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The rise in ADUs

The rise in ADUs
by Brad Cartier, posted in Newsletter

Bills legalizing accessory dwelling units (ADUs) are picking up steam across the U.S., according to Chris Clow of HousingWire. In Seattle. for instance, there was a 250% ADU construction increase in 2022 compared to 2019. Further, Rhode Island became the latest state to propose ADU legislation (bill 2023-H 6082Aaa), allowing property owners to build ADUs without limiting their use to family members. Further, the bill proposes that ADU construction on larger lots would not require permission.

Diana Ionescu of Planetizen reports that Texas is about to pass a bill that would limit almost all restrictions on ADU construction across the state. Under the proposed law, ADUs across the state would not be subject to municipal zoning restrictions. 

Amy Bounds of the Daily Camera reports on Boulder City, NV, which just passed a new local bylaw “easing the rules for ADUs, including removing a saturation limit imposed in specific neighborhoods and increasing the maximum square footage. The council also approved staff suggestions to clarify and simplify the code and streamline the application process.”

Santa Cruz, CA, and Evansville, IN, also passed similar bylaws making ADU construction more permissible.

In California, Erica Werner of the Washington Post reports that over 23,000 ADU permits were issued in California in 2022, compared with 5,000 in 2017. Although California already passed a bill making ADUs permissible, more is in the pipeline. “A number of other bills are being debated in Sacramento, including one by Assemblymember Phil Ting (D) that would allow property owners to sell their ADUs separately from their main houses.”

Recession watch

Politicians are warning that neglecting a deal on the debt ceiling could push the U.S. into a recession, according to Doina Chiacu and Steve Holland of Reuters. “Vice President Kamala Harris and top White House economic adviser Lael Brainard said on Thursday that a default on the U.S. debt of $31.4 trillion would throw the American economy into a recession.”

David Lawder and Andrea Shalal of Reuters report that the U.S. Treasury stated that they expect to be able to fulfill all their payment and debt obligations up until June 1st.

Fannie Mae issued a press release last week outlining that as credit conditions continue to tighten, a U.S. recession remains likely. The release notes that “consumer spending remains unsustainably high compared to incomes and that recession is the typical conclusion to a monetary policy tightening regimen.”

Nicole Goodkind of CNN comments on the above, noting that consumers are beginning to slow down spending as available cash is dwindling and debt is rising. Retail sales, although still slightly positive, slowed to a 31-month low, showing significant deceleration.

Doug Duncan, Senior Vice President, and Chief Economist at Fannie Mae, offers commentary on housing’s role in any forthcoming recession:

“There are select data available to support several alternative views of the path of the economy, though we maintain our view that a modest recession will begin in the second half of 2023…Housing remains exhibit number one for why we expect the recession to be modest. It continues to outperform our expectations, and we expect that its relative strength will help kickstart the economy into expanding again in 2024. Inflation has been resistant to Fed efforts to drive it down, and we view the risks to our baseline forecast as tilted toward more tightening rather than easing – although, for the moment, the Fed has adopted a wait-and-see approach.”

Rent data

A few outlets released their monthly rent data reports showing a continued deceleration of rent pricing across the U.S. Zumper reports that rents continue to stabilize nationally, with one-bedrooms averaging $1,495 (flat month-over-month growth) and $1,842 for two-bedrooms (+0.5% month-over-month).

Rent growth slowing

Source: Zumper (May 2023)

“April marks the sixth month in a row of modest month-over-month changes in national rent prices. The roller-coaster days of the pandemic—with wildly unpredictable price changes tied to mass migrations—are behind us. File that under good news: Armed with a clearer sense of where prices are going, tenants and property owners alike can better plan and budget for the future.”

Lily Katz reports on Redfin rental data showing a similar trend of deceleration. An increase in rental supply and a slight rise in vacancy rates has caused rent growth to cool for the 11th straight month. In April, the median U.S. asking rent increased only 0.3% year-over-year to $1,967. 

Rents peaked last summer

Source: Redfin (May 2023)

Redfin Deputy Chief Economist Taylor Marr comments on the rent data:

“The balance of power in the rental market is tipping back in tenants’ favor as supply catches up with demand. That’s easing affordability challenges and giving renters a little wiggle room to negotiate in some areas…The market has become more balanced, but the scales could tip back in favor of landlords if homebuilders pump the brakes on new construction in response to slowing rent growth.”

CoreLogic released its monthly single-family rent report, highlighting that annual growth stood at 4.3% in March. This marks a year of deceleration, with all tracked metros posting lower annual rent growth. Charlotte, NC, topped the list for the highest rent growth in March.

SFR rent growth slowing

Source: CoreLogic (May 2023)

Finally, Danielle Hale of comments on the rent deceleration trend: “An important factor contributing to this rapid slowing is the record-high new construction of multi-family homes, resulting in an increase of rental inventory. Furthermore, the rental vacancy rate has reached its highest point since the first quarter of 2021, standing at 6.4% in the first quarter of 2023. As more new rental properties are added to the market, we anticipate that the vacancy rate will continue to inch back toward 7.2%, which was the 2013-2019 norm, improving conditions for renter households.”

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