Entering a new decade, California is primed to implement several bills signed into law at the end of 2019 that seem poised to turbocharge the trend of making accessory dwelling units (“ADUs”) less expensive, easier to get approved, and much more common in the Golden State.  Despite these salutary efforts, however, obstacles to the successful implementation of these laws still remain, in the form of ongoing local animosity towards the additional density created by these structures.  While the future is unclear, it is likely that such policies will continue to face headwinds from local jurisdictions protecting their turf.

This wave of new legislation perpetuates an effort that began under Governor Jerry Brown starting in 2016 and continued at brisk, steady pace for some time thereafter as previously noted in my blog.  During this period, it was not unusual to read articles with headlines like “California ADU Applications Skyrocket After Regulatory Reform” in our daily newsfeeds.  While this legislation made ADUs legal throughout the state and outlined a path to legal conformance for such structures that were built illegally, however, local jurisdictions were left with the task of enacting ordinances to implement these new requirements.

As a result, many municipalities thwarted the construction of ADUs by such methods as refusing to allow garage conversions because they were not specifically addressed in the statute, creating onerous “impact” fee schedules that made projects unaffordable, adding oppressive parking requirements to ADU projects, imposing owner occupancy requirements of up to five years on ADUs, and generally burdening ADU applicants with hearings and project reviews.  Clearly, local residents—and by extension, local government—were loath to give up control over the development of this type of housing.

In response to these limitations on ADU expansion, the state legislature during its most recent session enacted, and the governor thereupon signed, several statutes that were designed to constrain local authorities’ efforts to countermand these activities.  Several of these new laws are discussed below.

Shortened approvals and less red tape

AB 68 and AB 881 require all ADU applications to be acted on within 60 days of filing.  In addition, the municipality is not allowed to consider the merits of the design or its environmental impact.  Instead, an ADU project will only subject to ministerial approval; this means that the project will not be subject to discretionary review or hearings, but rather will simply be a straightforward transaction in the municipal development center, just like a building permit application.

Further, these laws establish statewide minimum lot size requirements, and impose uniform maximum ADU dimensions.  These laws also allow for “junior” ADUs where certain access, setback and other criteria are met. Garage conversions are also now specifically allowed.

The complete text of AB 68 may be found here, and the complete text of AB 881 may be found here.

Ban on owner-occupancy requirements and limits on fees

SB 13 mandates that local jurisdictions may not require an owner-applicant to reside in either the primary dwelling or the ADU.  This provision is scheduled to sunset in 2025 unless renewed.  In addition, this legislation creates a tiered fee structure that charges ADUs based on their size and location, a fairer approach than had been imposed by many jurisdictions; for example, there are no impact fees on ADUs smaller than 750 square feet.

The complete text of SB 13 may be found here.

HOA restrictions and other legislation

AB 670, which applies to planned developments, bars HOAs from prohibiting ADUs.  Specifically, this new law makes unlawful any HOA condition that unreasonably restricts the construction of ADUs and junior ADUs on single-family residential lots.  For purposes of this statute, an HOA condition is deemed to be unreasonably restrictive if it unreasonably increases the cost and effectively prohibits the construction of an ADU or a junior ADU.

According to the Community Associations Institute, a national trade group, over 9 million Californians live in residences governed by homeowners associations.  Given this fact, of all the new ADU laws going into effect this year, AB 670 may have the broadest impact statewide.

The complete text of AB 670 may be found here.

In addition to AB 670, there are other laws becoming effective January 1, 2020, that may also have some impact on the development of ADUs in California, most notably AB 587 and AB 671.  AB 587 will make it possible for a nonprofit organization serving low-income families to sell or convey an ADU located on its property separately from the primary residence under certain limited conditions.  AB 671 will require local governments to include in their General Plan housing elements plans to promote the creation of ADUs as affordable housing.

The complete text of AB 587 may be found here, and the complete text of AB 671 may be found here.

Impact of the new ADU push

As with earlier efforts to encourage the development of ADUs statewide, these new laws require local jurisdictions to bring their ordinances into compliance with these mandates as of their effective date.  In contrast with prior California ADU legislation, however, these new statutes have more teeth when it comes to dealing with the failure of local laws to comply with their requirements.

In particular, prior statutory reform efforts placed most of the burden of enforcing compliance with state ADU requirements on the developer.  The current legislation, however, provides the state with additional tools to require cities and counties to make their ordinances conform to state law.  This shift should help property owners avoid being forced to sue their cities to follow state law, as many have unfortunately had to do.  Still, I would not expect cities and counties to simply roll over in the wake of these laws, so I would be prepared to continue to see litigation over ADUs in the future.

In July, the City of Redwood City enacted ordinances imposing height and privacy restrictions on ADUs in response to a spate of objections from local residents who raised concerns about the increase in second-story ADUs in their neighborhoods, which has resulted from changes in local codes encouraging ADUs in that city.

Since 2015, Redwood City has vigorously promoted the construction of ADUs.  That year, the City Council completely overhauled its existing accessory dwelling law to encourage the development of ADUs in selected zoning districts in the city.  In 2017, the City further amended its ordinance to harmonize it with then-recent state law changes intended to relax California’s regulation of ADUs.

Those changes resulted in a substantial increase in the number of ADUs built in Redwood City.  Previously, the City had received about three ADU applications per year. Since 2016, however, it has received 146 ADU applications, and 19 of those were second-story ADUs built above detached garages.

