Are You Living in San Diego's 'Worst ADU'?

Happy Tuesday and welcome to another edition of Rent Free. This week's stories include:

• The U.S. Department of Justice files its own anti-trust lawsuit against RealPage, accusing the company's rent recommendation software of creating an effective landlord cartel.
• Rep. Robert Garcia (D–Calif.) says he'll create a YIMBY Caucus in Congress.
• Tiny Rhode Island passes a big slate of housing bills.

But first, our lead story on San Diego's accessory dwelling unit (ADU) boom and its discontents.

Are You Living in San Diego's 'Worst ADU'?

A pair of two-story, two-unit apartment buildings. A skinny three-story block rising above the single-story homes around it. Rows of two-story complexes going up in the backyard of a low-slung bungalow.

These are allegedly examples of "monster ADUs" taking over San Diego since the creation of the city's ADU Bonus Program. Now the local news outlet OB Rag is collecting reader-submitted images of these new homes as part of its "worst ADU" competition.

Supporters of San Diego's ADU Bonus Program—which allows for up to four ADUs citywide and a theoretically unlimited (but practically capped) number of units near transit—say it has produced a modest increase in new home construction in San Diego's central, low-density neighborhoods.

But critics contend the program has perverted the original "granny flat"—a small unit meant to house an elderly relative—to unaesthetic, unaffordable "bunkers" destroying the city's single-family neighborhoods.

The ADU Bonus Program's streamlined approval process has eliminated the public hearings and planning commission votes that once empowered neighborhood critics to stop these kinds of projects.

Enter OB Rag's Worst ADU Contest, which attempts to give a voice to the vetoless.

"We thought this was a way for people to be heard," says Kate Callen, a reporter at OB Rag, of the contest. "A lot of people who have these monster ADUs [next door] feel like collateral damage."

San Diego's Bonus ADU Boom

Since 2019, California state law has required cities to allow one ADU and one "junior ADU" (typically a small unit inside the primary home) per residentially zoned property. Cities are also required to ministerially approve ADUs—meaning no public hearings and no discretion from bureaucrats to shoot down or condition code-compliant projects.

In 2021, San Diego launched its ADU Bonus Program, which goes well beyond the state-level liberalization. It allows an additional two "bonus ADUs" to be built, provided that one is deed-restricted to be affordable to people of moderate incomes (that is to say, rents can't be more than 30 percent of 120 percent of area median income.) The affordability restrictions have to last for 15 years.

In the city's Transit Priority Areas—areas within one mile of a transit stop—builders can add a theoretically unlimited number of ADUs provided that each new market-rate unit is paired with a deed-restricted, moderate-income unit. The city's lot coverage rules, height limits, and floor-to-area ratios put practical limits on how many of those theoretically uncapped ADUs can actually fit on a given property.

The program also waives parking requirements and prevents the city from requiring many off-site improvements.

More Units, Different Units

CalMatters reported last year that as of October 2023, builders have filed applications for 159 ADU Bonus Program projects totaling 1,200 units.

According to city data, 255 deed-restricted ADUs have been approved under the program since 2021. The city approved 4,246 ADUs and junior ADUs in that same time period. Roughly a third of new residential units permitted in San Diego since 2021 have been ADUs.

Those numbers have earned San Diego's ADU Bonus Program a lot of praise from activists and analysts. While a lot of California's efforts at deregulating small, multi-family "missing middle" construction have been a flop, San Diego's program is throwing up a respectable number of units.

A report from the University of California, Berkeley's Terner Center for Housing Innovation spotlights the program as "a promising example for how cities can proactively facilitate housing growth."

"Crucially [the program] is adding homes in areas that would have traditionally been reserved for single-unit detached homes," says Saad Asad, the advocacy and communications chair for advocacy group YIMBY Democrats of San Diego.

Asad argues the ADU Bonus program has been a modest success. While it's gotten more units built in more areas of the city, the new ADUs are still a small slice of new construction in the city.

More Units, More Problems

Nevertheless, that modest success has attracted some immodest attention from critics who argue that it's producing far too much housing in all the wrong places.

Callen, the OB Rag reporter, says the original idea of the humble granny flat has been hijacked by for-profit developers pushing the ADU Bonus Program "to the extreme" and San Diego Mayor Todd Gloria who "wants housing on steroids."

The Worst ADU Contest, she says, is a way of highlighting how the program has "gone off the rails."

Thus far, the contest has received 43 entries for "worst ADU" across 20 different neighborhoods. Provided all of those entries are targeting ADU Bonus projects, that would represent a significant slice of units built under the program.

Over the next couple weeks, OB Rag judges will conduct site visits to the contestants, where they'll grade these new homes on their footprint, aesthetics, and "neighborhood impact"—which involves things like parking, privacy, and amount of pre-construction communication between project sponsors and neighbors.

