Granny flats add flexibility and affordability

Issue:

December 2001

Issue Date:

Sat, 2001-12-01

Page Number:

8

In several new urban communities, accessory dwelling units are strong sellers and offer benefits to both home owners and developers. Accessory dwelling units (ADUs) appear under many aliases — granny flats, garage apartments, carriage houses, ancillary units — and they almost invariably show up on a checklist of what sets new urban communities apart from conventional subdivisions. They are by no means ubiquitous, but developers from diverse projects report that granny flats have become a popular amenity and an important selling point. For an overview of selected projects with ADUs, along with financial, regulatory, and other details on these units, see accompanying New Urban News table.

For some home owners, the most attractive aspect of ADUs is the potential for extra income from renting out the unit. Other home owners view the extra space as a flexible addition that can be used as a home office, as lodging for teenage children or elderly family members, or as a guest room with great privacy.

From a developer’s perspective, ADUs provide an extra tier of housing options — affordable units that can attract people from diverse age and income groups. Another benefit is safer and more lively alleys. With more “eyes on the street,” children and adults are more likely to use the alley for play and socialization.

Higher density
Moreover, “accessory units are an easy way to get more people in the same area and therefore support low vehicle miles traveled and all of the good environmental outcomes from density,” says developer Bob Chapman. “Accessory units offer density without making the street appear overbuilt.” In the infill project Trinity Heights, which Chapman is developing with architect Milton Grenfell, garage apartments have been added to 15 of the 24 single homes. Because Chapman and Grenfell want to encourage builders — who generally have no experience with granny flats — to construct ADUs, they offer a financial incentive. Instead of charging builders a per lot fee, the developers ask for 17 percent of the home sale price. For the ADU upgrade, however, builders are assessed only 6 percent of the sales revenue.

Regulations vary on ADUs, but there are a few ground rules that apply in most cases. The unit must be under the same ownership as the principal building, and there is typically a requirement for at least one extra off-street parking space. In most projects, the units are considered part of the main house and do not count toward the overall density. “We were very serious about this during permitting,” says Joel Embry, developer of Amelia Park in Fernandina Beach, Florida. “To count a garage apartment as a separate dwelling unit raises the public’s impression of the density in a way that it is not actually occurring.” In most projects, ADUs are restricted to specific lots or housing types, but these rules vary considerably (see table). ADUs are generally not counted toward maximum density requirements, and Chapman explains why. “The developer will always choose to make $20,000 on a house rather than $4,000 on a garage apartment. So you kill any chance of them being built if they are included.”

The Prospect example
One exception to the rule is Prospect, a project in Longmont, Colorado. According to developer Kiki Wallace, the city can collect extra impact fees by counting the garage apartments as independent dwellings. The typical impact fee for a home in Prospect is $18,000, and an ADU can put in another $6,000 in city coffers. “It works out just fine, because I have 570 density units for 80 acres and I am not going to use them all,” Wallace says.

While he had no problems getting permission to build ADUs, the city has struggled with keeping track of the extra units and therefore discourages other developers from including them in new projects. “It was painful for the city to begin with,” Wallace says, but it now has a system that prevents ADUs, and the impact fees, from falling through the cracks.

Despite high impact fees, ADUs have been very successful in Prospect — out of the approximately 110 homes completed, 40 have finished garage apartments. Builders usually include an unfinished shell above the garage, and charge about $50,000 for the average upgrade. Most units are in the 650 sq. ft. range, but one 950 sq. ft. unit has been built over a three-car garage. With an average rent of $1,000, the income potential has become a major driver for the ADUs, Wallace says. “Most people have the idea that they are going to use it for a home office. About half build it for that reason, but I’d say that all of them end up renting it out.”

Some public agencies that seek to encourage granny flats, but do not wish to give an open-ended permission, have simply capped their construction at a certain percentage of home sites. Such restrictions are placed on Fairview Village, Highlands Garden Village, and Hometown Oswego.

