Despite some recent improvement, household formations have been lagging since the latest downturn. The accompanying effects have been many—including a lower rate of housing production, a lower rate of replacing older housing units, a consequently aging housing stock, and increased doubling up. Remodeling is also potentially affected, as the tendency to double up may be accommodated in part by modifying an existing home to create an Accessory Dwelling Unit (ADU).
NAHB investigated ADU creation in its survey for the first quarter 2019 Remodeling Market Index (RMI). The results show that one-fifth of remodelers undertook projects that created an ADU by converting an existing space over the past 12 months, and close to that percentage created an ADU by building a new addition.
NAHB chose to start addressing this topic in its RMI survey, because it is not possible to detect national trends in ADU creation through existing data sources. ADUs in general require permits, but ordinances vary tremendously across the country, and there are no federal government standards or programs to collect the information in a consistent way. Moreover, property owners may be unaware of, or even sometimes ignore, the requirements. According to a 2006 report from the San Francisco Bay Area Planning and Urban Research Association, an estimated 90 percent of ADUs in San Francisco as of 1960 were created without obtaining proper permits.
Also, as terminology is not standardized, a homeowner may create what he or she considers an ADU without technically creating a new housing unit—for example, by simply finishing or re-finishing a basement or second floor area to rent out. In fact, most remodelers who reported undertaking projects to create an ADU in the past year relied on something other than knowledge about a government permit as evidence. The evidence cited most often was that the renovated area had its own kitchen facilities, followed by a renovated area with its own entrance, and comments made by the customer.
Although ADUs are sometimes defined largely by having their own kitchens (see, for example, the ADU definition used by the Municipal Research & Services Center in Washington State), the Census definition of a housing unit that has prevailed for some time does not say anything about kitchen facilities.
The price of most remodeling projects that create ADUs indicates that they often entail considerable work. Only 6 percent of remodelers who reported creating an ADU reported doing ADU projects that cost under $25,000 (one of the traditional cut-offs for distinguishing between major and minor improvements). At the other end of the scale, three-fourths reported ADU projects costing at least $50,000, and a substantial 28 percent even reported projects costing at least $150,000.