Local investors are taking advantage of California’s ADU (“Granny Flat”) Bill in a very big way.
What is California Assembly Bill 68 (AB 68)?
Passed by the California State Assembly in 2019, AB 68 legalized the widespread construction of “Granny Flats,” or Accessory Dwelling Units (ADUs), as easy-to-build affordable housing. ADUs are small, independent homes that are built alongside (or sometimes, within) an existing single- or multifamily home. In addition to traditional ADUs, AB 68 also legalized “junior” ADUs of 500 square feet or smaller, which must be built entirely within an existing home and have a functioning kitchen and bathroom.
Prior to AB 68, cities across California erected substantial barriers to their construction, including high fees, land use and permitting obstacles, and other “red tape.”
AB 68 addressed all these issues by:
- Reducing the maximum time for approved permits from 120 days to 60
- Eliminating local ordinances that had the effect of banning ADU construction, such as minimum lot sizes and floor area ratios
- Eliminating the requirement that garages converted to ADUs include 1:1 replacement parking
- Allowing by-right approval (i.e., minimal process) for both an ADU and a JADU
- Prohibiting cities from banning short-term rentals in ministerially-approved ADUs
- Granting the state’s Department of Housing and Community Development the authority to evaluated whether local agencies’ ADU ordinances comply with state law
- Existing single-family properties in California have the potential for roughly 1.8 million new ADUs.
- Roughly 85 percent of these are single-family homes where building an ADU pencils out according to current construction costs and rents; the remainder are sites ideal for both an ADU and JADU
ADUs in the Los Angeles Multifamily Market
We have recently seen numerous clients of ours utilize AB 68 for their local multifamily properties by building one or even multiple ADUs on-site, in areas such as storage rooms, laundry rooms, attics, basements, garages, and soft story parking areas (as pictured above) – or as fully detached structures.
From an income and value standpoint, it makes perfect sense for most investors. You can generate additional (and meaningful) cash flow for the property while adding tremendous value. Put very simply – if multifamily properties in your area are selling for $450,000/unit and you can build additional unit for $250,000/unit (which is about the going rate for ADU construction), why wouldn’t you?