Granny Flats Gain Ground In Los Angeles, But Process Still Drags

Accessory dwelling units — also known as ADUs, granny flats, guest houses and mother-in-law units — are often associated with single-family homes, but they are now an increasingly popular option for multifamily owners too. 

The need for new housing types available quickly is increasingly dire in the state.

Of California’s roughly 17 million renters, 51.8% were rent-burdened, or paid more than 30% of their household income toward housing costs in 2019. About 27% were paying more than 50% of their income toward housing, which is considered severely rent-burdened, the California Budget and Policy Center found.

Owners of ADU companies and apartment owners say they have seen an uptick in interest in the product type since California legislation went into effect in January 2020 that made it easier for multifamily owners to add some of these dwellings to their properties, with the amount and type varying according to available space and lot size.

Up to two detached ADUs are allowed, and conversions of existing space — recreation rooms or tuck-under parking, for example — are also allowed for as many ADUs as up to 25% of the existing number of units in the building.  

The cost of an ADU can vary widely depending on a number of variables, including whether it is a conversion of existing space or a newly build unit and on the interior amenities added.

EcoSmart Builders CEO Freddie Zamani said he gave a base estimate of $100K for a bare-bones ADU that is a conversion of existing space and $140K for a basic new-construction unit, but he added that many of his clients do not go with the most basic ADU and instead add elements like special finishes or windows and doors that raise the cost.

The base cost for an all-inclusive unit from Abodu, which delivers prefabricated units and does not do conversions, is approximately $190K for a 340 SF studio.

Some ADU companies will build a dwelling at no cost to the property owner in exchange for collecting a portion of the rent for a period of time, often over a decade.  

Abodu CEO and co-founder John Geary said his ADU company works with many multifamily owners, mainly those with buildings ranging from 10 to 30 units. Many of those buildings have parking in the back, and some owners have used some of that space to house two detached ADUs. 

"There are two new units of housing going up that are relatively low-impact," Geary said of instances where detached units are added to a lot with existing multifamily. "It's not a tear-down and rebuild of a multifamily property. It's adding two high-quality, new-build units to properties which in many cases are 40 or 50 years old."

The legislation went into effect shortly before the coronavirus pandemic throttled the state, and experts now say that certainly impacted multifamily owners’ interest in the housing type.

Geary said his company was anticipating a lot of multifamily demand when the law changed, but then by March, when the state shut down, it seemed like owners were hunkering down, likely uncertain about how lockdowns and low rent collections would last.

But since things have begun to open up, Geary said there has been “explosive” interest from multifamily owners in the last three to five months, though he declined to provide detailed numbers. 

Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles, said his organization has already had three webinars about the ADU possibilities for multifamily owners, with attendance at 200 or 300 people per digital event. He said he sees the demand for ADUs as driven by other aspects of the pandemic.

“We have all these rent regulations,” Yukelson said. “We've been under eviction moratoriums, people haven't been collecting rents, vacancies are at all-time highs.” 

ADUs can often be a way for owners to increase cash flow at their properties while creating more rental inventory, and because of state and local rules, the permitting process is ministerial, meaning it doesn’t require notice to the public to be posted or other hurdles of many ground-up projects. 

These so-called granny flats can also add to the housing stock in a way that is considered by many to be less obtrusive than a ground-up build. They also usually have lower costs and are built quickly, which has led the housing type to be seen as an important tool to use to help combat the state’s housing affordability crisis.  

Though the ADU permitting process has been streamlined, there is no guarantee that faster actually means fast.

Warren Berzack, Lee & Associates Multifamily Advisory Group national director and a multifamily owner, said he has been working for over a year to get approvals for three ADUs that would be conversions of existing space in a 34-unit building he owns. Berzack chalked that up in part to pandemic-related measures taken by city departments last year. 

“Generally over the last year, it’s been pretty slow. Things are picking up a little bit now that our [coronavirus case] numbers are way down, but it does take time,” Berzack said. 

Those working in ADU development or on their own accessory dwelling projects see the housing type gaining popularity with multifamily owners. 

Berzack said owners he knows who own a few buildings and are established in the sector are looking into ADUs “pretty aggressively.”

“If it costs you today $300K or $4000K or $500K to build a unit, generally the ADU isn’t going to cost you remotely that amount. There’s a good return on your investment,” Berzack said.