The notion of owning a home as part of the American dream is colliding with the reality of elevated housing costs and low earnings. Renting is the only option for many, and rental markets across the U.S. have reached an all-time high. Current prices for apartments in highly desired urban areas like Los Angeles are averaging $2,200 per month for a one-bedroom unit. If you want a one bedroom in New York City, be prepared to shell out around $3,100. Even in the nation’s capital, single bedroom rents easily average above $2,000 a month. In April 2014, the New York Times published a story on how high rents are making it particularly difficult for the aging and retired populations in large cities like New York to find affordable housing. Factors contributing to the lack of affordable housing are endless and include high unemployment, gentrification, deficient inventory and government regulation.
As a solution to the housing shortage, some local jurisdictions are experimenting with alternative affordable housing types called granny flats, also called accessory dwelling units (ADUs). These are smaller homes located on the same lot, usually in the rear of a single family home in a planned neighborhood. The adoption and zoning for these types of structures is causing a stir in some California neighborhoods. Homeowners against building them argue that accessory homes alter the integrity of the neighborhood. A Los Angeles Times story last month discussing the advantages and disadvantages of allowing granny flats, noted,
[r]esidents are right to worry about the size and location of second units being built in areas zoned for single-family homes. Cramming outsized units onto a block, with some of them visible from the facing street, mars the character of a neighborhood and possibly harms the investments of all the homeowners nearby.
Cities that promote granny flats provide guidelines to ensure that the single-family character of the principal home will be retained. For example, in Fairfax, Virginia, the City’s zoning regulations allow for one accessory dwelling unit to a single-family house. The units are restricted to owner-occupied properties where at least one occupant is 55 years of age or older or at least one occupant has a physical or mental impairment and the accessory dwelling units require a public hearing and approval by City Council.
Seattle’s zoning code also requires an accessory dwelling to be owner-occupied with the owner living in the main house or in the accessory home. The space is limited to 800 square feet in a single family structure, with at least one off-street parking space.
Aside from building a separate stand-alone structure, homeowners have several other options, including basement conversions, garage apartments, carve-outs, attic conversions and bump-outs for expanding their homes to add livable space. These options may increase tax assessments but can also offer tax incentives and savings.
Florida offers a “Granny Flat Assessment Reduction.” Under the assessment reduction program, "homesteaded property owners who add living quarters for a parent or grandparent can apply to have all or part of the value of this new construction deducted from the assessment.”
In Portland, Oregon tax administrators created an incentive to promote construction of detached ADUs by waiving system development fees for residents through July 31, 2016. However, taxpayers have complained that property tax increases have offset the savings from the waiver. Local newspaper, The Oregonian reported in November 2015, that assessed home values and market values have been adjusted to reflect the current values of the entire property, the principal home and the detached accessory home addition, where previously only the assessed value of the accessory unit was adjusted.
In an effort to create affordable housing in the nation’s most expensive cities, proponents of granny flats believe them to be cost-effective and easier to put in place than large housing developments. Despite the efforts, policy makers should be prepared overcome resistance from residents who want to preserve the character of their communities and avert property tax increases.
Continue the discussion on LinkedIn: Are granny flats and similar tiny housing structures a viable solution to the housing crisis?
For more information about state tax issues, sign up for a free trial on Bloomberg BNA’s Premier State Tax Library.
By Cynthia N. Wells
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