Small homes, often referred to as ADUs (Accessory Dwelling Units), are becoming a hot choice for new homeowners. These additional units can be independent micro-homes, such as studio apartments, or they can be tucked away in the backyard, above the garage, or in the basement, with sizes exceeding 2,000 square feet.

As states encourage ADU construction by altering zoning regulations and homeowners seek to reduce housing costs by renting out these units, ADUs are becoming increasingly popular. According to data from the construction permit company Builty, the typical cost of building an ADU is around $100,000.

Scott Verdell, Senior Vice President at John Burns Real Estate Consulting, states, "ADUs have evolved from being a niche market to becoming a more influential part of new housing." Municipal authorities, existing homeowners, and developers are all showing interest in ADUs.

More and more residential builders are offering ADUs as amenities. Chris Bley, Chief Investment Officer at investment firm IHP Capital Partners, notes that in a new residential community, Alpire Springs, in Saratoga Springs, Utah, half of the homes have ADUs in their basements, at an additional cost ranging from $35,000 to $70,000.

According to a 2020 study by Freddie Mac, there are approximately 1.4 million single-family homes in the United States with ADUs, but the actual number may be higher. Tracking these homes can be challenging due to the variety of names used, such as Casita, backyard cottage, or garage conversion. Some homeowners even build ADUs without permits.

As ADUs continue to grow, homeowners and renters across the United States are working to address housing shortages and high housing prices. Policymakers see adding housing units on existing lots as a way to increase housing supply. In recent years, California, Oregon, Maine, and several other states have passed laws encouraging ADU construction.

According to Builty's data, in 2022, eight major West Coast metropolitan areas, including Los Angeles, San Francisco, Seattle, and Portland, Oregon, collectively completed, processed, or reviewed approximately 26,200 ADU permits, marking a nearly 15% increase from the previous year.

Residential builders are driving this growth. Daniel Fena, Chief Marketing Officer at California-based William Lyon Homes, states that in a master-planned community, William's Ranch, near Santa Clara, California, approximately 20% of buyers choose floor plans that include ADUs, with additional costs ranging from $80,000 to $100,000.

According to a 2022 survey by Freddie Mac, hosting out-of-town guests or renting to tenants is the primary reason consumers consider building ADUs. However, many homeowners also use them as home offices or for other personal purposes.

However, ADUs alone cannot solve the housing shortage problem. For many individual homeowners, building an ADU may be too expensive, and small homes may not be suitable for many renting families. Additionally, some homeowners may not want to deal with the responsibilities of being landlords.

In summary, while ADUs are not a universal solution to housing supply issues, they are gaining popularity among consumers.