Encouraged by California’s success, states across the country are passing laws to allow for more accessory dwelling units to address a shortage of affordable homes. But a slew of factors can keep the housing solution from taking off.

Whatever name they go by—granny flats, in-law suites, backyard bungalows, casitas—accessory dwelling units in California have exploded over the last several years. The number of these small homes permitted each year increased by more than 15,000% between 2016 and 2022. Last year, 1 in 5 of all new homes in the Golden State were ADUs.

It’s a rare success story in the midst of a nationwide affordable housing shortage, and one that other states want to replicate. But it’s not as easy as flipping a switch, said Yonah Freemark, research director of Urban Institute’s Land Use Lab. 

“Saying, ‘You can build an ADU,’ is not necessarily adequate to actually get ADUs built,” he said. “There are a number of different other obstacles standing in the way,” including parking and setback minimums that can be nearly impossible to meet when working with limited space.

California’s journey began in 2016 when it started enacting a series of laws that limit the restrictions local governments can place on ADUs and streamline permitting processes—–a boon for the ADU industry. The bills effectively created a new market in the state, said Denise Pinkston, founder of Casita Coalition, a nonprofit that advocates for ADU-friendly policies.

Prior to 2016, the ADU industry in California was struggling, said Pinkston. “Factories went bankrupt. ... [But today], there are literally dozens of companies in California, more coming through every day, that are building accessory dwelling units in factories and selling enough of them to have a profitable ongoing business.”

With the average ADU valued somewhere between $200,000 and $300,000, the ADU industry is burgeoning while offering a housing solution with relatively little government spending. 

“It’s not quite the tech boom,” Pinkston said, “but it's still solid economic growth—and from an unexpected place that solves a lot of social problems.”

Unsurprisingly, other states want in on the action and are considering their own zoning reforms to limit local restrictions on ADUs. 

A multibillion dollar Massachusetts bond bill, for example, is making its way through the state legislature and would, among other initiatives, make accessory dwelling units allowable by right across the state. A few weeks ago, the Rhode Island General Assembly approved legislation allowing property owners to build ADUs while stipulating those units cannot be used as short-term vacation rentals. In May, Colorado approved legislation that requires cities with a population of more than 1,000 to allow ADUs on the properties of single-family homes. The list goes on.