Despite the economic tumble following the onset of the COVID-19 pandemic more than a year ago, San Jose homeowners are still forking over hundreds of thousands of dollars to build backyard homes.
Some people build backyard cottages for rental income, while others reserve them for housing older relatives. The small units are art studios and work-from-home offices. Whatever the motivation, business is booming for home builders that specialize in these compact, and expensive, units.
“When state and local regulations loosened on where ADUs could be built, we saw a major increase in ADU permit applications and permit issuance,” said Cheryl Wessling, a spokesperson for the San Jose planning department. “We saw the demand slightly diminish during the COVID epidemic in 2020, but it remained surprisingly robust and we anticipate continued demand for ADUs.”
Wessling noted the city was off to a “brisk start” this year.
Last year, the city received more than 600 permits for the accessory dwelling units, also called granny units, which allow property owners to build a detached, smaller home on their property. In just the first two months of 2021, the city received 179 applications, putting it on track to receive about 1,000 applications to build by the end of the year.
But the increase is only making a small dent in the city’s housing needs.
One of the goals of making it easier to build an ADU, city officials said, was to help increase the affordable housing stock in San Jose. The initial goal, set in 2017, was 25,000 housing units — 10,000 of them affordable — by 2022.
Easing permit requirements
A lot of effort has gone into making ADUs an easier option for many San Jose homeowners, but with costs nearing $200,000 it remains an inaccessible option for some.
In 2019, the San Jose City Council considered a $5 million loan program to cover the costs of permitting and fees, but abandoned the plan after housing officials cited concerns that it might not be enough to incentivize homeowners to build an ADU.
The idea has instead been left up to area nonprofits, including Housing Trust of Silicon Valley, which already offers classes to homeowners wanting to build an ADU. The organization will soon offer financing options to homeowners who pursue an ADU project of their own.
In 2017 city officials streamlined the permitting process, including dedicated planning appointments and a priority application with the city planning office.
San Jose also now has seven pre-approved builders with granny unit models that don’t have to go through the city’s master plan approval process. Just 18 months ago, the only builder allowed to construct these units in San Jose was Abodu, a Redwood City-based housing start up.
“We now have projects in over 15 cities in the Bay Area,” said Abodu CEO John Geary. “San Jose is still the clear leader: They have done so much from a process standpoint to make it easier for homeowners and builders … architects, designers and what not, to get projects built.”
The city is also reviewing applications from three new vendors, who will offer their own pre-approved building plans. Wessling said a few builders are in the process of submitting additional floor plans.
Abodu, for example, has three building plans pre-approved by the city, ranging from a 325-square-foot studio to a 610-square-foot two-bedroom. Another builder, Acton ADU, has four plans to choose from, ranging in size from one to two bedrooms.
“(San Jose) is committed to getting units in the ground, and getting it done,” Geary said. In other cities where his company works, he said, it can still take six to eight months to get a permit.
The current market
An informal analysis by San Jose’s planning department in October 2019 showed a total of 23 ADUs for rent in the South Bay on Craigslist. The rent for these units was, on average, a bit more than $1,800 per month.
A follow-up analysis performed by San José Spotlight reviewed more than 50 listings available on Craigslist in Santa Clara County this month. Data shows the average rent for an ADU across the South Bay is about $1,900; the average size is about 460 square feet. The average rent in San Jose, where there were 20 listings, was slightly lower at about $1,700 per unit.
According to the apartment listing website RentCafe, the average one-bedroom San Jose apartment goes for more than $2,400 per month.
Obstacles still exist
For homeowner and San Jose State retired professor Terry Christensen, the process of building his 540-square-foot backyard cottage took about two years. But just getting a permit took nine months back in 2019.
These days, applications take about 20 days on average for approval, according to the city’s housing department.
People do walk away during the process, though city officials say it has less to do with the bureaucratic hoops than cost.
“Some people drop their projects after applying,” Wessling said. “Some Stanford researchers did a survey in early 2020, working with us, that shows reasons can vary, but the unanticipated cost of construction was a major factor.”
“I guess if (my husband and I) had known what the ultimate cost would be, we wouldn’t have done it,” Christensen said. “Like any home improvement project, the cost increased as we went along.”
Christensen and his husband budgeted $5,000 in fees, but ended up spending more than $14,000 when the process was finished. The actual construction of the backyard home cost more than $250,000.
Christensen said he rents out the unit part-time to a Bay Area worker commuting from the Lake Tahoe region. He expects if he rented out the unit full time, he could charge anywhere between $2,000 and $2,500.
“Even though it’s expensive to do, not just the permits — but also building and labor — even at those rates, somebody could significantly supplement their income with rent and provide some housing,” Christensen said.
This story has been updated.