Much ADU About Something? Evidence from a Recent Reform

• In Event: Place-Based and Housing Supply Policy: Market and Health Impacts

Abstract

Rising housing costs in U.S. cities have prompted a new wave of residential zoning reform, with states playing an
increasingly central role. To avoid the political friction often caused by large-scale apartment developments, many have turned to accessory dwelling units (ADUs) as a way to increase density. ADUs are secondary dwellings built on single-family lots, and can be either attached to or detached from the primary structure on the property. While localities in states like California, Oregon, and Washington have recently mandated more flexible ADU rules, there is still limited causal evidence on whether these reforms actually lead to more construction or how they affect the surrounding neighborhood. Understanding these outcomes is essential for policymakers trying to balance housing affordability with local concerns.

We study Seattle’s 2019 ADU reform, which significantly lowered barriers for ADU construction by reducing minimum lot sizes and removing requirements for off-street parking and owner-occupancy. Using a rich dataset that combines city permit records dating back to 1994 with property transaction data from CoreLogic and the King County Assessor, we track not just where ADUs were planned, but where they were actually built. This data environment allows us to observe construction more accurately than many previous studies and offers a long-term view of how the market has evolved.

To analyze the reform's impact, we use several distinct approaches. First, we model how property characteristics influence whether owners choose to build attached or detached units and how those preferences changed after the reform. Second, we estimate the direct effect of adding an ADU on a home's market value using observations of properties with repeated sales in our sample. Next, we use a natural experiment created by the reform’s new lot-size threshold to measure the value of having the option to build. To do this we compare properties that were newly eligible to build with those that remained just under the size limit. Finally, we measure whether new units create negative effects for neighboring homes.  

We document a sharp increase in ADU permit applications following the reform. We find that post-reform, ADUs are increasingly built on smaller lots in less-dense areas farther from transit. Constructing an ADU raises a property's value by approximately 37%, with detached ADUs generating larger gains than attached ones. Even properties that have not yet built a unit saw a 4% increase in value simply because they gained the eligibility to do so. Crucially for the policy debate, we find no evidence that new ADUs lower the property values of neighbors or create "nuisance" spillovers.

These findings suggest that making ADUs easier to construct is an effective tool for expanding housing supply. As state legislatures weigh more aggressive interventions into single-family zoning, the Seattle experience provides an example of a model that increases housing density and property wealth without harming the character or value of existing neighborhoods.

Author

• Anya Tarascina, NERA
  Presenting Author