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Maybe in My Backyard
Despite more-welcoming regulations, the market for building ADUs still has challenges.
Accessible Dwelling Units, commonly referred to as “ADUs,” have been around for a long time: think carriage houses or above-the-garage apartments. But over the years, zoning laws in many municipalities have restricted these types of accommodations. The current housing affordability issues — in about 80% of U.S. markets, home prices are rising faster than wages and nearly two-thirds of renters nationwide say they couldn’t afford to buy a home if they wanted to — have created a need for solutions, and ADUs are making a comeback. “Cities see them as a relatively ‘easy’ way to increase rental stock,” says Steve Glenn, founder and CEO of Rialto, Calif.-based Plant Prefab, which manufactures high-quality custom homes and recently launched the LivingHome 10 ADU.
But while acceptance is spreading and municipalities are changing their zoning laws, those in the housing industry still face challenges as they try to respond: “challenges with policy, product and process,” says Bruce Thompson, CEO and co-founder of Urbaneer, a homebuilder based in Grand Rapids, Mich.
LivingHome 10 is Plant Prefab’s first ADU. At 406 square feet, it has one bedroom and one bathroom and is an Alexa-compatible smart home. The company launched the product at Modernism Week in Palm Springs in mid-February.
To have a successful run at scaling ADUs, zoning policies for single family housing and other regulatory barriers must change. For the past few years, that’s been happening in many places around the United States, particularly on the West Coast. Building on legislation begun in 2016, last year, California eliminated restrictions on ADU zoning, allowing most single-family homes to be converted into three separate housing units. Oregon and Washington State are also expanding their rules in regard to ADUs. In other parts of the country, municipalities as diverse as Fairfax, VA., and Northfield, Minn., have developed ADU regulations. (AccessoryDwellings.org keeps a list of various cities and their ADU regulations.)
“Falling regulatory barriers are making ADUs more feasible,” says Patrick Quinton, CEO of Portland, Ore.-based Dweller, which builds and installs prefabricated ADUs. “And a massive market has opened up,” he says. “A lot of bigger players didn’t think of Portland as a big market, but now — and along with California — they realize tens of thousands of ADUs can be built. You’ll now see product innovation and response from the bigger builders.”
Photos courtesy of Urbaneer. Urbaneer 510 has a patented approach on “controlling the five living modes,” says company co-found Bruce Thompson. Inhabitants can cook, dine, entertain, work and sleep all in the same room, but a movable wall system and a wall bed creates a “room on demand.”
What’s notable about the latest iteration of ADU products is their adherence to modern updates. These are not slap dash structures homeowners plunk down in their backyard. When Thompson and his co-founder and wife Brenda, a designer, created Urbaneer they “looked at the idea of higher density housing differently,” he says. “We use the term ‘density with dignity’; it’s not just putting people in smaller spaces and declaring victory.”
Newly built ADUs must meet all the IRC building codes, of course, but they also “have efficient floor plans. There’s more utilization of natural light, more windows, more gadgetry, more designer style, higher-end finishes and smart home technology,” says Steve Payne, director of business development for U.S. operations at Skyline Champion Corp. (a merger of Skyline Corporation and homebuilder Champion Enterprises Holdings LLC), a publicly traded modular and manufactured home building company.
Two such innovative companies, Urbaneer and Boxabl, showcased their products at the International Builders’ Show in Las Vegas. (Ben Carson, U.S. Secretary of Housing and Urban Development, toured a Boxabl home at the show, see video below.)
Boxabl “builds rooms, and rooms build houses,” says Galiano Tiramani, head of business development for the Las Vegas-based company. The “rooms” or modules can be stacked and connected to create a custom home. The smallest single room module, a studio apartment, is what’s used as an ADU. When shipped, the modules “pack down to 8 ½-feet wide and ship as a regular load,” Tiramani says. That means there are no extra costs for shipping something oversized. The rooms come complete with kitchen, bathroom, windows, appliances — “everything but a bed and couch,” Tiramani says. The company connects the end user with a local contractor to build a foundation, do site set up, landscaping and attend to permitting. But once the product is dropped off, “it’s unpacked, plugged in and ready in about an hour,” Tiramani says.
Urbaneer, whose name is a mash-up of “urban” and “engineering,” has the Urbaneer 510, which Thompson says is “500 square feet that lives like 800” because of a proprietary wireless movable wall system and a pull-down wall bed in its design. “We integrate the ‘three C’s,’” Thompson says. “Compact design, configurable space, and connected home.” Urbaneer has a Scandinavian design vibe thanks to designer Brenda Thompson; a patented approach to creating space via the movable wall; and smart elements including locks, doorbells, cameras, lighting controls, and security through a partnership with Alarm.com. Thompson says that their design pays particular attention to occupants’ lifestyles. “We build from the inside out.”
