How ADUs Can Reshape America's Housing Landscape

As has been well-reported in many outlets, the nationwide shortage of housing units has pushed affordable housing options out of reach for many households. With housing costs rising across the country – in both the purchase and rental markets – Accessory Dwelling Unit (ADU) development has emerged as an intriguing way to grow attainable housing supply in many communities. ADUs are smaller attached or detached residential dwelling units that can be located on the same lot as a single-family home – and can be built from scratch as new construction or redeveloped from a structure like a garage.

ADUs have recently piqued the interest of many communities for a few reasons:

1. Allowable Gentle Density within Single-Family Zoned Areas

While there are several relevant variables within a market that can impact the cost and supply of housing, one of the most impactful is local zoning. Zoning dictates how land can be used and what corresponding building types can (and cannot) be built within an area. As such, certain zoning types can be amenable to increased residential development and density. Generally, the predominant residential zoning type in many areas across the country is single-family zoning – in 2019, it was estimated by the New York Times that 75% of residential parcels in American cities are zoned for detached single-family homes. Considering this, ADUs and their multiple typologies – which include detached backyard units or garage conversions – offer a solution to increase housing supply and introduce gentle density into single-family communities without making significant changes to in-place zoning code.

2. Affordability for Homeowners and Renters

Given the variation of ADUs, the cost to build them can range dramatically depending on build-out and square footage. For instance, a conversion of a space like a garage into a livable dwelling unit may cost less than the new construction of a detached unit at a larger square footage. With the appropriate financing, ADUs provide an option for homeowners to earn additional passive income to bring down other housing costs, such as utilities, insurance or property taxes.

Generally, the ability to add or build an ADU to a property is predicated on already being a home or property owner. However, renters also stand to gain – adding ADUs to predominantly single-family markets can inherently increase the supply of rental housing in such markets and stabilize rents.

3. Aging in Place for an Aging Population and Multigenerational Households

Another important factor is the country’s aging population. Current generational trends – retiring baby boomers and millennial-driven increases in home purchasing and household formation – have increased the number of multigenerational households across the country. Depending on preference, health, and finances, retiring households often choose to downsize or move as they age. While some of these households move to Sunbelt or other retirement locations, it has become more common for those in older generations to consider moving in with younger family members. In these examples, an ADU can play an important role in helping families provide general caretaking for older family members while allowing some independence for those aging.

ADUs in Context: Growth in New Jersey

This past spring, Governor Phil Murphy of New Jersey announced a proposed $10 million pilot program to incentivize the development of ADUs. While the program was not included in the final Fiscal Year 2025 Budget, ADUs have been the topic of much discussion in many New Jersey communities looking to increase their housing supply and address the growing issue of housing affordability.

Consider New Jersey’s predominate residential land use and housing typology – detached, single-family homes. According to the American Community Survey, the state has approximately 2 million detached, single-family homes. In theory, each of these homes may have the space to include an ADU. In practice, not every home or household will be able to add an ADU, or some of these homes may be in rural or exurban areas that may not support the appropriate demand or allowable land use for an ADU. In an analysis completed by Regional Plan Association (RPA), if a third of the detached single-family homes in New Jersey’s most transit-accessible communities were retrofitted with an ADU, more than 200,000 units would be added to the state’s housing supply.

Although the state has not moved forward with any form of zoning preemption to allow ADUs statewide, many New Jersey municipalities have added ADU laws, including Jersey City, Newark, Princeton, Montclair, Maplewood, Passaic and South Orange. Notably, the state’s homeowner cohort has become increasingly older over the past decade (see figure below), with more than 50% of New Jersey homeowners now over the age of 55.

As the state increasingly grows older, more municipalities may need to consider moving forward with allowing the gentle density of ADUs to ensure a healthy supply of affordable, age-friendly housing options. While this example looks at New Jersey, many of these trends exist throughout the United States and will need action from the federal, state, and local levels.