As important as these housing types are, it may surprise you that single-family homes can play an important role in increasing housing supply, too. Or rather, the lots on which these detached single-family homes currently exist. Accessory Dwelling Units (ADUs), also known as mother-in-law apartments, are typically small homes built on the same lot as an existing single-family home or even within the existing home itself. These units can be used for multiple purposes, but typically the homeowner rents them for additional income, or perhaps uses them to house aging family members not ready to enter a retirement community or young adult children transitioning into the fulltime workforce. In some cases, the rental income generated from an ADU is the only thing keeping a person in a home they own.

For many years, most cities banned or made it nearly impossible to build ADUs, based largely on the tired NIMBY arguments about neighborhood character, traffic, parking, or anything else used to justify preventing a homeowner from utilizing their property as they see fit. Recently, a groundswell of cities and some states have legalized, or at least made it easier to build, ADUs. Though these reforms haven’t always been non-controversial – see Montgomery County, MD as an example – communities are increasingly viewing ADUs as a straightforward approach to spur an incremental increase in density without opening a contentious fight over more comprehensive zoning changes.

Though ADU zoning reform is undoubtedly a positive development in the national struggle to make housing more affordable and available, a recent piece by the Urban Institute’s Solomon Greene (who also serves on Up for Growth’s Advisory Board) and Laurie Goodman makes the case that simply allowing ADUs is not enough to boost their supply. As Greene and Goodman note, existing home financing mechanisms are either unavailable or infeasible for many homeowners who would otherwise be interested in building an ADU on their properties. The two most common tools – cash-out refinancing and home equity lines of credit – do not account for the after-renovation value of the property nor the future income it could generate.

Greene and Goodman believe that both governments and financial institutions (and more specifically, Fannie Mae and Freddie Mac) need to develop new techniques and tools to help homeowners build ADUs. They cite a few positive examples, including in Los Angeles and Boston, where cities are stepping up with their own financing to create ADUs for lower-income renters or lower-income homeowners. But these are just a drop in the bucket of the larger challenges with ADU construction.

Margaret Morales, a researcher with the Pacific Northwest-based Sightline Institute, notes that even beyond financing, for ADU zoning reform to result in significant increases in housing, an entire ecosystem must be fostered.

“States could help fund ADU incubators: one-stop shops that help homeowners through the process of building an ADU – everything from financing to permitting to finding the right contractors. This could go a long way to lowering the barriers homeowners face when they think about doing an ADU project,” Morales said. “And the more people that build ADUs, the lower the costs will become.”

Some in the private sector are already taking steps to ease the logistical challenge of building ADUs. San Francisco-based Symbium is a computational law platform that mechanizes the rules and regulations of planning codes to help homeowners, design professionals, and planners quickly determine if an ADU is allowed on a property, what the development standards are, and processes needed to build these units. In Austin, Texas, the Alley Flat Initiative is creating a repeatable “delivery system” for ADUs that includes sustainable designs and innovative methods of home ownership and financing.

Based in rural Mason County, Washington, Up for Growth member Peninsula Credit Union recently began conceiving an innovative program to enable homebuyers and existing homeowners to finance the construction of rental ADUs to beef up the area’s dearth of rental housing supply. Further development of the program is inhibited by the same obstacles identified by Green and Goodman.

“Everybody involved needs to approach this challenge with creative and innovative solutions,” said Peninsula Credit Union President Jim Morrell. “Two years of ADU rental income is the historical proof that the program is going to be supportable going forward. Today, due to the severe shortage of housing, we have a high level of certainty that ADU rental income can be there from day one. Policy makers, practitioners, financing folks, municipalities, and all stakeholders should approach this challenge with innovative thinking.”

Up for Growth Action recognizes the need for a true ecosystem to support increasing production of ADUs. In Washington State, Up for Growth Washington (a state project of Up for Growth Action) is supporting a bill that would provide a limited property tax exemption for construction of ADUs. SB 6321 amends existing law to allow for a three-year exemption for detached ADUs, removing a barrier for some homeowners to add density to their existing lots.

For ADUs, “if you zone it, they will come” is not necessarily the case. Allowing ADUs is a requisite first step in the process, but if it’s the only action taken, ADUs will remain out of reach for most homeowners and, subsequently, renters seeking affordable options. Governments should work closely with the private sector to give homeowners the financing structure and tax incentives needed to build these small homes where they are now allowed.