Adding Housing Supply in California

California’s housing crisis continues. Housing prices throughout the state have climbed steadily since the economic downturn. The soaring prices of housing in the bay area has pushed buyers toward the central valley, creating many daily commuters. The shortage of housing and lack of affordability has also driven up the rental market. When searching for a two-bedroom rental in Modesto, $1400 a month is not uncommon. People are no longer shocked to hear rents are in the thousands rather than hundreds. Large developers are building multi-family complexes. One just must drive to Pleasanton to find such developments on the north side of the 580 in Livermore. Even with all the new multi-family construction, there is still a shortage of housing. So, the state of California turned to homeowners.In 2016 SB 1069 was enacted. The law required cities to allow the building of accessory dwelling units (ADU), also known as guest houses, garage apartments or in-law quarters. The new structures must be in residential areas and meet setback and height requirements. According to the law, cities can’t ban the units and homeowners do not have to go through the planning commissions or city councils to build them.

ADU’s offer obvious advantages such as providing rental income to the homeowner, additional space for relatives, more manageable place for an aging homeowner who might elect to rent out the larger home and increased property value. The addition of ADU’s leave neighborhoods looking the same and adding housing to the tight rental market.

Since 2016 the number of applications for permits has shot up in several cities across the state. For example, in San Francisco, only 41 permits were filed in 2015. The number jumped to 384 in 2016 and 581 in 2017. Oakland issued 33, 99 and 273 permits for the same period. San Jose issued 28, 45 and 166 respectively. The city of Turlock did not have numbers available at the time this article was written.

Top view of a real estate properties in Merced CountyOne of the biggest challenges ADU’s face is the cities’ will to control how homeowners use the space. Homeowners who develop the ADU’s have an expectation of flexibility. They might use the space for a family member at first, a rental later, a nightly rental to out of area visitors and move in a family member later yet.

Building guest houses is an extremely slow method of adding housing supply in California when according to official estimates, the state needs to add about 180,000 units a year.

For more information on this or if you need help managing your rental property, please contact us at New Bridge Management.