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ADUs Can Now Be Sold Separately In California

Keith Griffin
Oct 20, 2023
California cottage ADU

‘Backyard revolution’ opens up the affordable housing market.

California Gov. Gavin Newsom has signed into law Assembly Bill 1033. It allows accessory dwelling units (ADUs) to be sold separately from the homes they are associated with, in effect creating two- or three-unit condominiums.

The bill’s sponsor, Assembly member Phil Ting (D-San Francisco), says the law opens the door to affordable homeownership by allowing these tiny homes, cottages, or casitas to be sold as condominiums. In a press release, he said this continues the momentum of California's “backyard revolution” for affordable housing.

“Signing AB 1033 into law will help families burdened by high housing costs. Our children won’t have to move out of state to purchase a home; employers will be able to attract and retain workers who would otherwise leave our state due to lack of affordable homes; and elders who want to downsize and stay in their communities will have new options,” said Denise Pinkston, president of the Casita Coalition, a statewide group looking for affordable housing solutions.

The California Department of Housing and Community Development (HCD) reports the ADUs are needed because California’s housing production is not keeping pace with demand. In the last decade, fewer than half of the homes needed to keep up with the population growth were built. Additionally, new homes are often constructed away from job-rich areas. 

Citing HCD data, the San Bernardino Sun reported, “Statewide, there were 44,532 ADU building permits issued during the three-year period (2020-2022). Of that total, Los Angeles County issued 26,351, Orange County issued 3,539, Riverside County issued 1,136, San Bernardino County issued 1,531 and San Diego County issued 5,120 permits for ADUs.” 

The article also said specific rules on how to convert an ADU into a condo are being left up to each municipality. “This satisfies the affordable housing element,” Al Salguero, real property division manager at the Orange County Assessor’s Office, told the publication. Assuming all the local condo conversion compliance boxes are checked, homeowners with ADUs can keep, rent one or all the units or sell one or all the units.

As reported by NMP earlier this week, the Federal Housing Administration (FHA) under the U.S. Department of Housing and Urban Development (HUD) has unveiled a groundbreaking policy to bolster housing affordability and increase homeownership opportunities. Lenders can now include rental income from ADUs when assessing mortgage applications. This would benefit California homeowners converting the ADUs into condominium units.

Additionally, the policy sets specific guidelines for appraisers and introduces ADUs to FHA mortgages for new construction. The immediate implementation means that FHA-approved lenders can immediately offer this new opportunity to prospective homeowners.

FHA Deputy Assistant Secretary for Single Family Housing Sarah Edelman underscored the policy's flexibility. She indicated that it would enable 75% of the estimated ADU rental income to be considered for some borrowers, making it easier for them to qualify for an FHA-insured mortgage.

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