After making accessory dwelling units (ADUs) legal by right across the city in most residential zones 18 months ago, City Hall is taking steps to implement a financial program to make it possible for homeowners with modest incomes and limited home equity to afford to build an ADU on their property.
We last reported on the program in July, when the Redevelopment Agency was putting the final touches on a notice of funding availability (NOFA) for nearly $3 million to attract a loan program provider for a two-year pilot program aimed at the city’s Westside that officials hope can thereafter be rolled out city-wide.
The RDA seeks to create a program that offers $100,000-200,000 in low-interest loans for the construction of ADUs that would rent at a rate affordable to someone making 80% or less of the area’s AMI. Equity requirements on the borrower would presumably be low, and grants aren’t currently out of the equation.
The city’s zoning code requires properties with ADUs to be owner-occupied.
After studying the barriers to homeowners building an ADU, city staff found that many homeowners could not afford to finance the construction project. Cost varies on building type, but typical ADUs cost in the neighborhood of $200,000 to build, while modular units can be half that amount.
Many homeowners don’t have enough equity built up to borrow $200,000, staff found, and are being failed by the market. But with an income-producing rental dwelling unit they have the ability to repay a loan.
The $2.9 in public funds attached to the NOFA are intended “to fund programs that provide financial assistance to help homeowners build ADUs in Westside neighborhoods.”
Notably, the NOFA also stated that “RDA funds may be used to make loans or grants to homeowners, pay for staff time, or other expenses associated with providing homeowners with financial assistance to build ADUs.”
RDA Director Danny Walz announced at last week’s Board meeting that he was pleased his office had received three viable proposals from the NOFA applications due on September 27. Two were developers and “program-based,” and the one was an institution and “lending-based.”
While it is looking for a partner to contribute both lending funds and administrative functions for the pilot program, the RDA has retained the right to establish decision-making criteria for awards as well as a process that passes through its loan committee and Executive Board, the City Council.
The pilot program aims to start in 2025 and last two years or until the public funds run out.
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