LA’s ADU startups say funding and permits are still a hurdle for owners

Can more secondary suites help a city with a chronic housing shortage?

A wave of new ADU startups based in Los Angeles or serving the region are betting on it. ADU companies like Otto (formerly known as Homestead), which focus on converting pre-existing structures (like a garage) into housing, serve as a one-stop shop that will help homeowners with financing, design, permits and labor work. Other companies like Azure Printed Homes, Cover, United Dwelling, and Villa Homes offer pre-engineered ADUs that are built off-site – also referred to as “pre-engineered” ADUs. Still others, like Cottage (based in San Francisco) partners with local contractors and helps homeowners design, build and obtain permits for their own custom ADUs.

ADUs (also known as grandma’s apartments, in-laws’ apartments, or backyard homes) describe a category of small, mostly free-standing homes that can be built next to the original property. A fashionable perspective Los Angeleswhere a chronic housing shortage and exorbitant rents combined with a 2017 state law requiring cities to relax their ADU regulations.

But as ADU’s novice builders soon discovered, building a tiny house is no small feat.

” I will not tell [..building an ADU] is exactly easy, almost anywhere,” said Celeste Goyer, director of policy at Coalition Casita, a Los Angeles-based organization focused on expanding the use of ADUs for affordable housing across the state. “You can’t just go home and pick up a hammer, and ask your cousin to help you build your ADU. And so managing expectations for everyone involved is important.

The process of obtaining an ADU normally takes months.

“In general, many people struggle with the length and complexity of the permitting process and feel like their jurisdictions are imposing unnecessary red tape in the permitting process,” said Alex Czarnecki, Founder and CEO. from ADU Custom Cottage.

But a number of additional laws can make it easier to build ADUs in California. Last year, Governor Gavin Newsom signed SB Law 9, which allows California homeowners to build a second home on land zoned single-family. Another law known as AB 221 requires local authorities to act on ADU permit applications within 60 days, otherwise it is automatically approved.

“It’s common for some municipalities to take longer than that to respond to a request or provide incomplete comment sets,” Czarnecki said. “This extends permitting times and ultimately impacts the rate at which we can add accommodations.”

Despite the new laws, few homeowners, Czarnecki said, should attempt to build an ADU themselves.

“The fact remains that the average homeowner is not a real estate developer and is not trained or prepared to oversee and manage the design and construction of a new unit on their lot,” Czarnecki added.

To that end, executives at some ADU companies still believe that more needs to be done to improve the financing of expensive construction projects — as well as to make them more affordable for low- and moderate-income people. A typical prefabricated ADU ranges between $140,000 and $300,000. Custom ADUs are even more expensive. Converting a garage is cheaper, but in Los Angeles the process can easily approach six digits. None of this takes into account the additional cost of the permits, which the company ADU Modal estimates costs between $4,000 and $8,000 in Los Angeles.

There are few traditional financing options for ADUs, and renovation loans or cash refinancing often do not cover the full cost of the project. In a 2021 survey of homeowners by UC Berkeley, nearly 62% said they relied on cash savings or money from a friend or relative to pay for their ADU.

ADU advocates often present it as an “affordable housing” solution – assuming landlords will rent them out as an additional source of income. But with the median price of a single-family dwelling in LA County nearly $1 million, building an ADU is likely an opportunity reserved for higher income earners.

“Funding is really the only thing I can think of that the city of Los Angeles and everywhere else really needs to work on. I think LA is doing very well with ADU usage, and I hope it gets better,” said Ross Maguire, CEO of Azure Printed Homes.

Samuel Schnieder, CEO of Otto, said ADU’s funding is a major impediment to expansion. Adding that, “It’s often a catch-22 that the people best equipped or most excited to get an ADU are the ones who can’t necessarily afford it.”

The California Housing Finance Authority began offering up to $40,000 in grants for those people, but it only covers new ADU “pre-construction” costs, which include everything from impact fees to permits to site preparation. In Los Angeles, owners with a Income less than $180,000 are eligible for these grants.

A total of 840 people in California have received grants since September — all but a fraction receiving the full amount, a CHFA spokesperson confirmed to dot.LA.

First launched in 2019, Culver City-based Azure Printed Homes relies on robotic printers to speed up the building process. The company said it could 3D print the walls of a 120 square foot unit in less than a day.

Maguire told dot.LA that Azure — which opened reservations earlier this year — received preorders for 167 units from 119 customers, totaling more than $19 million in preorders.

But you’re unlikely to see most of these units advertised as new rentals on Craigslist. Maguire says most Azure customers want an ADU to have more space for themselves or to house relatives, rather than renting as an additional source of income.

Thus, some owners opt for factory-made ADUs instead of a more custom option, choosing to shorten the inspection time.

“Because our units are pre-approved by the State of California, there is no construction and safety monitoring that needs to take place locally with the city or county of LA,” Maguire told dot.LA..

However, even prefabricated ADUs must be inspected on site by the local planning authority. “(…LA’s planning department) must consider how these modules themselves interact with a specific site, a process that cannot be pre-approved because they are site specific,” a spokesperson confirmed. from Azure.

In an effort to speed up the ADU permitting process, last year the City of Los Angeles launched a set of “Standard Plans” which have been pre-approved by LADBS. But such plans don’t come cheap – and won’t exempt homeowners from inspections.

“It should be noted that whichever pre-approved plan you choose, pre-approved plans must still go through the normal site-specific checks for the project to receive a permit,” Czarnecki said.

And if homeowners are unlucky enough to build a standard plan ADU on oddly shaped land or somewhere with atypical features, they may have to go back to square one. In other words, their ADU will no longer be considered “pre-approved” and will have to go through the longer authorization process.

“While the standard plans are a good starting point for creating a product that anyone can use – ultimately it’s mostly more expensive plans from what I’ve seen,” Otto’s Schneider said. .

Casita Coalition and groups like California YIMBY are asking best financing options for ADUs, especially those that benefit cash-poor individual owners. At present, new ADUs are mainly integrated richer and whiter areas. For ADUs to really help close the racial wealth gap, policy experts say they must be a viable option for those less well-off.

“I would be very happy if more financing options [..for ADUs] developed from credit unions and community financial institutions to provide ADU-friendly loans to help low- and moderate-income homeowners build ADUs,” Goyer told dot.LA.

Until then, the dream of Angelenos generating income from their backyards may remain that.

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