California Changed Its Laws to Promote (One Form of) Housing

Reporters and policy wonks keeping tabs on the 2024 election have identified housing affordability as a top issue on the minds of voters—especially young voters. Rising prices and rents since the start of the pandemic combined with high interest rates are increasingly pinching household budgets, and nudging elected officials to take notice. State governments, such as Maine, Florida, and Montana are investigating policy changes that could make it easier to build more homes—especially smaller, cheaper homes.

Zoning reforms to legalize accessory dwelling units (ADUs) are an emerging favorite among the possible policy changes. As a political strategy, ADU legalization can be attractive for local governments and voters as they rethink long-standing approaches to housing in low-density residential neighborhoods. They also offer some unique financial advantages—and some limitations—relative to other types of housing.

California’s policymakers have spent the past decade passing a succession of laws intended to create a standardized statewide framework for ADUs. As homeowners, local governments, and the real estate industry have gradually adapted to the new laws, annual ADU permits have soared. In 2018, around 9,000 ADUs were permitted across the entire state. In 2023, Los Angeles County alone permitted more than 45,000 ADUs. In this brief, we draw from several previous reports analyzing California’s recent policy changes around ADUs to highlight three broad lessons for other US states and regions.

Legalizing ADUs Is Just the First Step

ADUs fill a useful niche within housing ecosystems, but local governments also need to lower regulatory barriers to a range of additional housing types.

Interviews with local policymakers and housing advocates consistently highlighted the political appeal of ADUs as an entry point to zoning reform: because ADUs are small and fit inconspicuously into surrounding neighborhoods, policies that support ADUs are less controversial than legalizing large apartment buildings. Homeowners build ADUs for a variety of reasons, including to generate rental income, create options for on-site caregivers, or provide additional space for use as home offices or gyms. The construction costs of ADUs in expensive regions like Los Angeles are often lower than per-unit development costs for other new housing (partly reflecting that the land has already been purchased). In terms of social benefits, ADUs can provide reasonably-priced rental housing in low-density neighborhoods that might otherwise be out of reach to many middle-income renters.

But ADUs also have some limitations as a broader strategy to address the housing supply shortage. Even after a decade of regulatory reform, the process of developing an ADU is still quite complicated and expensive, essentially requiring each homeowner to become a one-time developer. Obtaining upfront financing to build an ADU is difficult for non-wealthy homeowners; affluent property owners are more likely to tap into accumulated home equity or other savings. Unlike apartments in new multifamily buildings, not all newly-built ADUs are used as full-time housing. While middle-income homeowners want to build ADUs for rental income (long-term or through short-term rentals like AirBnb), many high-income homeowners add ADUs for personal use or occasional guests.

High-cost regions like Los Angeles need to build substantially more housing to serve renters and homeowners at all income levels. Los Angeles County has roughly one million renter households who spend more than 30 percent of their income on rent, and there are another 70,000 people experiencing homelessness (see Figure 1). Although ADU production has steadily increased over the past several years, ADUs can meet only a small fraction of the demand for additional housing. And pilot programs to create income-restricted ADUs for low-income households have yielded fewer than 40 homes to date. In short, local governments across the region need to make it easier to build a wide variety of housing structures, from townhouses and duplexes to apartment buildings of all sizes, for both renters and potential homebuyers.

Layers of Anti-Development Policies

Over the past several years, California’s legislature has repeatedly made headlines for passing statewide pro-housing laws: over 100 laws in six years. But this flurry of activity comes after nearly 50 years of state and local policies that created barriers to housing development—including deeply entrenched political interests. Zoning laws that prohibit ADUs and apartments (really, anything other than single-family detached homes) are just the outer layer of a complex set of policies (see Figure 2). Discretionary approval processes grant existing residents veto power over unwanted development. Impact fees and minimum parking requirements can make the construction of new homes financially infeasible. The state’s signature California Environmental Quality Act (CEQA) was written so broadly that it has been used to delay or block climate-friendly projects, including bike lanes and infill housing. In the end, written policies may be less important than the political will of elected officials and voters. A community that truly wants to accommodate more development should adopt policies that allow it to happen; dedicated NIMBYs will always seek legal or political levers to block change. 

Housing Subsidies and Zoning Reforms

Zoning reforms are only half the equation to improve affordability; to help poor households, these reforms should be paired with direct subsidies from federal, state, or local governments. In well-functioning housing markets—where housing supply keeps pace with growing demand—most middle-income households can afford to pay the rent or mortgage without exceeding 30 percent of their income. Zoning reforms like those undertaken in California are intended to improve housing markets’ efficiency in two ways: by legalizing a more diverse set of housing structure types (especially smaller homes) and unlocking the capacity to increase the overall supply of homes. Over time, these two approaches can ease affordability pressures—housing prices and rents should rise at the same rate as incomes. Even in well-functioning markets, however, the poorest 20 percent of households in the U.S. spend more than half their income on housing, and will require financial support to afford stable, decent-quality homes.

The development costs of ADUs illustrates the need for both approaches. The average cost of building an ADU in Los Angeles was nearly $150,000 in 2020. Most homeowners pay the upfront development costs by borrowing, for instance, through a home equity line of credit. A homeowner who rents out an ADU needs to charge enough to cover loan repayment, as well as operating costs such as property taxes, insurance, utilities, and maintenance—nearly $2,400 a month in total. While $2,400 per month rent is affordable to households earning the median income in Los Angeles (about $85,000 per year), bringing monthly rents within reach of moderate- or low-income households will require subsidies for construction, operation, or both (see Figure 3).
To date, subsidies for ADUs (especially for operating costs) have been relatively limited. The California Housing Finance Agency offers upfront subsidies for moderate-income homeowners across the state to cover pre-development costs—an effort to help increase the supply of ADUs. Separately, a handful of local governments across the Los Angeles region—Los Angeles City, Los Angeles County, Pasadena, and West Hollywood—have experimented with small pilot programs offering vouchers or cash for low-income households to rent ADUs. These local programs help cover the operating costs once ADUs have been built. Collectively, the four local programs in the Los Angeles region have yielded fewer than 40 income-restricted ADUs to date.

Politicians often focus on short-term achievements, like ribbon-cuttings, to show progress before the next election. Land use and housing supply operate on much longer timelines. Zoning laws adopted in the 1950s and 1960s that established single-family-detached homes as the dominant housing type are still the land use foundation for many cities and neighborhoods. Updating these laws today can yield substantial increases in housing construction and greater diversity of housing choices—but it will take time. The evolution of California’s ADU policies illustrates some of the challenges facing policymakers in other states and regions. It’s hard to get the details of housing policy exactly right on the first try, and there isn’t one silver bullet. Elected officials and housing advocates should be honest about the timeline and help manage voters’ expectations.


Jenny Schuetz is a senior fellow and Eve Devens is a research assistant at Brookings Metro, which first published this article. Read the original here.