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Is California's ADU Legislation Signaling a New Era in Housing?

On June 11, San Jose became the first city to update its zoning code in compliance with California Assembly Bill 1033, effective since the beginning of the year. This legislation allows local ordinances permitting homeowners to sell accessory dwelling units (ADUs) as condominiums, contingent on cities opting in.


AB 1033 is part of California's broader effort, starting in 2017, to promote affordable housing development, particularly by facilitating ADU construction. Removal of barriers and closing of local loopholes spurred ADU production, which skyrocketed by over 15,000% from 2016 to 2022, with ADUs constituting about one-fifth of new housing units last year.


Initially, most ADUs were built for family use or rental income, and 27% completed since 2018 were deemed affordable for families earning below 120% of the area median income. AB 1033 potentially impacts homeownership rates by boosting the supply of affordable starter homes, crucial in a state where median incomes often fall short of mortgage requirements for lower-tier homes.


The law also offers investment opportunities for existing homeowners, as ADUs are cheaper to build than single-family homes and can yield substantial profits. However, challenges remain regarding ADU condo sales in California, with uncertainties over widespread adoption post-restriction removal.


San Jose's new ordinance, effective July 18, allows homeowners to sell ADUs and primary residences separately as condos on the same property, a significant change from previous restrictions. While San Jose is currently the sole city to amend zoning codes under AB 1033, others like Berkeley plan adoption by 2025.


Past laws like SB-9, allowing lot splitting for single-family homes, saw limited impact due to local guidelines and legal challenges. AB 1033 complements previous reforms easing ADU rental and construction, yet challenges persist, including lender consent requirements for ADU sales and potential impacts on property values.


In conclusion, AB 1033 aims to simplify ADU construction and sales, yet barriers such as mortgage lender discretion and city-specific regulations could hinder widespread adoption and affordable housing benefits. The legislation's success in increasing ADU permits remains uncertain, although it offers new investment avenues for prospective homeowners and investors alike.

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