SAN JOSE – In Santa Clara County, the home of San Jose and center of Silicon Valley, the median-priced home is a little over $1 million and requires a minimum income of $256,450 to purchase, a new report from Paragon Real Estate shows.
And in San Francisco, San Mateo and SanTestingta Clara counties the number of jobs increased by 29 percent while housing stock increased by just 4 percent between 2010 and 2016, recent data from the U.S. Census shows.
With limited housing options for residents, interest is growing in accessory-dwelling units (ADUs) — self-contained apartments on the property of existing homes.
Applications for new ADUs jumped in San Jose after city and state legislation that loosens design, parking and sprinkler requirements went into effect. The law gave cities more flexibility to allow homeowners to build ADUs, and cities also may adopt the state law via ordinance. The city received 28 applications for new ADUs in 2015 and 45 in 2016. In 2017, the year the legislation went into effect, that number more than quadrupled to 205 applications, an analysis of San Jose’s permit data between 2007-2017 shows.
But despite increased interest and action by government to ease the process of constructing these units, more can be done to simplify the process of building an ADU, experts say.
San Jose’s zoning ordinance update has allowed the city to approve more applications, said Genevieve Singh, the city’s Public Information Officer.
But one change had an outsized influence, Singh said. The city eliminated a rule that required the main property to be occupied by the homeowner at the time of the submitting an ADU application.
“We had a number of cases where…Because the property was not yet owner-occupied they did not qualify for a secondary unit so they would have to wait until they built the new house, move in, then they could put in their application,” Singh said. “This created inefficiency because other than the owner occupancy rule we could have reviewed the application, issued the permit, and had them inspected at the same time.”
ADUs are not a new concept. Also known as “granny flats” and “in-laws,” ADUs are studio or one-bedroom units located on the same site as an existing home, as attached or detached units. Often smaller than the average one-bedroom apartment, the units are equipped with kitchens and bathrooms, making them an attractive option as rentals for singles and couples.
Tony Chan, the founder of ADU Builder, Inc., a Palo Alto-based company that specializes in the finance, construction and renting of ADUs, believes that the statewide legislation has helped encourage new construction.
“[Before the legislation] many of the cities made it very hard to get approval,” he said in a phone interview.
Still, Chan believes the permitting process needs to be fixed.
“An average homeowner with no experience will have a hard time understanding what the city wants, especially when the building codes are all different for all cities,” he said.
“So the permit process is a nightmare for any homeowner.”
Mike Lerner, a resident of San Jose who built an ADU before the legislation was enacted, agrees. He purposely built his unit under 125 square feet to avoid permitting. “All I ever hear is horror stories,” he said in a phone interview.
“Going through permitting, I probably wouldn’t be able to do the job myself, because when you’re in permitting it takes a lot of knowledge,” he said. “That’s why the licensed contractors get the big contracts.”
One of the first steps in the permitting process is to navigate the application – known as the Secondary Review Worksheet.
Homeowners who want to build ADUs face financial barriers involved with the permitting process, said Vianey Nava, ADU Program Manager with Housing Trust Silicon Valley. People are motivated but do not realize all the costs that go into building the apartments, she said in a phone interview.
“A lot of people think they can do it just for a few thousand dollars or over a series of weekends, but actually the process is just like building a single-family home,” Nava said.
The Terner Center of Housing Innovation at UC Berkeley studied the construction of ADUs in Portland, Vancouver and Seattle. It found the average cost of construction of these units is about $156,000. The center also found housing construction costs in Silicon Valley, which typically range from $300 to $700 per square foot, to be among the highest in the nation. And that doesn’t include the cost of acquiring the land, which can run well from $2 or $3 million.
The city’s permit data reflects this idea that people are motivated to build ADUs but don’t continue through the entire process. Between 2007 and 2017, 265 permits were issued for new ADUs, but only 112 of these were completed by January 2018. From 2007-2015, prior to statewide legislation being passed, there were 118 permits issued, but only 66 were completed by 2018.
There is change though. The completion rate of the permits is little more than half, but homeowners are applying for the permits at higher rates than before.
California State Senator Bob Wieckowski is working on the issue. This February, he introduced SB 831, which builds upon earlier initiatives. The bill would effectively eliminate all local fees associated with ADUs, including impact and permit fees, Wieckowski said in a statement. The state senate passed amendments to the bill on May 30 and sent it to the Assembly for further consideration.
While issues around permitting and financing remain, Singh says the city is interested in helping homeowners with ADU construction. San Jose intends to update its ordinances and, by all indications, to be less restrictive about ADUs, Vianey said. The city’s planning department solicited public comments through March, and the City Council will consider changes to ADU policy at their meeting on June 19.
More homeowners have applied for the ADU permits since the law went into effect. But the number of ADUs being built is a fraction of the total number of single-family homes — 211,000, according to 2016 census data — that could include an ADU.
Chan said he hopes that ADUs are an option for addressing the housing shortage and rising costs in the Bay Area. As a former real estate agent, he has seen many homeowners move away from the Bay Area because of increased housing costs.
Now, Chan has customers building ADUs to live in or rent out so they can stay in the area.“I think in the next 10 years there will be a lot more ADUs popping up in the Bay Area,” he said.