CASE STUDY: How do ADU's promote affordability?

http://www.transformca.org/ia/acssdwel/sup/Strachan_ADUEconomics.pdf

or
http://www.abag.ca.gov/planning/housingneeds/pdf/secondunits/Alan_Strachan_materials.pdf

The above article by Alan Strachan discusses the Courtside Village development in Santa Rosa, CA, 2001. Alan states that prices of homes with an Accessory Dwelling Unit or ADU (he calls them Granny Units), sold for $50,000 more (in 2001) than homes without an ADU.

In Honolulu, I've noticed that homes that have a space configured as a separate rental will sell for more, regardless of whether the unit is legal or not. So there is concern that if ADU's are legalized in Honolulu, they might elevate the price of real estate even further.

Curious to see how ADU's affected Alan's neighborhood and its real estate prices, I sent him an email:

From: Questor Lau
Subject: Granny Units and Affordable Housing
To: strach@pacbell.net
Date: Wednesday, July 28, 2010, 4:43 PM

Alan,

I just read your article about how Granny Units can increase affordability of new homes.

In Honolulu, we are trying to get an ADU Ordinance adopted. There are concerns that allowing properties to have a 2nd Unit will be akin to upzoning and would increase the property value/sales price of these properties and thus defeat any gains in housing affordability. (ie. a Property that can have 2 dwellings would be worth more than a Property that can have only 1)

Do you have thoughts about this?

-Q

To which Alan responded:

From: Alan Strachan
Subject: Re: Granny Units and Affordable Housing
To: Questor@ALLKINDS.org
Date: Friday, July 30, 2010, 7:10 AM

Dear Questor,

Yes, a property with a granny unit will be worth more than one without. However, that price difference effectively produces an affordable housing unit (the granny unit) at a cost far lower than an equivalent unit can be produced via subsidy. The process also brings down the effective cost of the main house by making available the granny unit rent as an offset for a portion of the mortgage payment.

I live in the development described in the article; and I can tell you that it works exactly as described. The net effect is not only to improve the overall affordability of housing on a given piece of land; it also produces a broader mix of incomes, ages, ethnicity and household types in the neighborhood. I witness the social and cultural value of that every day when I look out the window.

Sincerely,
Alan Strachan

ps  It is important not to confuse the value of the property with the affordability and value of the housing units themselves. They are two different things. Higher density development generally means a higher price per square foot for the underlying land; however, it also generally means a lower price per unit of housing, all else being equal. Compare the per unit price of single family detached homes on a 10 acre parcel to the per unit price of attached units at 4 times the density on the same 10 acre parcel.

NOTE: Alan's reply was reposted with his permission.