Cottage's ADU Impact Report

As we march forward into 2023, Cottage's team of ADU experts has stepped back and surveyed the state of ADUs. We've done a deep dive into publicly available permitting data across California to call out some key trends we're seeing across the ADU market today. Our high-level findings include:

• Demand for ADUs in California remains strong in the face of economic headwinds
• There is a large mismatch between ADUs that start the permitting process and the number of ADUs that get built
• Southern California remains the hottest ADU market in the country
• ADUs are heating up around the country as an answer to the housing crisis

Let's take a look at the data!

ADUs are Resilient in a Wavering Economy

Through an uncertain economy, demand for Accessory Dwelling Units (ADUs) continues across California, with the highest uptick seen across Southern California markets.

Overall, California saw a 3% year-over-year increase in the number of ADU permit applications filed in 2022, and there were as many ADU permits filed over the past two years as there were in the four years prior to that. The fact is: ADUs remain a bright spot in light of recent reports describing new single-family home building in California declining year over year. As a net takeaway: 1 in 7 homes built in CA in 2021 was an ADU, and this is increasing.

ADU Projects Often Start But Don't Get Built

As demand grows, local municipalities (which permit the ADUs) and contractors (who build many of the ADUs) have not kept pace with market demand. Recent data shows that for every ADU completed in 2022, roughly three permits were submitted in 2021. Or, another way to look at it: For every three people motivated to invest in creating an ADU across California, only one will have an ADU in the next year.

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This trend is widespread: all areas of California struggle to translate the growth in ADU demand to new housing units.

Indeed, the data shows that it’s quite common for a homeowner to start an ADU project and never cross the finish line. The mismatch between initial demand and what actually gets built underscores the difficulty homeowners, who often are not trained or equipped with the expertise of a real estate developer, have in navigating the complex ADU design/permit/build process. That’s why Cottage exists: to lead the way and get homeowners the ADU they really want, in the face of underequipped local permitting departments and ignorant contractors that abound.

With Cottage around to help, there is opportunity. In California in 2021, 65,000 single-family home permits were approved, while around 30,000 ADU permits were submitted in 2022. If every ADU permit that was submitted in 2022 were approved and built, California would create 50% more new homes every year.

Southern California is the Leader in ADUs

Southern California, and in particular the Los Angeles Metro area, continues to lead the pack with regard to total ADUs permitted and built. Over the past five years, the LA area has consistently received over half – about 60% – of California’s ADU permit applications. During the same period, LA saw 39% more ADU permit applications per capita than the statewide average – and this trend continues in more recent years.

ADU Growth in San Diego remains strong as well. In 2017, San Diego represented only 5% of California ADU permit applications, but that number has increased to near 10% in recent years, and the San Diego Area’s ADU stats per capita now are more robust than other areas of the state, both in terms of projects submitted and projects built.

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On the Horizon

Places across the USA are following California’s lead, with numerous cities changing the rules and opening the gates for more ADUs, including Seattle and Chicago, among others. In California, SB 13 and other impactful pieces of legislation changed the game a few years ago by allowing all California homeowners the right to build and permit an ADU, provided the unit meets certain standards. Other states or cities that follow suit are prime to see similar results.

Jurisdictions across the USA that would like to capitalize on the benefits of a streamlined ADU process should include the following in their policy:

• Checklist containing a concise summary of all entitlement & building-related requirements so that any homeowner can determine feasibility of their vision without reading city code.
• Requirements that conform to the broader region/state and not unique to each individual jurisdiction.
• Digitized submission and permit management process that eliminates the need for time-intensive printing and traveling to and from the city.
• A predictable and transparent plan review process/timeline and the ability to offer an expedited (our outsourced) plan review process for an additional fee.

It’s an exciting time to be considering building an ADU. And, while there are challenges for homeowners, there is also hope. With Cottage at the ready, the path to realizing an ADU is a lot easier.

About the Data

Our conclusions and findings come from permitting data made available to the public by municipalities across California, and has been aggregated and verified by Cottage’s team. Data for 2022 is cited as preliminary until local jurisdictions make final 2022 data available.