Although many Bay Area cities have prohibited these structures, Redwood City will continue to allow second-story ADUs on top of detached garages, subject to the following new restrictions enacted by the City Council:

• They shall be no taller than 20 feet (but the zoning administrator may allow a taller roof so that its slope is compatible with the main house’s).
• They may not have roof decks, balconies or exterior stairs that face nearby neighbors.
• Second-story ADU windows that face nearby side and rear neighbors must be opaque.

Offsetting these restrictions, the City Council adopted additional measures to make single-story ADUs easier to build, including the following provisions:

• They are now exempt from the 50% coverage limit for rear lots.
• Their rear-yard setback requirement was reduced from 10 feet to 6 feet.
• Their maximum size was raised from 800 square feet to 1000 square feet.
• Detached garages and other structures may now be converted into single-story ADUs up to 14 feet tall.

At the City Council meeting at which these changes were approved, several residents raised objections to the continued authorization of second-story ADUs, contending that they would interfere with residential privacy and the character of their neighborhoods.  Other participants at the council meeting, however, spoke out in favor of ADUs and this legislation.   “ADUs are actually affordable housing in many cases [so r]estricting ADUs really means restricting affordable units….[L]ook at the big picture…, which is…acting on the needs of the many renters in Redwood City who are housing insecure,” said Matt Larson, who also noted that several ADUs in Redwood City were being offered on Craigslist at below market rates.

In partnership with the Housing Trust of Silicon Valley, Mayor Sam Liccardo of San Jose has introduced a proposal to spur construction of ADUs to help address the housing crisis.  The city’s “Yes in My Backyard” program would waive impact fees and provide forgivable loans to homeowners in San Jose who build an ADU or convert a garage into a dwelling unit and agree to restrict rents to a level that is affordable to low-to-moderate income households.  These loans would be capped at a reasonable amount (e.g., $20,000) to ensure that that city processing fees would not add to the cost of ADU development, and could be used for the purpose of paying for permit fees and construction costs.

Mayor Liccardo directed the City Manager to evaluate the allocation of up to $5 million from the City’s Multi-Source Housing Fund for this loan program. To participate in the program, interested homeowners would agree to deed-restrict their ADU for low- to mid-income households in return for a forgivable loan they could use to pay permit fees and construction costs.  A portion of the loan would be forgiven over the term of the loan on an annual basis (e.g., over the course of five years) as homeowners establish that they have complied with the deed restriction.  This proposal would need to be approved by the San Jose City Council; if approved, implementation would occur later in 2019.

The program is outlined on the city’s website  and is supported by several members of the San Jose City Council.

On June 18, the San Jose City Council voted unanimously to approve several zoning code amendments that are intended to make it easier for people to build ADUs on their property in that municipality.  Effective July 27, these changes will include:

• Increasing the maximum size of allowable ADUs from 800 square feet to 900 square feet
• Allowing two-story ADUs (either stand-alone or atop a garage or accessory structure)
• Allowing ADUs to be built on lots zoned for high-density residential development
• Allowing ADUs that are at least 800 square feet in size to have two bedrooms
• Reducing the minimum lot size required to be allowed to build an ADU from 5,444 square feet to 3,000 square feet

According to the Housing Trust of Silicon Valley, these new rules will significantly expand the potential for construction of ADUs.  Currently, there are 103,000 lots in San Jose where ADUs are allowed; when these new changes take effect, there will be an additional 18,000 lots on which ADUs may be built in the city (http://homebrik.com/what-are-adus/).

 

California’s ongoing housing crisis continues to draw a great deal of attention and focus from a variety of quarters.  Governor Newsom has made addressing this situation a significant piece of his 2019-20 budget.

Recently, a Southern California startup company has come up with a novel approach to dealing with this situation, by attempting to transform certain garages into living spaces en masse.  Steven Dietz, a former venture capitalist who co-founded Upfront Ventures, has now moved into the role of entrepreneur as the CEO of United Dwelling, a business dedicated to turning a significant portion of the approximately 250,000 detached two-car garages located within Los Angeles County, a vestige of California’s postwar car culture, into ADUs.

United Dwelling’s business model is to bring efficiencies and economies of scale to the work of making rental ADUs out of garages.  By leveraging Dietz’s access to capital, the company can mobilize the cash needed to fund the leasing of underutilized garages and the construction costs of building ADUs out of them on a large scale; then, by leasing out these units on behalf of the homeowners, the company can generate sufficient revenues to make a profit as well as provide homeowners with a stream of income about as large as they would have enjoyed had they taken on the conversion projects themselves.

To market these rental ADUs to low-income households, United Dwelling plans to build them in areas within a half mile of public transportation or ride-share pickup locations, which would also reduce parking demand, given that ADUs don’t require parking under state law.  To further advance the goal of making these new ADUs affordable to those who are homeless or at risk of becoming homeless based on their economic situation, United Dwelling will also rent these units out at below-market rates and will accept Section 8 housing vouchers.

In order to make its approach attractive to homeowners, United Dwelling will share about $6,000 of the annual rental income with them, which should more than offset the homeowners’ anticipated increase in annual property taxes of about $400.  To further sweeten the pot, United Dwelling will handle property management and maintenance of these units.  By the end of 2019, Dietz is hopeful that he will be on a pace to start twenty conversions a week. “That’d be a thousand a year, which is a drop in a bucket compared to the six hundred thousand the city needs,” he said.  It will be interesting to see what United Dwelling will be able to accomplish by year’s end.