NYC legalized tiny backyard homes and other extra dwellings. Here’s how they’ve helped homeowners and renters across the country.

• NYC legalized accessory dwelling units in certain neighborhoods as part of broader housing reforms.
• It’s part of a bigger movement to boost ADU construction across the US.
• ADUs offer affordable housing options and boost property values for homeowners.

New York City just became the latest local government to join a nationwide push for more backyard tiny homes and converted basements.

As the US grapples with a housing shortage that’s sent home prices and rents soaring, a growing number of cities and states are turning to accessory dwelling units to help solve the problem.

The secondary units on lots with primary homes — largely in the form of backyard cottages, basement apartments, or converted garages — offer smaller, cheaper housing options, particularly in expensive neighborhoods dominated by single-family houses. They’ve also been embraced by homeowners looking to boost their property values and earn income by renting out their extra units.

New York City’s legalization of ADUs for thousands of homeowners went into effect this week, so we looked at how ADUs have helped homeowners and renters in other places across the country.

The pros and cons of ADUs

The benefits of ADUs start with affordability.

The median rent for a California ADU costs less than 30% of the median income of two-person households in the greater San Francisco Bay region, according to a 2021 survey. And a significant portion of the state’s ADUs were affordable to people making less than 80% of their local median income. Nearly half of California ADU owners said they’ve rented out their unit to short- or long-term tenants, according to one poll last year.

ADUs create opportunities for multiple generations of a family to live together, as they’re often used to house aging parents or grandparents, or adult children. According to the poll of California ADU owners, 61% said they built their ADU to house a family member. ADUs are also often designed to be more accessible for those with limited mobility than other kinds of housing.

ADUs also help homeowners boost their property values and bring in a new source of income. In the biggest cities, the addition of an ADU increases a property’s value by an average of 35%, according to a 2021 study by the National Association of Realtors.

Selma Hepp, chief economist at the property information and analytics firm CoreLogic, converted her backyard garage into a 500-square-foot studio apartment that she rents out on Airbnb. Hepp told Business Insider last year that she brought in about $3,000 per month in income from the ADU — enough to cover the monthly mortgage payments on her primary home.

Developers have also taken advantage of ADU legalization to build more density. In Austin, Texas, real-estate developer Scott Turner replaced a single-family home on a large corner lot with two single-family homes and two ADUs.

But ADUs can be costly to build. Construction typically runs between $60,000 and $285,000. On top of that, local regulations can slow down the approval and construction process, further raising costs.

Even as a real-estate industry professional, Hepp struggled to sort out the rules and regulations on ADU construction in LA.

“It was very stressful because every step of the way, I needed to figure out what the next step was, and it was sort of hard to get a straight answer,” she said.

States jump on the ADU bandwagon

Fourteen states across the country have legalized ADUs. California led the charge and has passed a series of laws expanding and standardizing ADUs and, in some cases, helping pay for their construction. More than 60,000 ADUs have been permitted across the state since 2016.

Oregon and Washington have similarly seen spikes in ADU construction since liberalizing their laws. New York and Vermont have also offered subsidies for some homeowners to build ADUs. Freddie Mac reported in 2020 that the number of homes with ADUs in the US grew from 1.1 million in 2000 to more than 10 million in 2020.

But since most ADU legalization efforts have happened since 2022, their full effects are not yet evident in many places.

And ADU legalization alone isn’t usually enough to prompt lots of new construction. In some cities and towns, local land-use laws, permitting, and other regulations have stood in the way. Owner-occupancy requirements, off-street parking mandates, and discretionary permit reviews are among the most burdensome rules.

In some cases, homeowners have successfully fought the regulations. Malibu homeowners Jason and Elizabeth Riddick fought a multi-year legal battle with their city over their plan to build a 460-square-foot ADU on their property. The couple ultimately prevailed, but Elizabeth Riddick insisted that the city is “not interested in supporting any type of additional housing.”

But as ADUs catch on, pro-housing policymakers and experts say the incremental approach to building more homes is a first step towards solving the nation’s housing shortage.

Nolan Gray, the research director at California YIMBY, called ADU legalization “the beachhead for broader reform” of housing policy because backyard homes tend to be popular with homeowners who’ve otherwise resisted new housing in their neighborhoods.

“You start to de-normalize this idea that 75% to 90% of the typical American city is going to be off limits to any form of multifamily,” he said.

Have you built an ADU? Reach out to share your experience with this reporter at erelman@businessinsider.com.