogtown area. A lot of families are moving in so they figure ‘let’s find another source of income,’” said developer Jesse Zamora, as he surveyed a property in the neighborhood that he’s preparing to put on the market for $1.6 million. “I think it’s great. I think we need the housing.”

Longtime residents note, however, that acquiring an ADU as a rental property is not something to be done lightly.

Grove Pashley built a 1,200-square-foot ADU - the maximum size set by the state - around five years ago, just as the current ADU wave was starting to pick up. His property abuts the river and he has chickens and ducks sharing space with native plants.

Pashley said that his ADU has worked out great - he’s had two tenants in the last four years, and said he’s cut them a break on rent because he’s sympathetic to renters and the high prices in L.A. But he’s cognizant of the responsibility he took on and hopes others will be, too.

“I see properties throughout Frogtown with ADUs,” Pashley said. “It’s a commitment to go this route because you’re now a neighbor and a landlord.”