Bulletin
Investor Alert

New York Markets Open in:

Next Avenue

June 2, 2022, 6:29 a.m. EDT

More people are turning to this housing idea for aging parents, but obstacles still exist in much of the country

By Chris Farrell

Janie Morisette taught school in Hardin, Montana, for 32 years before retiring in 2019. Her longtime home, with five bedrooms, 2.5 baths, and an attached garage, was too much home for a 72-year-old. She and her daughter, who lives in St. Paul, Minnesota, decided that Morisette would move to St. Paul and live in her daughter’s backyard.

Morisette calls her new home a “carriage house.” Her daughter says it’s “Janie’s coop” since they moved a chicken coop to make room. Urban planners and building inspectors call such homes “accessory dwelling units” or ADUs.

Morisette and her daughter replaced a small garage behind her house with a new building — the carriage house. The lower level of the $280,000 structure is a two-car garage. Morisette lives upstairs in a nearly 800-square-foot one-bedroom apartment; she moved into her home in April 2021 and pays her daughter rent.

The remodeled living space uses universally adapted features — such as lever-style door handles that are accessible to people with a wide range of abilities and disabilities — so that Morisette can comfortably age in place. She, her daughter and her granddaughters can see one another when they want, yet each has their own space.

“I love it,” says Morisette. “And when I am gone my daughter has a nice place for someone to rent.”

The multigenerational backyard-living promise of ADUs has long been tantalizing with the demographics of an aging population. Transforming a garage into a small living space or building a backyard guest cottage allows aging family members to stay close to their adult children and grandchildren. They can help each other out financially, emotionally and practically (think child care and eldercare), while each maintains their independence and privacy.

Such gains need not require a lot of room. A  2021 survey  of California’s ADU owners by the University of California, Berkeley Center for Community Innovation found that most units are detached; the average square footage is 615 square feet; and a majority are one-bedroom (61%).

Read: This is how boomers are reinventing retirement living

The lure of ADUs

The lure of ADUs is obvious. But obstacles toward the multigenerational backyard living revolution have been formidable, ranging from local regulations to neighborhood opposition. While barriers remain (we’ll get to them soon), there’s no question that several trends have combined and reinforced one another in recent years to give greater momentum to the ADU movement.

“Demand is growing quite robustly,” says Jamie Stolpestad, real estate entrepreneur and partner in Minnesota-based  Yardhomes,  which makes small prefab dwellings as ADUs (and other uses).

For one thing, the pandemic pushed more people to start evaluating an ADU as an option for aging parents. During the pandemic, many adult children couldn’t visit their aging parents living in congregate settings, such as continuing-care communities, assisted living centers and nursing homes. The pandemic experience of trying to stave off illness left aging residents of congregate care  socially isolated and lonely .

“People want Mom and Dad close to home, rather than go into senior living,” says Stolpestad.

Another factor is the lack of affordable housing. The housing market has been red hot, especially after the early months of the pandemic. The median existing-home price in March of 2022 rose 15% from a year earlier, to $375,300, according to the National Association of Realtors. “People are turning to the ADU option because of the affordability issue,” says Rodney Harrell, AARP vice president for family, home and community. “It’s a creative option in the neighborhood people want to live in.”

High home prices and a lack of supply seem to be a necessary but not sufficient condition for growing the ADU market. Regulation is also key. For example, ADUs in California are booming with the Golden State’s astronomical home prices. Nevertheless, the ADU market didn’t take off until legislators passed a  state law  in 2017 that overrode local zoning restrictions. The rules are uniform in the state, and in most circumstances you have the right to build an ADU.

The combination of nosebleed home prices and regulatory reform have turned much of the West Coast into an ADU hotbed. The rest of the country lags behind.

“Ninety percent of the U.S. has bad ADU regulation,” says Kol Peterson, the owner of  Accessory Dwelling Strategies LLC  in Portland, Oregon.

Also see: Call it virtual assisted living: Seniors can stay in their own homes longer thanks to these pandemic hacks

The final factor is intriguing: The entrance of innovative entrepreneurs. The overall price tag for an ADU ranges widely around the country, but $200,000 is a reasonable average. Entrepreneurs are seeking to significantly lower the cost of ADU ownership by focusing on building tiny homes, modular housing, repurposed shipping containers and similar structures. Companies often offer standard blueprints and design options to keep costs down. The structures are often built inside factories and then assembled on-site.

“A number of people are doing high quality prefab,” says Mark Thieroff, a land use attorney and ADU advocate in St. Paul. “The prefab approach might help.”

Some pioneers in this field think inside the box

Among the innovators is  Into the Box , a St. Petersburg, Florida-based startup that uses recycled shipping containers to build studio, one-bedroom, and two-bedroom units. Among the possible uses are ADUs for aging parents (anticipating growing interest, the startup has launched a wait list.) The containers are not only recycled, but the product is designed as an eco-friendly, fully insulated, and off-the-grid living space. Into the Box is far from alone.

The competition using recycled and prefabricated homes is heating up. “Prefab and modular construction can bring down these costs down quickly,” says AARP’s Harrell. “A lot of promise there. It’s a way to lower some costs and lower the barriers.”

Still, the ADU market remains a work in progress. Local regulations in many regions of the country still erect  costly obstacles . Local ordinances can require property owners to live in the single-family home or duplex in order to add an ADU. Municipalities often place onerous street parking restrictions on ADUs. Some areas require the new ADU to build a separate connection to the sewer line in the street rather than tap into the infrastructure of the existing house.

Read : Aging in place is even harder in small towns or rural areas

Lenders have not yet jumped on board

Financing remains a hurdle. Part of it is simply the total cost. But most ADUs are funded with cash, a home equity line of credit, a cash-out refinancing or some combination. Although there is work going on, financial institutions haven’t really developed products designed specifically for ADUs.

“Unfortunately, few loan products exist to finance ADU construction, and those that are available often do not go far enough in assisting property owners to build them,” note scholars at the UC Berkeley Center for Community Innovation in their recent report “Reaching California’s ADU Potential: Progress to Date and the Need for ADU Finance.”

ADUs remain too expensive and too many community leaders aren’t aggressively promoting the housing choice for an aging population. The more welcoming experience of California and several other localities demonstrates that the demand for ADUs is there.

Related: Remember the tiny house movement? How’s that working out?

The pressure to lower barriers to ADU construction and ownership will only intensify, thanks to the potent combination of too little affordable housing and the swelling demographics of an aging population.

Chris Farrell is senior economics contributor for American Public Media’s Marketplace. An award-winning journalist, he is author of “Purpose and a Paycheck: Finding Meaning, Money and Happiness in the Second Half of Life” and “Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. 

This article is reprinted by permission from  , © 2022 Twin Cities Public Television, Inc. All rights reserved.

More from Next Avenue:

Link to MarketWatch's Slice.