Why ADUs Make Financial Sense

The accessory dwelling units (ADU) is an increasingly popular idea which benefits homeowners, tenants and local governments alike. On Oahu, ADUs provide much-needed affordable housing.

Hawaii Life reported on September 14, 2015, signing of Bill 20 by Honolulu Mayor Kirk Caldwell. By mid-January of 2016, there were already 29 ADU applications pending. Since then, interest in ADUs continues to surge, in part because of the financial benefits.

Benefits for All Parties

There are key financial reasons why homeowners, tenants and local governments find ADUs attractive:

Homeowners – Whether it is detached from or attached to a primary residence, an ADU makes financial sense for homeowners in a number of ways. First, the rent paid generates a new revenue stream. Second, many expenses related to an ADU rental unit are tax-deductible. Third, it is an ideal way for a homeowner to build the asset value of their existing property. Since an ADU must be sold together with the primary residence, the homeowner benefits if and when the property is sold. A wide variety of prospective buyers may be attracted to a property with an ADU, including those that like the potential rental revenue and those that need space for another family member like a senior or retiree.

Renters – ADUs are popular, first and foremost, as a source of affordable housing in an expensive market. Also, for some prospective renters, ADUs make financial sense because they mesh with modern lifestyle choices. More and more Millennials, for example, are comfortable living in less than 800 sqr-ft of space at a modest cost, because they would rather spend more available cash on travel and other outdoor leisure activities.

As long as they have the basics like a kitchen, bedroom, and bathroom, a fair percentage of prospective renters on Oahu are comfortable with a smaller living space. Widespread interest in so-called “tiny houses” across the country demonstrates that many people are willing to embrace the idea of living in a home with several hundred square feet of living space. Vaulted ceilings, bay windows, and uncovered lanais help create a feeling of spaciousness.

Local government – ADUs also offer local governments a way to address overall housing needs at modest cost. Since ADUs are dispersed across greater Honolulu, they require only incremental improvements to infrastructure. This compares favorably to the significant investment in infrastructure often required when major housing developments are constructed.

Bill 20 Stipulations

Bill 20 carries stipulations that exclude some properties from ADU development. For example, ADUs are not allowed in planned communities, or in those subject to governance by an association. Also, lots must be at least 3,500 sqr-ft in size. ADUs up to 400 sqr-ft are possible on lots of 3,500-4,999 sqr-ft. ADUs up to 800 sqr-ft are allowed on lots measuring at least 5,000 sqr-ft.

Bill 20 also requires that there be at least one off-road parking space, although there is no such requirement for ADUs within 0.5-mi of a rail station. Finally, ADUs are only possible when there is sufficient infrastructure in place for sewer and water. Since leases must be at least six months long, ADUs are not intended as seasonal vacation rentals.

An article in Hawaii Home Remodeling quoted Harrison Rue, an official with the City and County of Honolulu, suggesting that ADUs are “really trying to address the dire need for more affordable and workforce housing.” He also said it is “one of the first pieces of the housing strategy.” This strategy offers clear financial benefits to all parties involved, including property owners, renters, and local governments.

Owner Build Design LLC is your source for the knowledge and expertise needed when developing an ADU. I bring over three decades of experience to my residential design and drafting services in Hawaii. I offer everything from permit processing services to permit-ready drawings. I would welcome the opportunity to discuss how an ADU could work for you. Please contact me at your earliest convenience.

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