The National Incentivizing Investment in ADUs Initiative
Background
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The "National Incentivizing Investment in ADUs Initiative" is a multi-state, multi-sector initiative originally founded by Design Coalition Institute following the 2013 update to the zoning codes in our home city, Madison Wisconsin. That update includes new allowances for both ADUs and Cohousing (see the Future of Housing Strategy #2: Cohousing).
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To help assure that the first legal ADUs in Madison would be good models of safe, healthy, accessible, energy-efficient housing, we volunteered to help the first twenty-four low-to-moderate income homeowners through the ADU planning, design, permitting, and construction process.
We were dismayed to learn that even the most credit-worthy homeowners who came to us for assistance "couldn't make the numbers work," between the prohibitively high fees imposed by the city and the limited choice of financial products.
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Our subsequent research identified several individuals, agencies, and organizations that were contributing to a wide variety of ADU research, policy, education, advocacy, and legislative initiatives around the country. We are now collaborating with them to address the three primary barriers to ADUs through "The National Incentivizing Investment in ADUs Initiative."
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Three Mutually-Reinforcing Barriers & Three Concurrent Programs
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Our research has made it clear that the three barriers to ADUs are multi-leveled (local, state, and national) and mutually-reinforcing. That is why the "National Incentivizing Investment in ADUs Initiative" has three concurrent programs, addressing all three issues simultaneously.
Barrier #1: Municipal codes that discourage ADUs
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Program #1: We are developing a series of ADU professional education programs for municipal officials. Participants from around the country will learn about the public participation, administrative, and legal processes involved in updating municipal codes and implementing policies that incentivize ADUs. Our pilot program will produce six sessions per year for two years, with eighty participants representing forty municipalities in each session (dates to be determined).
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NOTE: Our professional education team includes professionals who have participated in both municipal code updates and state legislative processes relative to ADUs, and academics who have extensive experience with development, delivery, and evaluation of professional education programs.
Barrier #2: Lack of financing options for construction of ADUs
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Program #2: We are facilitating a series of roundtables with bankers, appraisers, contractors, nonprofits, and housing finance professionals, including a team from Fannie Mae. Our intended outcome is a menu of financial products and programs that will incentivize private investment in ADUs while assuring fair return on investment for the lenders, fair remuneration for the contractors, and quality results for the homeowner.
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NOTE: Our pilot roundtable identified the need for a combination “construction loan/pre-approved refinance," where the construction loan requires interest-only payments until the ADU is constructed, then the amount of the construction loan "rolls" into a pre-approved, conventional fixed rate single-family mortgage. In addition, we identified the need to update prohibitive property valuation protocols enforced by the secondary housing market/GSEs (Government Sponsored Enterprises that purchase mortgages from local lenders, i.e. Fannie Mae, Freddie Mac, and Federal Home Loan Banks). The preferred protocols would include the estimated rental value of the ADU in the mortgage qualification calculations, both for a homeowner who is building an ADU and for an individual who applies for a mortgage to buy a home that already has an ADU.
Barrier #3: Lack of technical resources useful to the average homeowner
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Program #3: We are developing materials for a website, which will include downloadable plans, construction details, and materials lists for a variety of safe, healthy, accessible, energy efficient ADUs. These materials can be easily modified to meet specific needs and local codes.
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NOTE: The results of our focus group research makes it clear that these kinds of technical resources are essential to help bridge the knowledge gap, communication gap, and the trust gap, between homeowners and contractors. Those gaps discourage both parties from tackling an ADU project.
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