Help with the mortgage
The benefit to the home owner can be substantial. In Courtside Village, a neighborhood in Santa Rosa, California, garage apartments are included with every single-family home located on an alley. To date, 50 units have been completed, and developer and designer Alan Cohen estimates that half the 600 sq. ft., one-bedroom apartments are rented out at a rate of $850 to $900. The alley homes currently sell for $390,000, including the ADU. Assuming a 15 percent down payment and a 30-year mortgage at 7 percent, Cohen calculates the monthly mortgage to be $2,205. A rental fee of $900 covers 41 percent of the mortgage. Cohen adds that conventional developers in the area have noticed the success of Courtside’s ADUs, and have begun to build them in other subdivisions. However, the calculation of more interest might be whether the rental covers the extra cost of the upgrade.

In Trinity Heights, the addition of a garage and an apartment costs from $37,000 to $43,000 (the price of the garage alone is about $15,000). Since the apartments rent out for $700/month, the home owner can recoup about double the mortgage on the ADU while paying for the two-car garage simultaneously — one reason for the units’ popularity. The upgrade cost in Trinity Heights is at the lower end, however. Typically, the price of the garage is included in the price of the primary structure, and upgrades range from $40,000 to $65,000. Nevertheless, rental fees typically cover the extra monthly mortgage for the ADU, and then some.

Developers are also seeing examples of home owners who move into the garage apartment and rent out the principal building. This strategy works as a holding pattern for people who plan to retire to Amelia Park, for example. The garage apartment becomes a weekend home, while the principal townhouse is a steady source of income until retirement.

Access and amenities
Developers and builders use a variety of strategies for access to ADUs. In Orenco Station (Hillsboro, Oregon) the choice of exterior stairs allows for the addition of a small porch in front of the first-floor entrance to the unit. Some entrances face the side yard of the home, while those at the end of blocks face the street. “These are better for a home office or a rental,” says Mike Mehaffy of PacTrust, the developer.

In Courtside Village, the stairs are internal, and the entrance faces the extra parking pad off the alley. This offers homeowners and tenants the greatest degree of privacy. An unusual approach is used in the largest units in Amelia Park, those built over attached, three-car garages. They come with a separate entrance within the garage, where one of the parking spaces is reserved for the tenant.

The basic amenities in most ADUs include a bedroom, a bath, and a small kitchen. Many developers offer a range of options, from loft units to more highly finished versions with separate rooms. Hometown Oswego in Illinois has a few 500 sq. ft. units that feature a kitchen, separate living rooms and bedrooms, and walk-in closets. “People love them, “ says developer Perry Bigelow, “it’s the most efficient use of space we offer.”

Municipal regulations are a potential hurdle for developers. Even though Trinity Heights is an infill project in the City of Durham, the city charter had to be amended to allow accessory units to be built. Even with this amendment, the local law stated that the units could not be within 15 feet of the property line, even at the back alley. This shifted the units toward the middle of the lot, reducing usable yard space. (Fortunately, Trinity Heights lots are 140 feet deep).

In Portland, on the other hand, the regional planning authority now allows ADUs in all area jurisdictions. “It is expected to help with the supply of affordable residences and to contribute to a more resource-efficient development pattern,” Mehaffy explains.

Tucked away behind homes, ADUs tend to fly under the radar, but in the projects where they have taken hold, developers are uniformly positive about their impact. “They are one of our real success stories,” says Rick Holt, one of the developers of Fairview Village near Portland, Oregon. “We’ve added them to rowhouses as well as single-family homes and they have introduced a greater blend of people in our community.” Ninety percent of the ADUs in Fairview Village are rented out.

“In Amelia Park, we are discovering that when people live in the garage apartments, the alley thrives as a civic location,” Embry says. “Also, we are achieving the mix of affordability that we want on an inclusionary basis, rather than through the pods of the conventional subdivision. It’s a practical way of achieving one of the more elusive goals of the New Urbanism.”