Tiny Homes Are the Next Big Thing for Homeowners.

"The latest amenity for homeowners is another, smaller home.

These add-ons are known as accessory dwelling units. They can be free-standing miniature homes as small as a studio apartment and tucked away in a backyard. They can reside above a garage or in a basement and extend to more than 2,000 square feet.

ADUs are growing in popularity as states encourage their construction through zoning changes and homeowners seek ways to lower their housing costs by renting out these units. The typical cost to construct one is around $100,000, according to building-permit data company Builty.

"It's gone from a small niche in the market to really a much more impactful part of new housing," said Scott Wild, senior vice president of consulting at John Burns Research and Consulting.

Now, more home builders are starting to offer ADUs as amenities. In Alpine Springs, a new-home community in Saratoga Springs, Utah, half of the 16 homes sold include an ADU in the basement at an added price of $35,000 to $70,000, said Chris Bley, chief investment officer at investment firm IHP Capital Partners.

A Freddie Mac study in 2020 identified 1.4 million single-family U.S. homes with ADUs, though the actual number could be higher. ADUs are difficult to track on a national basis, in part because they can be described in a variety of ways, such as casita, backyard cottage or garage conversion. Some homeowners also build them without permits.

The proliferation of ADUs comes as homeowners and renters around the U.S. are grappling with a shortage of housing and high home prices. Adding housing units on existing lots is seen by policy makers as a quick way to increase housing supply. California, Oregon, Maine and other states passed laws in recent years to encourage ADU construction.

About 26,200 ADU permits were finalized, processed or under review in 2022 in eight major West Coast metro areas, according to Builty.

Home builders are helping propel that growth. In Williams Ranch, a master-planned community near Santa Clarita, Calif., about 20% of home buyers have selected floor plans that include ADUs, at an added cost of between $80,000 and $100,000, said Daniel Faina, chief marketing officer at California builder Williams Homes.

Hosting out-of-town visitors or renting to tenants are the top reasons consumers would consider an ADU, according to a 2022 Freddie Mac survey. But many homeowners also use them for home offices or other personal uses.

Chantell and Jared Dennis bought a three-bedroom home in Williams Ranch in May with a one-bedroom ADU above the garage. They listed the ADU for rent and found a tenant within a day who pays $2,175 a month, which covers more than one-quarter of their total monthly housing costs.

"We're going on vacation and our renter is watching our dogs right now," Chantell Dennis said. "I think it's genius."

ADUs aren't going to solve the housing shortage on their own. They can be too expensive for many individual homeowners to build, and tiny homes aren't a good fit for many renter households. Many homeowners also don't want the headache of being landlords.

"I don't think that it's the cure-all for housing affordability," Bley said. But "there's no question that the consumer likes it."" [1]

1. Tiny Homes Are the Next Big Thing for Homeowners. Friedman, Nicole.  Wall Street Journal, Eastern edition; New York, N.Y.. 11 Oct 2023: B.6.