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Where ADUs add value (and where they don’t)

Whether you call them garage apartments, granny flats, in-law suites or guest cottages, there is no doubt that the number of accessory dwelling units (ADUs) in the U.S. is on the rise.

There are an estimated 1.5 million ADUs in the U.S., with roughly 110,000 constructed in the past year, according to a study examining the August 2021 real estate listings of the 500 biggest U.S. cities by Porch.

The study, which was released Tuesday, found that ADUs are growing at a rate of 9% and that the city with the greatest number of ADUs is Los Angeles. Additionally, over half of all ADUs in the U.S. are located in just four states: California (30%), Florida (12%), Texas (10%) and Georgia (5%). However, Oregon has the highest proportion of homes with ADUs in sales listings.

Porch also found that the average cost to construct an ADU across the country is $180,000 or $260 per square foot, however it should be noted that the cost can vary greatly depending on location, size of dwelling and quality of materials used. Maxable, a California-based ADU management company, claims that ADU prices in the San Francisco Bay area can be up to $400,000.

The size of ADUs also tends to vary depending on the type of dwelling (loft conversion, garage or detached structure). They also may be subject to size restrictions under local zoning laws.

The study found that properties in big cities with ADUs are priced, on average, 35% higher than properties without an ADU. In some cities, homes with ADUs are listed three times higher than the average home price in the area, according to Trulia data cited by Porch. In Savannah, listings with ADUs on average were priced at $664,450, triple the average home price of $217,000. In Cleveland, Ohio, ADUs on average were priced at $289,900, roughly triple the average home price of $95,200. It was a similar story on Stamford, Connecticut, where the average price of a home with an ADU was $1.6 million, well above the average home price of $570,200. In Houston, which has looser zoning than virtually all American cities, homes with ADUs on average are listed for $582,500, more than double the average home price of $226,900.

In other cities, the value proposition hasn’t quite materialized, though these are relatively small sample sizes. In Washington, D.C. homes with ADUs were priced 14% lower than the average home, Trulia found. And in Berkeley, California, the average home with an ADU was listed at $950,000, well below the average $1.6 million home’s listing price, a 41% difference. In housing-starved Los Angeles, homes with ADUs on average were listed for $1.1 million, above the median listing price of $898,700. Los Angeles had the highest number of listings with ADUs at 524.

Although the number of ADU permits issued is slowing down in cities such as Portland and Los Angeles, which Porch attributed to the pandemic, more Americans than ever before are searching for ADUs online, according to Google Trends.

Porch posits that this may be due to ADUs’ affordability for young people looking to buy or rent their first home, their ability to allow multiple generations to live in close proximity, and the supplemental income they could provide homeowners when used as a rental property. However, the construction or more granny flats and in-law suites alone is most likely not enough to solve the need for affordable housing.

While ADUs are still rare, with only 2% of all single-family homes in the U.S. having one, according to the most recent American Housing Survey, Porch believes that their popularity will continue to increase as rents continue to rise nationwide and the availability of entry-level homes in urban areas continues to decrease.

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