How ADUs are changing the housing landscape

The popularity of accessory dwelling units, or ADUs, has soared as homeowners try to extract extra value from their property. They are also providing cities and states another way to add housing inventory amid a supply crunch. Airbnb Co-founder Joe Gebbia sees so much potential growth in ADUs that he started a new company, Samara, to help homeowners build these second dwellings. In an interview with Yahoo Finance's Akiko Fujita, Gebbia tells why he thinks the future is bright for ADUs.

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Video Transcript

RACHELLE AKUFFO: In our final installment of Real Estate The New Reality, we're taking a look at the issue of housing affordability and how one unique class of homes are addressing the issue. They're known as accessory dwelling units or ADUs for short, and they're being developed at a rapid rate across California. Akiko Fujita joins us from Los Angeles, outside one of those ADUs. Hey, Akiko.

AKIKO FUJITA: Hey there, Rachelle. You said those three letters, A-D-U. That has become a critical part of the real estate conversation here in California. And put simply, they are backyard units that function much like a single family home. We are actually inside one here. This used to be a two-car garage. And the homeowners have convert it into a 500-square-foot space.

You see we've got a kitchen here. You walk over to that corner. We've got the bathroom. And then I'm going to give you a quick tour on the other side here because there is a bedroom also attached to this unit. All of this done in the back yard here. And the reason we are seeing so much growth in these units is because of a law that changed back in 2017 here in California legalizing the permitting of ADUs. And the numbers really tell the story.

Last year alone, 23,000 permits for ADUs issued here in California. That is a 60% jump year on year. Here in LA, the numbers were even more staggering. The number of ADU permits issued were five times that of single family homes. And the growth has become so big here. Even the co-founder of Airbnb, Joe Gebbia, has jumped in on this space. He launched a company called Samara last year. I spoke to him about the opportunity he sees in this space. Take a listen.

JOE GEBBIA: You can say that the idea of ADUs has become culturally popular, especially since the pandemic, because people's values towards their homes have shifted. They've changed. 58% of Americans still spend at least two or three days a week working from home. And currently, one in every five households throughout the United States has two adult generations living together.

So these are big shifts in the way that people think about home. And I think as we've seen these changes, we've also seen governments get behind this because ADUs to governments are providing horizontal density throughout cities and neighborhoods. And so governments have changed laws to make it even easier for people to get ADUs. In fact, they're basically making it a right to have an ADU in your backyard.

And as you mentioned in California, they changed the laws in 2017, and since then have had a 17x increase in permit applications. That's phenomenal growth. And so I think it shows that there's a demand there. And that the easier that you make it for someone to have an ADU, there's clearly a market.

AKIKO FUJITA: So talk to me about how Samara fits into this market. Because you've got a template in place. How does it all work?

JOE GEBBIA: So the way it works is you go to and you configure your backyard unit. We have a studio, a one bed, and a new two-bed unit. And so just like you would configure a Tesla online, you configure a Samara backyard unit. And when you hit order, we receive your order and we go through a process where we handle everything for the customer.

So that's both the construction of the unit in our factory. But it's also the hard stuff, the heavy lifting, the things that homeowners don't want to deal with that includes permitting, soil samples, utility hookups, and a very long list that a lot of consumers-- when they see that list, they say, you know what-- they throw their hands in the air and they say, I'm not an expert in home construction. I don't want to deal with this.

And so what we decide as part of the Samara brand is that we would take care of not only the structure, but also the service, also everything that gets in the way of people saying, well, I'd like to have this extra space in my life. So we decided to do everything. And so after we get the order and we go through the whole process, we produce in our factory. We ship it on our truck and we crane it in to the specified backyard.

AKIKO FUJITA: I know it's been just over six months since official launch. What does that demand picture look like? And how concerned are you about that pulling back along with the demand in the housing market overall?

JOE GEBBIA: Well, they're all commensurate. But I think what you'll find in what we've seen with people who want ADUs is that it's actually a phenomenal income generator. And the majority of people get an ADU in their backyard to rent it out and to generate income. So it's a trend that I saw at Airbnb of hosts renting out backyard units.

And it's a trend that we see more and more now that we're in the industry because it's kind of a no-brainer. If you're a homeowner, you've already paid for the land. And now that we've created a simple offering where you can literally just order online and we handle everything for the consumer and for the homeowner, it's a fairly clear proposition of a way to make some extra income.

AKIKO FUJITA: When you think about how the law shifted in California specifically, it was about addressing the housing crunch, the shortage there, and having more units. But I'm looking at a price point for Samara. And correct me if I'm wrong. It's roughly what? $300,000 if we're looking at a one-bedroom to two-bedroom unit.

JOE GEBBIA: That's right.

AKIKO FUJITA: I mean, it's a pretty high price point even if we're looking at additional housing trying to bring the costs down. I mean, how significant a dent, when you look at ADUs overall, do you think it can make in the larger issue of housing supply?

JOE GEBBIA: Yeah. Look, I think it's going to take a lot of different ways to attack housing not only in California, but across the country. I think this is one of many options that governments and developers have to make a dent in the problem.

And the price for California is fairly competitive when you take into consideration labor costs and the fact that we're doing everything for the customers, not just the construction of the home and the materials. It's actually the permitting costs and the water hookups and all of the nitty gritty things that a customer has to pay for.

AKIKO FUJITA: California's gotten a lot of attention around ADUs just because of the sheer number that you pointed to, in terms of permits that have been given on ADUs. But we know a number of other cities, states have also been looking at this, too. I mean, how much of a template do you think this can be for other states, whether it is on the West Coast or in places like Texas, to address the housing supply overall?

JOE GEBBIA: Well in true fashion, California is ahead of the curve. They are leading the way on this and other states are following. There's been at least eight other states that have passed laws very similar to California's. I know Texas is evaluating some ADUs at the moment, along with a number of other states across the US. Because again, governments realize this is a fairly simple way to add more horizontal density.

And the other point is that not only governments love it, but neighborhoods love it as well. Because in California, cities have mandates to add more housing over the next couple of years. And neighborhoods love ADUs because rather than putting in a multi-family mid-rise in the middle of the neighborhood, they can actually add a similar amount of density without adversely affecting the visual character of the neighborhood. So it's a win across the board.

AKIKO FUJITA: What does that mean for Samara moving forward? I mean, I imagine that really opens up the market for you beyond California where you got started.

JOE GEBBIA: That's right. I think we are well-positioned to tap into this existing customer demand. And I think we'll actually expand the market by making it even easier for people to acquire a dwelling. And the other thing of why I think there's market growth here is that people are using this not only for income, but for a multitude of other reasons and use cases.

And if you think about how life changes over time, what having extra space in your backyard could provide for you? Sure, it could be income on demand as you need it. There's also use cases of housing elderly parents close by-- of housing college graduates when they come back post-graduation-- of working from home, having a quiet productive space. Quiet, productive office right in your backyard.

So I think the benefit of this form factor of housing is that it can be many things. And it can actually adapt with people over time, depending on the needs that they have in their life.