Behind California’s new ‘tiny home’ laws, financing to boost affordable construction

Part of the California legislature’s strategy for rapidly increasing the availability of affordable housing units includes several new and updated laws going into effect in 2024. The laws are designed to expand opportunities for homeowners to build accessory dwelling units (ADUs) or junior ADUs on their existing property.

The intent is to fast-track much needed affordable housing projects without having to go through expensive and difficult rezoning and discretionary approval processes at the local level.

An overview of these ADU laws was provided by Scott Johnson, director of the Napa Sonoma ADU Center. “Every year we see more changes. We keep up with local rules and share them as they come. More are scheduled for 2025.”

Assembly Bill 976

This update to state ADU legislation, signed by Gov. Newsom in October, removed the ability of local agencies to set owner-occupancy requirements for newly created ADUs in exchange for a requirement that any rental agreements for the ADU must be for 30 days or longer.

This exclusion is set to expire Dec. 31, 2024. However, local city and county municipalities may not retroactively require owner-occupancy for ADUs permitted between Jan. 1, 2020, and Dec. 31, 2024.

Assembly Bill 1033

Johnson noted that AB 1033 signed in October allows ADUs to be sold separately from the homes they are associated with — opening the door for affordable homeownership by allowing ADUs to be sold as condominiums.

“Specific rules on how to convert ADUs into condominiums are being left up to local agencies,” Johnson said. “Depending on these rules, homeowners may be able to keep, rent or sell each unit on their property individually.”

Senate Bill 897

A previous housing bill signed in January 2023 set minimum height limits for ADUs and opened the door for the potential of two-story units in some places. With SB 897, all standards imposed on ADUs must be objective. The law clarifies that an objective standard “involves no personal or subjective judgment by a public official and is uniformly verifiable.”

In the past, cities had to allow at least 16 feet for ADU height. For all attached ADUs, the new height maximum is 25 feet — or what is allowable under the zoning code, whichever is greater.

Senate Bill 4

The milestone Affordable Housing on Faith Lands Act passed Oct. 11 ensures that churches, faith institutions, and nonprofit colleges will be able to build 100% affordable housing on their land. It rezones the property and ensures that neither the California Environmental Quality Act nor local political processes can be misused to stop these affordable housing projects.

More ADU loan sources

A variety of ADU financing options have emerged and more are on the way, according to Johnson.

The Federal Housing Administration revealed its new ADU funding policy in mid-October that allows 75% of ADU estimated revenue income to be considered to qualify a property owner when underwriting an FHA-insured mortgage.

This policy sets specific guidelines for appraisers and now enables those seeking financing for ADUs to apply for FHA mortgages for new construction. FHA-approved lenders can immediately offer this new opportunity to prospective homeowners.

Napa County also has a new affordable ADU loan program established in March 2023 designed to address the housing affordability gap. It provides forgivable construction loans for new ADUs in exchange for a commitment to rent such properties to households earning up to 80% of the area median income for five years. Other North Bay counties are also considering — or offering — innovative ADU financing.

Loan amounts range from $5,000 for a studio or JADU to $105,000 for a two-bedroom ADU. Interested parties can apply online at countyofnapa.org/aaduloan.

Building equity with ADUs

Johnson said having more affordable housing benefits businesses, homeowners and renters.

“ADU ownership is a new way for first-time homebuyers to build equity. The trend toward building more ADUs is gaining momentum from a regulatory perspective, based on ADU permit applications filed, with every piece of new legislation providing more opportunities,” Johnson said.

Evidence is mounting to show that more homeowners are implementing various ADU solutions.

The California Department of Housing and Community Development tracks the number of ADU-related building permits issued throughout the state each year. Starting with 2016, some 1,366 permits were reported followed by steady increases in following years. By 2022, the annual total reached 24,857 permits.

Since 2016, some 72,063 permits have been issued statewide and more are expected. When 2023 results are included that could bring the total to date near the 100,000 permit level.

ADU center services

“For most Californians, interest in ADUs begins with a desire to support a growing family, provide a place for senior members or to generate rental income,” said Johnson. “Most people start by reviewing design, layout and floor plan options as they strive to determine what could work on their property. The project timeline for most ADUs takes from 12 to 18 months to complete — with some requiring 24 months or more.”

A model project flow chart includes several stages, from one to three weeks for the pre-work phase, up to six months to develop plans, meet with the city or town planning and building officials, as well as the time it takes for acquiring various permits followed by rounds of reviews. The time this takes depends on how quickly homeowners and their project teams can respond to comments and make revisions before construction can begin.

Johnson said the Napa Sonoma ADU Center assists interested homeowners by providing a free workbook followed by a customized ADU feasibility consultation that includes gaining an understanding of the specific property and local ADU rules.

The center also offers a 10-step process map, outlining everything from making a budget to drawing a sketch to completing an application package to hiring experienced professionals. The how-to guide also goes over planner’s advice, paying fees, getting a permit, building the ADU and scheduling a final inspection before moving in.

“Homeowners give us feedback on how we are doing so we can continue to improve,” said. Johnson.

For nurse Holly Kalua in Santa Rosa, “the ADU Center gave me and my husband confidence to take on and manage a big project and helped us find a CCEDA grant. We wanted an ADU for family as well as traveling nurses and teachers that need a place to stay for a month or more.”

Nonprofit CCEDA (California Community Economic Development Association) is one of CalHFA’s preferred partners offering $40,000 ADU grants to cover predevelopment costs.

Ash Notaney in Fetters Hot Springs said he had never built anything before.

“The Napa Sonoma ADU Center worked with us to navigate the entire process so we would not overlook anything and showed us how to reach out to county planners when building a 950-square-foot A-frame following the ADU center’s planning template,” Notaney said

Expansion to Marin and Solano

Johnson said the Napa Sonoma ADU Center is transitioning from a fiscally sponsored public–private partnership, which currently includes the Napa Valley Community foundation and the Community Foundation of Sonoma County, to a stand-alone nonprofit that will expand its North Bay service area to also include Marin and Solano counties. This will involve a new name and website (aducenter.org)

“Our team has completed more than 540 reports for homeowners asking for our support while also responding to more than 745 emails and handling hundreds of phone calls from those exploring ADU possibilities,” Johnson said. “With demand for ADUs exploding over the past five years, we are excited about adding two more locations in 2024.”

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