Plant Prefab’s first ADU offering is LivingHome 10, a one-bedroom, one-bathroom, 406-square foot home built with the company’s Plant Building System and outfitted with Alexa-compatible smart home devices. PBS, according to the release, uses a combination of modular units and “Plant Panels, a new panelized construction system developed by Plant. Unlike regular panels such as SIPS, which only integrate framing and insulation, Plant Panels include plumbing, electrical and finish materials.”
While the Boxabl product has always been factory-built — and the company hopes to have its own production facility in Las Vegas operational in early 2021 — Urbaneer built its first 400 units on site with Rockford Construction of Grand Rapids, Mich. “They taught us the challenges,” Thompson says. “But we know the future is really off site so that’s where we pivoted our business model — to that fully-integrated offsite concept.”
Thompson likes the idea of having control over every facet and thought about building his own plant. “But it’s very capital intensive,” he says. Urbaneer recently partnered with Champion Homes to produce Urbaneer’s ADU product in one of Champion’s 38 plants in North America. “It’s more efficient to leverage their supply chain and their solutions. Everything can now be fully baked into the products,” Thompson says. “When these units go out, we can put one in someone’s yard and 30 days later a resident can occupy that space. With a traditional stick-built model it took much longer and was more challenging.” With Champion’s partnership, Urbaneer will market its product in 48 states.
Quinton of Dweller believes the industry is “at the beginning of widespread adoption of prefab or factory-built ADUs. … With demand unleashed by changes in zoning up and down the West Coast, prefab ADUs will be the most cost-effective way for thousands of homeowners to acquire ADUs.”
Since it’s not a traditional offering, the other challenge for success in building ADUs is financing.
The costs to build an ADU depend, of course, on where they’re being produced. Boxabl has an expected MSRP of $38/ft, which includes finished walls, floors and exterior. “In L.A. you can build an ADU for $50,000 and rent it for $2,000 a month and that’s great income and really attractive from a homeowner’s perspective,” Tiramani says. But as with all ADU’s, homeowners will need to pay for all the site fees, a foundation, permits and utility connections, which can be substantial.
For a standalone ADU, it’s more difficult to get a loan to build one on an existing property than to get a loan that bundles the ADU with new home construction, says Pierce Tracy, president and CEO of Backyard Cottages, which builds ADUs and is a sister company of Classic Cottages, which builds single-family homes in Arlington, Va. (Backyard Cottages will begin offering the Urbaneer 510 at the end of March 2020.)
Tracy says builders are “hoping to make some headway [on this issue], but right now the only practical way for an owner of an existing home is to get a home equity line of credit.” That works well in his Arlington County market, which is only five miles from Washington, D.C., and will soon be home to Amazon. In other markets where housing values don’t grow as quickly or as expansively, “it’s more challenging,” Tracy says.
He stresses the importance of developing relationships with banks, particularly local ones. “We’ve got a good relationship with George Mason mortgage, which is rolling out a product for us for ADUs to pave the way locally. The local banks are key to making this work since every market is a little different. They understand home values and other things particular to the local market.”
Every Yard Is A Possibility
Who’s purchasing ADUs? Tiramani says it’s homeowners who want to rent to young professionals or create spaces for their aging parents or other family members – “anyone who needs affordable housing.”
Thompson says that in his market, San Mateo County, Calif., “where they’re rolling out the red carpet for ADUs,” there are a lot of baby boomers who purchased years ago and have no mortgage payments left and don’t want to move but want extra income. And in other places that never fully recovered from the Great Recession, he says, “people talk about moving into their backyard and renting their primary residence.”
One criticism of ADUs — particularly because of a combination of zoning restrictions and lack of financing options — is that they were being built as custom projects for wealthy homeowners. But more and more offerings are focused on affordability.
Tracy says that in Northern Virginia, there’s “still talk [about the concept of the] ‘Missing Middle,’” or housing that’s more attainable for more people. He believes that an ADU, even at the local cost of about $200,000, is a good option. “Look at it from a mortgage standpoint. Basically, you have a $200,000 unit you can rent for $2,100 to $2,300 a month. For a homeowner that [amount will] cover $400,000 worth of mortgage payment. Being able to subsidize a new home purchase or subsidize an existing house by using the land — there’s value there. Nationally people may see $200,000 as being expensive, but locally there’s a strong value.”
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