Are ADUs affordable for renters?
According to Wegmann and Chapple (2012), accessory dwelling units typically rent for less than other housing types in the same neighborhood. The American Association of Retired Persons (AARP), the leading advocacy organization for senior citizens, notes that ADUs can be an affordable housing option in most locations when the property owners rent them out. ADUs in Tempe are capped to a maximum livable area of 1,000 square feet in floor area for less than 1-acre sites, which could result in a lower cost of rent compared to larger dwelling units. However, the rent rates are set by the property owners.
Are ADUs affordable for homeowners to build?
According to the Angi website, nationally, the cost of constructing an ADU can range between $60,000 to $225,000. However, according to some local builders who spoke with staff, the average cost of a high quality ADU in Tempe is likely to be between $180,000 - $260,000. The AARP opines that, since the land already belongs to the homeowner, the only cost for the ADU is the cost of construction, effectively making the cost of land free.
Are there housing voucher/affordable housing incentives?
The Section 8 Housing Vouchers are administered by Tempe’s Community Health and Human Services Department. As ADUs will be independently rentable, they can qualify for the Section 8 housing program if they meet the conditions. If the ADU owner is willing to rent the ADU to income eligible person or family, and if the unit meets the Housing and Urban Development (HUD) criteria for the program, the ADU can be rented to a Section 8 voucher holder.
How are Accessory Dwelling Units typically financed?
A Terner Center for Housing Innovation study of over 800 homeowners with permitted ADUs found that the most common ways of financing the ADU were:
- Liquid Assets – 62%
- Mortgages – 43%; of that:
- HELOC/Home Equity Loan – 56%
- Cash-out Refinance – 35%
- Renovation Loan or other Construction Loan – 6%
- Unsecured Debt – 7%
- Other – 3%
Note that these percentage do not add up to 100%, as most ADUs are financed through a combination of multiple funding sources.
What are some of the benefits and drawbacks of ADUs?
ADUs can increase a community’s affordable housing stock and add incremental density in the neighborhood while retaining the character of the primary residences. They provide opportunities for extra income for homeowners, which can be attractive for many families, especially for those on fixed incomes. The ADU can also be used as a multi-generational home, either to house elderly parents, or adult children on the same lot. If the family wishes to downsize, and still live on the lot, the primary residence becomes the rentable option if the homeowners decide to live in the ADU.
There can also be potentially some drawbacks of ADU as perceived by community members. These include concerns for overcrowding, increased traffic, parking shortage, and privacy concerns by neighbors. Access to the ADUs for public safety officials also needs to be made available.
How will an ADU impact my property value and classification for tax purposes?
The addition of an ADU in a lot will generally increase the value of the property as the site will have an additional dwelling unit that can house more people and generate additional income for the property owner.
Property taxes are assessed based on the Limited Property Value (LPV) which, by state law, cannot increase by more than 5% in any year.
Residential properties in Legal Class 3 and 4, including properties with an ADU, have a tax assessment rate of 10% using the Assessed Limited Property Value (LPV). The assessment ratio increases to 16% for duplexes, triplexes, apartments, or the like. A single-family home with an ADU is still a single-family use and is not considered a duplex.
Visit the Maricopa County Assessor website for more information on property taxes.