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Crazy-high rent, record-low homeownership, and overcrowding: California has a plan to solve the housing crisis, but not without a fight

Tanza Loudenback
granny flats California

(After his business failed, homeowner Ira Belgrade built — without a permit — this two-story Accessory Dwelling Unit, or "granny flat," on his property to supplement his income. Then someone turned him in.Tanza Loudenback/Business Insider)

Things were going well for Ira Belgrade in 2009. The Los Angeleno and his wife of more than 13 years ran a successful talent-management company, and they'd recently converted their garage into a home office and rec room.

Then, that April, Belgrade's wife died suddenly from complications related to Lyme disease. "It threw my life into turmoil," Belgrade, now 56, recently told Business Insider. He was left to raise the couple's 2-year-old son, Izzy, on his own.

Meanwhile, the company that Belgrade had run with his wife had collapsed. "My business fell apart and I didn't want to lose this house," he said.

Desperate for additional income, he looked at his new home office and saw an answer.

Like the rest of California, Belgrade's affluent Central Los Angeles neighborhood has a major housing shortage.

In the past decade, there has been an average of 80,000 homes a year built in California — 100,000 units below what's needed to keep pace with population growth through 2025, according to a recent report by the California Department of Housing and Community Development (HCD).

To manage the cost of living, more and more Californians are moving in together, often sharing rooms at twice the rate of the national average, according to the HCD.

Others had the same idea as Belgrade. They, too, thought about turning their extra space into a rentable apartment as an inventive way to make more housing available. These types of residences are formally known as Accessory Dwelling Units (ADUs) and colloquially as "granny flats."

granny flats California

(Belgrade at his home in the La Brea-Hancock neighborhood of Los Angeles.Tanza Loudenback/Business Insider)

But Los Angeles wouldn't grant Belgrade a permit for an ADU. At 6,750 square feet, his lot size just missed the mark required to build, officials said, one of the many Byzantine rules the city applies to ADUs.

"I decided, f--k 'em, I'm going to do it anyway," Belgrade said. To him, the investment, and the risk, would pay off.

He tried to do everything by the book. A "stickler for code and safety," he hired a planner and added a kitchen, French doors, central A/C, and bathrooms to the two-story backyard unit.

In 2010 he rented it out, and it became one of the 50,000 unpermitted ADUs across the city. (Because of strict regulations, only 644 had been approved in Los Angeles between 2003 and 2016.

"It totally saved me," he said. The cash helped cover his mortgage payment.

But over the next several years, Belgrade would go from clandestine landlord to crusader for reform to figurehead of a movement that changed the law.

And while many see ADUs as an antidote to affordable-housing shortages plaguing the country, others are fighting hard against it.

'The consequences are dire'

California's housing-supply slump has driven home prices to levels unseen since 2007, before the dawn of the financial crisis. The current median home value in California is just under $490,000, up nearly 7% from this time last year and more than twice the national median. Homeownership in the state is at a 70-year low.

And it's near impossible to find affordable rental options. Silicon Valley has been hit especially hard. The median rent in the city of San Francisco, one of the priciest housing markets in the country, is up to $4,170.

most expensive metros

(Andy Kiersz/Business Insider)

"In the Bay Area, we've added more than 600,000 new jobs since 2010 but created only about 60,000 new housing units," Jim Wunderman, president and CEO of the Bay Area Council, a public-policy advocacy group, wrote in an op-ed for the San Francisco Chronicle.

"The consequences are dire," he wrote.

It's not just California. New York City's median rent is hovering around $3,000, twice the national median. And cities that were once considered the West's more affordable big markets, like Denver, Portland, and Seattle, are now experiencing some of the fastest-rising rents in the country.

The Census Bureau's most recent "American Community Survey" revealed that roughly half of total US renters in 2015 — about 20.4 million — were spending more than the recommended 30% of their income on housing costs.

US relative cost of living

(Andy Kiersz/Business Insider)

Some cities wonder whether home-sharing services like Airbnb are to blame for the housing crisis at the micro-level, where landlords are evicting tenants in rent-controlled apartments only to list them as vacation rentals for double the price. But research commissioned by Airbnb says the company's presence in expensive cities is only slightly affecting rents and, in fact, helping with affordability by providing additional revenue streams for renters.

Still, Airbnb doesn't solve any shortage of long-term affordable housing, the primary goal of ADUs.

Tilting the balance of power

For nearly four years, Belgrade and his tenants flew under the radar. Then someone anonymously reported his unsanctioned unit.

"I had to submit to an inspection, and at that point they saw everything was up to code, they weren't trying to shut me down or anything, but they said that I would have to change my certificate of occupancy and go through the process," he said. "So I did. And I came up against a brick wall."

Belgrade was told he could make fixes to the unit totaling $50,000, by his estimates, including adding covered parking and fire sprinklers and obtaining a zoning adjustment, but there would be no guarantee of a permit.

But he wasn't willing to surrender to the city's demands, and so began his more than two-year effort to reform the city's strict ADU regulations. He attended town-hall meetings and city-council meetings and met with fellow homeowners, and he soon discovered that an onerous approval process and city and utility fees were discouraging people from building.

Then, in early 2016, Los Angeles' infighting came to a head. A lawsuit between the city and a neighborhood organization, led by Carlyle Hall — a homeowner and former land-use and environmental lawyer in California for over 30 years — launched Los Angeles into "legal limbo" and stalled ADU construction for months. Belgrade met dozens of affected homeowners, many whose livelihoods depended on getting their second units occupied, whether with family or a caretaker or renters.

