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The financialization of ADUs

You’ve probably heard that Govenor Newsom signed 18 new housing bills, including three related to Accessory Dwelling Units or ADUs. Certainly, ADUs can be a welcome addition to addressing our need for more affordable housing. And it’s easy to be swayed by the cozy names applied to ADUs—stand-alone “granny flats,” “guest houses,” and backyard “cottages.” But we haven’t heard enough about how ADUs and other top-down, one-size-fits-all mandates accelerate the financialization of housing.

I’ll start with some basics about ADUs, move on to who benefits from the new laws, and end by describing the looming threats to equity, intensified by the recent ADU legislation.

Cities have been creating tailor-made ordinances and permitting ADUs for some time. This has included another category called Junior ADUs or JADUs that are part of the existing primary residence, such as an unused bedroom or repurposed garage.

Novato, for example, approved JDUs in 2015. San Francisco passed its first ADU ordinance in 2015. Palo Alto passed its first ADU ordinance in 2017. Adding smaller-sized housing meets the needs for seniors and young professionals. We assume smaller means more affordable, but as we’ll see from the trend to financialize housing, that’s not always true.

Current ADU Legislation

In 2019, despite cities already having ordinances to address ADUs, state lawmakers jumped wholeheartedly into passing more housing legislation, under the assumption that their lofty status gave them greater insights about the problem. However, their new ADU laws chip away at local control, making City Councils, Planning Commissions, General Plans, Housing Elements, and the California Environmental Quality Act increasingly inconsequential.

In her recent article, Sharon Rushton (The Marin Post, October 12, 2019) analyses the shortcomings of AB 68, Assemblymember Phil Ting’s ADU bill. AB 68 eliminates single-family zoning by allowing ADUs on any property. It allows ministerial (by staff) approval of adding two ADUs on a property, without public hearings or comment, and prohibits the city from requiring additional parking when the JADU is a garage conversion.

This new law also prohibits the city from requiring more than four feet of rear or side yard lot space, about the size of your front door, plus a foot; among other impairments to the character, health, safety and well-being of the neighborhood and community.

Understanding Who Benefits from ADU Legislation

Legislators like Senators Scott Wiener (San Francisco) and Nancy Skinner (East Bay) and Assemblymember Phil Ting (West and South San Francisco), and others, use the narrative that we have a housing crisis to promote these laws. Governor Newsom is also on board, claiming that we need to add 3.5 million new housing units by 2025. But their clamor doesn’t acknowledge the fact California population is declining and that California’s growth rate is at a record low.

What is more accurate to say is that we have an affordability crisis, but the housing bills don’t bother to address income discrepancies, living wages, or tax laws.

Readers will recall that many of the 18 bills signed into law originated in the secretive CASA Compact Committee, which was convened by the Metropolitan Transportation Commission (MTC). Its 50-some member roster included the big cities that benefit from unrestrained office growth, but who have failed to address their own housing shortages.

The Committee had a spattering of equity and environmental representatives, but CASA excluded the majority of the 101 Bay Area cities. Instead it was heavy with representatives from the Building Industry Association, developers like TMG Partners, Facebook, Google, The Chan Zuckerberg Initiative (CZI), and ten grantees of CZI.

This brings us to the financialization of housing, where corporate housing becomes the newest big business undertaking and “home” is diminished to a unit of production, a commodity to produce profit.

The financialization of housing, ADU legislation, and the threat to equity

The United Nations Human Rights Office defines it like this.

“Housing and real estate markets worldwide have been transformed by global capital markets and financial excess. Known as the financialization of housing, the phenomenon occurs when housing is treated as a commodity – a vehicle for wealth and investment rather than a social good.”

At the outset, many are celebrating ADUs as the answer to more affordable housing. They profess a return to valuing the concept that “small is beautiful,” to replace the cultural value of “more and bigger is better.” That sounds good, but what are the problems with the ADU legislation?

Consider the following:

• State mandates promoted by big business and financial interests diminish local control and stewardship for community. What big business and legislators called “removing local barriers” is more accurately described as ‘removing environmental laws, local planning and zoning control, and community protections for sustainability.’

• Removing the requirement for owner occupancy, positions ADU’s as just another professional real estate investment to be traded for profit. Eric Filseth, mayor of Palo Alto, writes,

“Right now a lot of Palo Alto ADUs are rented by nonprofessional owners at below market rates—to family, caregivers, and as “social equity rentals” to teachers and artists. But professional investors who buy those properties will rent them out at maximum market rates.”

But that won’t be the case under national, corporate ownership.

SB-13 (Wieckowski) removes impact fees for ADUs less than 750 sf, which means somebody else has to pick up the expense for added traffic, safety, parks, water, and other infrastructure costs. As city taxes and fees go up, the property owner is likely to pass the cost on to the renter or to the taxpayers.

ADUs are appealing because they’re small and we anticipate they’ll be more affordable. But ADUs in the hands of corporate investors and property managers are likely to also accelerate the decimation of the middle-class and exacerbate the gap between the haves and the have-nots.

So while legislators embrace the narrative that we have a housing crisis, that’s not enirely true. Population growth is declining, diminishing the need for more housing. While there’s agreement about an affordability crisis, the new laws do not address the underlying issues of income disparity. The unexamined question of who benefits from turning housing into a commodity for corporate and investor profit is the heart of our crisis.