All Bark, No Bite

In effect, these OB Rag judges are playing the role of a shadow planning commission.

Prior to California and San Diego's successive rounds of ADU liberalization, their concerns about parking, aesthetics, design, and more, were binding regulatory constraints.

Builders had to do their best to placate neighborhood critics and planning officials at public hearings. Sometimes they'd be forced to shrink or redesign a project. Oftentimes they'd just get a "no" from city hall and end up not building anything at all.

ADU construction was a tiny fraction of new home construction as a result.

Now, San Diego's ADU Bonus Program, plus state-level liberalization, means that builders no longer have to run that gauntlet of public hearings and neighborhood opposition.

They can, within the confines of the program, build what they want where they want it.

Deprived of a veto point at city hall, critics of new ADU construction are now left with the option of sending their complaints to a local paper that will then decide which homes are doing the most damage to the neighborhood.

Perhaps the contest will change some hearts and minds about ADUs in San Diego. For the time being, neither ADU builders nor residents have to pay it any heed.

The Justice Department Sues RealPage for Price-Fixing

The federal government is at last taking a direct swing at real estate company RealPage and its rent recommendation software.

Last month, the U.S. Department of Justice and eight states sued the company, arguing that its management software—which recommends profit-maximizing rents to landlords—is effectively an illegal price-fixing scheme that's driving up rents to above-market rates.

"Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law," said U.S. Attorney General Merrick B. Garland.

The idea that it's actually the algorithms that are driving up housing prices is an increasingly popular one.

Already the attorneys general of Arizona and Washington, D.C., had sued RealPage on similar grounds. San Francisco has banned landlords' use of rent recommendation software.

The limited research on rent recommendation software suggests it produces efficient prices, not monopoly prices. Where this type of software is most in use, prices rise and fall faster in response to changing market conditions.

A Congressional YIMBY Caucus

Rep. Robert Garcia (D–Calif.) told Politico last week that he'll be starting a YIMBY caucus to make Vice President Kamala Harris' promise of 3 million new homes a reality.

"There's a real movement happening around a pro-housing agenda. It's a huge way of bringing in all types of new voters, younger people as well," Garcia told Politico.

A flurry of YIMBY bills has been introduced in Congress over the past few years to shift the federal government's minimal role in land use regulation in a more pro-supply direction.

That includes the literal YIMBY Act, which requires jurisdictions receiving federal housing grants to report on whether they've adopted a range of zoning reforms. The bill passed unanimously out of the House Financial Services Committee in May.

Sen. John Fetterman (D–Pa.) introduced a bill in June that would direct the Department of Housing and Urban Development to draft model zoning policies for use by states and localities.

The Build More Housing Near Transit Act, authored by Rep. Scott Peters (D–Calif.), would make transit projects more competitive for federal funding if they're being built in areas that have removed regulatory barriers to building housing.

Garcia introduced a bill last year that would have imposed a federal preemption of local parking minimums. (See Reason's parsing of the bill and its constitutional implications here.)

The one YIMBY policy that's been enacted into law is the Proactively Removing Obstacles to Housing (PRO) grant program. Created at the end of 2022, it provided $85 million in grants to states and localities either as reward money for adopting zoning reforms or as planning grants to study potential reforms.

In late June, the Biden administration announced the first PRO grant awards, and the results were pretty disappointing. A significant share of grantees were jurisdictions that had made housing regulations more burdensome, not less.

One could imagine a constructive role for a YIMBY Caucus would be getting more of the above bills passed and improving the functioning of the PRO program.

Rhode Island Enacts Housing Package

Last week, Rhode Island Gov. Dan McKee signed a package of 14 housing bills into law.

The bulk of these new laws involve seemingly modest policies, like setting up a legislative commission to investigate a shortage of municipal planners and allowing for electronic development applications.

One eye-catching piece of legislation McKee signed allows manufactured housing built to federal standards to be placed anywhere single-family homes are allowed. Manufactured housing is some of the most affordable housing to build, but local zoning laws often explicitly prevent it from being placed in residential areas.

The state also passed an extremely tepid ADU bill that will allow homeowners to construct an accessory dwelling on their property if it's for a disabled family member, the ADU will be inside the structure of the existing home, or the property in question is 20,000 square feet or more. San Diego's ADU Bonus program, this is not.

Quick Links

• In New York City, celebrities make a last-ditch effort to stop a statue garden on city land from becoming low-income senior housing, reports The New York Times. You can read Reason's past coverage of the case here.
• The Atlantic on "the labyrinthine rules that created the housing crisis."
• The Manhattan Institute on what it would actually take to solve New York's housing shortage.
• California Gov. Gavin Newsom signs a bill that excludes homeless residents placed in hotels and motels from standard landlord-tenant protections. A temporary exclusion was set to expire at the end of this year.
• The Netherlands tightens rent control.