"These are people who had some hard money loans with interest gathering and they were stopped in their tracks," Belgrade said. "These people were outraged, they didn't know what to do. And they were calling me, and I was trying to help them, and I would cry just listening to some of these stories.

"It really drew me in and next thing you know, I'm this, like, major voice of the accessory dwelling units in Los Angeles," he said.

granny flat quote Bob Wieckowski

(Diana Yukari/Business Insider)

Then, relief. California Sen. Bob Wieckowski wrote a bill that put the state in charge of ADUs. It passed in September 2016, revoking all ADU city-level ordinances — from parking restrictions to fire sprinkler requirements to cumbersome costs — and established a new, comparatively lenient, baseline criteria for approval.

"It tilts the balance of power in favor of second units and the importance that they can play in helping us meet our housing needs," Wieckowski, a Democrat who represents California's East Bay and part of Silicon Valley, told Business Insider. On January 1, 2017, the law went into effect.

Wieckowski sees Los Angeles as the poster child for a new wave of housing development that could help alleviate California's housing crisis.

"I want LA to lead the state in construction of ADUs," Wieckowski said. "If [a homeowner] decided they wanted to get rid of their garage and convert their unit, or build a unit over the garage, or convert their master bedroom into another unit, that's their prerogative and if that's how they want to live — why not?"

But not everyone sees it that way. Some say it takes the power away from local governments, though they still reserve the right to tailor state law to their city by enacting new, less restrictive rules.

Then there are some homeowners, like Hall, who are worried that a "thoughtless" state standard for building ADUs will erode the character and quality of single-family neighborhoods, and accomplish nothing in the way of housing creation.

Creating a 'postsuburban city'

Hall isn't speaking out of turn. In the 1990s, he served as former Los Angeles Mayor Tom Bradley's appointee to the Redevelopment Agency, where he managed $100 million in city funds toward affordable housing.

"There's a certain amount of rhetoric that accompanies these second-unit proposals — 'This will provide affordable housing opportunities and allow people who couldn't buy to buy.' Well, that's just utter nonsense, it's poppycock," Hall said. And it's especially true in Los Angeles' hillside and beachfront areas, he says, where affluent, overpriced properties abound.

But Wieckowski says it's a "supply-and-demand gig." The more ADUs pop up, the cheaper they'll become.

Researchers at the CityLAB at UCLA, a think tank in the university's Department of Architecture and Urban Design, see ADUs as a logical next step in the evolution of modern cities.

UCLA Citylab ADU design

(CityLAB-UCLA and Kevin Daly Architects designed this environmentally friendly ADU prototype called the Backyard BI(h)OME.cityLAB-UCLA, Photekt)

Dana Cuff, the founding director of CityLAB and a professor of architecture and urban design and planning at UCLA, said ADUs are part of a "postsuburban city."

The modern household no longer comprises the bread-winning dad, the stay-at-home mom, and 2.5 kids, Cuff told Business Insider. Instead, college graduates are moving back in, and homeowners need cash flow from renters and space for nannies, caretakers, and aging parents.

"There's just an infinite number of ways our housing should be made more flexible for our complete lives," she said, and ADUs "get the ball rolling."

Cuff's research suggests that ADUs are feasible for 5% to 10% of the 500,000 single-family lots in Los Angeles, enough to make a dent in Mayor Eric Garcetti's goal for 100,000 new housing units by 2021.

While ADUs may be a solution for boosting housing supply in the long term, it's not a quick fix, she says.

"It's a messy process that's going to take time as people try to figure out how to do it efficiently so that the housing that's built there is, in fact, affordable," Cuff said. "The amazing thing about the secondary units is the land is free. It's already there, you don't buy that. And that's the biggest expense in housing today, the land."

granny flats Ira Belgrade

(Belgrade is starting an advocacy group for ADU landlords.Tanza Loudenback/Business Insider)

In 2009, Portland began waiving ADU-development fees, cutting costs by up to $15,000 for the construction or conversion of one unit. Over the next six years, the number of ADU permits in the city tripled, and the measure was recently renewed through 2018 to encourage homeowners to build ADUs. The city says ADUs are now integral to meeting its housing goals.

In New York City, the Citizens Housing and Planning Council has suggested a pilot program to convert up to 38,000 basements in single-family homes into legal apartments. But as the group notes, there would be legal and political hurdles to overcome before a plan like this comes to pass.

"People are naturally, and probably rightly, skeptical about neighborhood change, but I think over the long run neighborhoods are going to find that this is an extremely beneficial change to our single-family-housing fabric from everyone's point of view," Cuff said.

The fight doesn't end there

In March, Belgrade finally received his ADU permit under the new law. But he had to shell out $3,300 in permit and city fees to make it happen.

Still, he doesn't regret building illegally years ago. And the same tenants who moved in six years ago still live there.

"Having renters keeps my family in this house," said Belgrade, who's now remarried with a 1-year-old son.

The fight doesn't end there. Belgrade says he won't fall silent in the ADU community. He's already working to establish a Los Angeles-based advocacy group for fellow ADU landlords called YIMBY, "Yes In My Backyard."

"The business potential is enormous, and serving the public with it. There's a lot that can be done — for-profit and not-for-profit — that really could help increase the housing stock," Belgrade said. "This could be one of the greatest assets to housing that the state of California has seen in generations."

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