ADU stand for Accessory Dwelling Unit, and these have popped up as potential solutions to the housing shortage. Here's my take on the latest updates from the state of Massachusetts regarding the zoning changes for these units.
Transcript of Video
Today's inside real estate video will take a look at a rapidly evolving area of real estate in Massachusetts: ADUs. If you don't know what ADU stands for, this video is for you. If you want to hear about the updates that Massachusetts has recently made regarding ADU laws, then we're going to go into them, at least on a surface level, and talk about ADUs in general. As I mentioned at the beginning, if you don't know what an ADU is, it's an Accessory Dwelling Unit, and these have gotten a lot of attention in the press. Some of this is a function of the small house boom, the tiny house boom, that we've seen.
What an ADU is, basically, is an apartment. Most people who have looked at housing in Massachusetts recognize that, like most areas of the country, we have zoning. What that means is in areas where you have single-family homes, there are just single-family homes. You can't have an apartment on that particular property, but the ADU laws threaten to change that, and we'll talk about whether or not that's a good thing or a bad thing, or what the likely impacts are short term and maybe even a little bit long term. We'll try to think a little bit ahead because I'm not sure a lot of people are, but we'll take a look at that. An ADU—and for the rest of this video, I'm just going to call them standalone apartments because that's easier—that's really what they are. They're standalone apartments. Typically, they're around 900 square feet. They can be rented. It can turn single-family zoning into two families only. Essentially, that's basically what it does.
In today's video, we'll talk first about the news that came out, and we'll talk a little bit more about the restrictions that are still in place, despite the fact that Massachusetts has moved the ball forward here. Again, we're going to talk a little bit about whether or not this is a solution to the housing problem, or what kinds of other problems it's going to create. We're going to look at that, too.
Some time ago, I want to say last year around this time, Massachusetts said that ADUs are legal. Now, if you think that that was super helpful, it was not. The reason it's not is because building and zoning is primarily managed and developed by the towns themselves. It's not managed by the state. We don't have a statewide building code. We don't have statewide zoning. Now, there are exceptions to this, like Massachusetts has overrides like 40b, a classic zoning override that most people understand, and that's said at the state level. At the end of the day, it still gives cities and towns a lot of options for how to work around the state law. ADUs are going to be no different. At the end of the day, your local town or local municipality is going to decide what's legal around ADUs and what's not legal around ADUs. What happened this week is that Massachusetts came out and said they had guidelines for how the towns might want to draft their ADU laws. Basically, they said, "These are things that you should probably have in your ADU law, and these are things you should not have." Then they're going to submit them to the state, and the state will say yes, that complies with the law, or no, that does not comply with the law. But in the meantime, a lot of towns are going to set it out and wait to see what's legal and what's not legal. All of this is probably still going to take quite a bit more time. Some towns already have ADU laws, and I think one of the more interesting things about this is no one really knows what the state's going to do about pre-existing ADU laws. Are they going to say, "Well, they're okay because you wrote that before we wrote this?" Or are they going to say, "Well, you have to make changes because you're no longer in compliance with the state guidelines?" Nobody knows yet. In a lot of ways, this has gotten messier instead of cleaner.
Right now, what I can tell you for sure is that just because you went to Town A and they said yes, you can do this with very requirements, don't assume that that means Town B will say the same. Right now, the towns are going to be all over the place with what they're doing. I suspect a lot of them are going to try to tell you that right now, they don't know enough information to approve anything like that. If you've gone to a town to get something approved, you can't usually say, "Hey, I want to put this house on this lot. Can you tell me if I can do that?" That's not really how it works. What you have to do is submit the entire plan, the entire engineered plan, to the town, and at that point in time, they decide which part of the zoning piece they have to look at, whether or not it makes sense from the town's perspective and the town's zoning and building guidelines. A whole bunch of other people get in the way, depending on the land. If it gets subdivided and you talk to the neighbors, or if you need a variance, then there's a whole bunch of neighbor protocol, wetlands, and all sorts of reasons why that process takes a long time. ADUs are now going to add another level of complexity. I know a lot of people are going to rush down to their Town Hall, and they're going to say, "Can I do this?" And the town is going to go, "Maybe we don't have enough information to tell you yes or no." Even if you submit it, they may turn around and say, "The problem is, we don't know what our law is going to be, and so we're not quite sure what to tell you here." I expect that there is just going to be a lot of confusion around this. I'm going to close this video with talking about whether or not ADUs are going to be a useful solution for solving the housing shortage that we have in Massachusetts.
On the surface, it seems to make sense. Ultimately, this should create more housing stock, and that should make it so if you increase the number of houses, that should help to stop the rise of home prices. I'm not really sure that we're ever going to see so many ADUs that it starts to push it in the other direction, but you get the idea. More housing stock should allow for more people to live in the state. But there are obvious problems here as well that I don't think people are really thinking about. First of all, if I put an ADU on my property, my total property is now worth quite a bit more. So, when I go to sell that, it isn't going to be less expensive. It's going to be more expensive because I have this ADU sitting on the property. For homes that go the ADU route, their properties are going to go up in value. I'm not going to get into how much or whether or what that means you should immediately put an ADU on your property. Building anything is very expensive. You should have a longer time horizon. You're going to have to figure out, just like every builder does, how to build these without spending too much relative to the rent that you're going to collect.
It's a lot of stuff to think about here. It's just not as easy as adding more housing stock, and then everything gets cheaper. I'm not sure that that's going to work as easily as people are telling you today that it might. The other problems that we're going to run into are that this is going to bring a lot of people who are not experienced landlords. I've got absolutely nothing against people going out there and doing this for the first time. But if you build an ADU, let's say it costs you $100,000, and your plan is that you're going to collect, say, $1,000 a month in rent, that's a good plan. Hopefully, you can get $1,000 a month in rent. But what if you do it for a year and you don't like being a landlord? What if the tenant stops paying you, and now your whole mortgage, your whole house, is in jeopardy because you're not quite sure how to get rid of that tenant or how to get the tenant to pay? Maybe the tenant has a right to stay because you're not a particularly good landlord. There are a lot of issues here, and I suspect that we're going to see a fair number of stories because most of the time when people buy multi-family housing, they either have some expertise or some desire that they're going to learn that particular segment of the market, and it's very learnable. I don't think it's a huge deal, but I think that this is going to encourage a lot of people who are not really thinking about the difficulties and the risks that are involved in renting to someone who lives 10 feet from their door.
