While the rest of the nation is largely united in its effort to build up housing inventory to ease pricing, California has remained in limbo with its strict zoning laws that prevent new homes from being constructed. The battle between the NIMBYs (Not In My Backyard) and YIMBYs (Yes In My Backyard) extends back for decades. Recently, however, legislators have ushered in new updates to accessory dwelling unit (ADU) laws that are expected to increase housing affordability across the state.
Dennis Doss, CEO of Doss Law and Doss Docs, a private money mortgage lawyer, explains what could have led to the sudden change.
“The federal government has kind of announced that they want states to kind of put pressure on cities to change their zoning laws,” Doss told NMP. “Because in California, 95% of residential zoning is for single family — one house on one lot.”
Given the increasing affordability issues that California faces, including high insurance premiums, rising home prices, and lackluster inventory, legislators passed multiple new laws in 2024 to encourage the development of ADUs.
Assembly Bill 1033 (AB 1033) Separate Sale of ADUs, removed the state-level restriction on selling ADUs, so they can be sold separately from the main residence as condominium units. San Jose, Cali., adopted an ordinance in June 2024 to implement AB 1033; it has not been widely adopted so far.
Assembly Bill 976, No Owner-Occupancy Requirements, allows buyers to continue building rental ADUs and permanently extends the rental unit provisions set to expire in 2025, allowing owners to build rental ADUs on their properties.
Assembly Bill 1332, Pre-Approved ADU Plans, requires all cities and municipalities in California to develop a program for the preapproval of ADU plans, by January 1, 2025. Additionally, the local agency must approve or deny the application within 30 days from the date the local agency receives a completed application for an ADU containing pre-approved plans.
Now that the state has enacted a few laws to make it easier for homeowners with large lots to build, rent and sell ADUs, it creates more opportunity for the mortgage originators to finance those efforts, Doss explained.
“You go to a bank and say that you want to build what they would consider a pool house in your backyard,” Doss said, giving an example. “They go, ‘what are you talking about?’ So we [private money lenders] provide financing to people who want to get the construction done and then refinance their house with a conventional source.”
Doss added that’s a popular strategy for homeowners and builders along the West coast and even further South, closer to Phoenix, Arizona. Yet, the trend has not taken root further inland, since many people commute to cities on the coast for work and do not want to endure traffic, smog, or live in less accessible areas. “We can't keep building further and further out because people then have to commute into work. The solution is to increase density,” he said.
According to the 2023 ADU Impact report, one out of every seven permits issued in California last year was an ADU permit and roughly 20% of home sales were ADUs.
"So one out of seven properties being built today are ADUs in our state, which is phenomenal. And that's only going to increase," Doss said. "If I was an originator looking for that kind of business, I would target communities that were built longer ago — like in the 60s and 70s — that have the small homes and the large lots. Or, [I'd target] some of the areas that were built in the 1960s to 1970s, maybe Mission Viejo."
