ADUs Can Increase Housing Stock, But Most Are Unfamiliar
In the past few years, the housing market has seen a rise in accessory dwelling units (ADUs). A recent Freddie Mac consumer survey that gauged familiarity with and interest in ADUs has found 71% of respondents were unfamiliar with the concept.
Despite this lack of familiarity, once respondents were provided with the definition of an ADU, 32% of those who do not currently own one reported interest in having an ADU on their property in the future. Among those interested in having an ADU one day, respondents are most likely to consider using the unit to host family and guests and earn additional rental income.
As defined by Freddie Mac, an ADU is an additional living area that:
- Includes a kitchen.
- Includes a bathroom.
- Includes a separate entrance.
- Is independent of the primary dwelling unit.
- Is subordinate in the living area.
- Contributes less to the value of the property than the primary dwelling unit.
Examples of eligible ADU configurations include a 1-, 2-, or 3-unit dwelling with an ADU above a garage, a dwelling with an attached or detached ADU or a dwelling with an ADU in the basement.
Top Reasons People Would Consider an ADU*
|Hosting out-of-town visitors||37%|
|Renting to tenants||33%|
|Renting to vacationers (via Airbnb, VRBO)||21%|
|Moving in family permanently with rent payment||19%|
|Moving in family temporarily without rent payment||18%|
*Responses are not mutually exclusive.
Consumer concern about ADUs centers around the difficulty and cost of building and maintaining a unit. About half of surveyed homeowners without an ADU think it would be somewhat to very difficult to create or build an ADU on their current property. Among all respondents interested in having an ADU in the future, the most frequently selected ways to finance the costs of building and maintaining an ADU include leveraging personal savings and collecting rent from tenants.
Top Methods People Would Finance Building or Maintaining an ADU*
|Personal savings and/or checking account||22%|
|Charge rent to tenants||18%|
|Build and maintain unit myself||18%|
|Personal loan from bank||17%|
*Responses are not mutually exclusive.
How ADUs Can Increase Housing Stock
An ADU is a smaller, independent room — or set of rooms — configured to be used as a separate home from a stand-alone single-family home on the same lot. They may add value to a home while also allowing homeowners to collect rental income from tenants. They also provide additional long-term housing options for families in high-density areas where affordable rental housing may not be as available, which underscores the value ADUs may provide to the broader housing market.
As the nation’s affordable housing crisis has intensified over the past few years, the housing market has responded through a rise in accessory dwelling units (ADUs). A 2020 Freddie Mac research insight found that between 2009 and 2019, the number of first-time ADU listings averaged 8.6% in year-over-year growth, and that these dwellings were valued at less than one-third of the price of traditional primary residences.
In the same insight, our researchers found that the scarcity of affordable housing in high-cost areas of the country has resulted in the passing of ordinances aimed at reducing restrictive zoning in some jurisdictions. But demand for ADUs is strongest in a concentrated number of states: More than half of the nation’s ADUs can be found in California, Florida, Texas and Georgia.
Although increasing familiarity with ADUs remains the largest barrier to widespread acceptance, lenders may also consider offering dedicated financing options for ADUs. Simplifying the financial element may encourage more homeowners with the interest and available space to build and rent ADUs.
There are loans designed to help pay for home improvements, including converting a space to an ADU or building a new structure. Though affordability may be a greater challenge given today’s high-rate environment, Freddie Mac CHOICERenovation® is a financing solution that can provide funding to add an ADU to a property.
Freddie Mac’s Market Insights team partners with Heart+Mind Strategies to field its housing outlook pulse survey. This survey, conducted online November 8-10, 2022, included 2,500 interviews. Quotas were used to ensure a representative population on age, gender, ethnicity and region.
Learn about Freddie Mac’s recently updated policies for mortgages on single-family properties with ADUs.
Interested in more consumer research? Gain insights into the housing market from surveys of homebuyers, homeowners and renters in Freddie Mac Consumer Research.