Accessory dwelling units — which are sometimes used as a senior housing option — became much more commonplace across the United States between 1997 and 2019, with certain markets emerging as hotspots.
In particular, cities in the South and West are prime locations for accessory dwelling units (ADUs), according to first-of-its-kind research from Freddie Mac.
A variety of terms are used to describe ADUs, including “granny pods” and “granny flats,” because older adults sometimes live in them to be close to their younger family members. ADUs also take a variety of forms. Some, like refinished attics or spaces over garages, are attached to a single-family home. Others are detached, such as carriage houses or prefabricated “tiny houses.”
Senior living developers and operators have kept an eye on the rise of so-called “granny pods,” seeing them both as a threat and opportunity. Their popularity could pose a threat to senior living, insofar as they enable more older adults to age-in-place without making the move to a communal setting, either by living in ADUs themselves or constructing them and renting them out. On the other hand, some providers are expanding their community-based services to reach older adults wherever they are living; if granny flats increase the density of older adults living in a given geographic area, it could facilitate more efficient service delivery.
Historically, ADUs often have been created in spite of local laws and regulations that prohibit them, making it difficult to track how many accessory dwelling units exist in the United States. Freddie Mac’s approach was to analyze property descriptions created by real estate agents on the Multiple Listing Service (MLS), flagging a wide range of terms, including “guest suite,” “casita,” “in-law suite” and others.
In total, the analysis revealed 1.4 million distinct single-family properties with accessory dwellings. Between 2009 and 2019, the number of first-time listings of ADUs grew by an average of 8.6% year-over-year.
“In terms of numbers sold, less than 9,000 or 1.1% of homes sold on MLS in 2000 had ADUs,” Freddie Mac’s Insight Report stated. “By 2019, sales of homes with ADUs grew to nearly 70,000 or 4.2% of homes sold on MLS.”
Rental listings with ADUs also increased; 1.8% of rental listings included an ADU in 2003, versus 4.1% in 2019.
The growth of ADUs was most dramatic in southern and western regions of the country that have seen population growth and tight real estate markets, Freddie Mac Vice President and Chief Economist, Economic & Housing Research Sam Khater told SHN.
“The growth is happening primarily in the Sun Belt states and some coastal, unaffordable markets,” he said.
The top 5 metro markets for ADU growth between 2015 and 2018 all are located in in the South or West. They are:
Freddie Mac was not able to analyze any demographic data to reveal the average age of ADU occupants, Khater said. Local development offices do in some cases have demographic data, and this suggests that the age distribution of ADU occupants generally reflects the age distribution of the general population in that area — in other words, there is not a preponderance of older adults living in accessory dwellings.
But, there is anecdotal evidence that ADUs are a popular way to facilitate intergenerational living, Khater noted.
Going forward, Freddie Mac will continue to analyze ADU data, and Khater sees reason to believe their popularity will continue to grow. Some municipalities have relaxed restrictions on ADUs in recent years, for example, as a way of relieving pressure on real estate markets. And, Freddie Mac does allow some rental income from ADUs in its own loan underwriting, setting standards that banks and other lenders can also use.
Still, there are some question marks. For instance, ADU growth appeared to plateau in the 2018-2019 time period, Khater noted. The reasons for this are unclear; rising mortgage rates could be one factor, although ADU prevalence grew during previous periods of rate increases.
Still, he sees that a longer-term demand trend for ADUs, and highlighted their flexibility as a key virtue, and one that current uncertainties in people’s lifestyles and finances might make even more valuable.
“They could be used for extended family, for rincome, for aging parents, so I think the nice thing is that they provide flexibility, which is often needed when you have changing circumstances,” he said.