UPDATE: Here’s Sightline’s comment letter on the ADU EIS describing our recommended options for the final policy proposal.

In the summer of 2016, anti-housing activists from a wealthy Seattle neighborhood appealed proposed liberalization of rules governing accessory dwellings—commonly known as mother-in-law apartments and backyard cottages. Six months later a city hearing examiner upheld the appeal, forcing Seattle planners to spend the next year and a half slogging through a voluminous environmental study. In a previous article I covered this sorry episode of anti-housing obstructionism in Cascadia’s first city.

Well, Seattle has released its draft Environmental Impact Statement (EIS) on the prospective accessory dwelling unit (ADU) rule changes. The verdict? The appeal was bunk: baseless claims eviscerated by analysis and evidence.

The appeal’s most grievous complaint was that making it easier to build accessory dwelling units (ADUs) would lead to displacement in lower-income communities of color. In other words, poor people would lose homes to rich speculators. As the appeal’s de-facto leader, Marty Kaplan, warned: “There would be a feeding frenzy for anybody with a truck and a nail bag to go buy homes and convert them into three rental units and displace the population.”

Math begs to differ. The EIS finds that relaxing ADU rules would lead to fewer teardowns of existing single-family houses—which would decrease the likelihood of renter displacement—and that teardowns are less likely in lower-priced neighborhoods to begin with. It also demonstrates that in Seattle the value of selling a house, with or without ADUs, eclipses the value derived from renting. So much for any rental conversion “feeding frenzy.”

Following the standard script of anti-housing legal challenges, the ADU appeal also raised the alarm over the threat to convenient free parking. What did the EIS show? “We conclude that ADU production would not have an adverse impact on the availability of on-street parking.”

The EIS projects that over 10 years the relaxed rules would boost production by up to an additional 1,440 ADUs, a 76 percent increase beyond the 1,890 new ADUs projected under existing regulations. A mere half a percent of Seattle’s single-family lots would likely see ADU construction as a result of the rule changes. That is to say, the proposed liberalization would have a miniscule impact on neighborhoods and the infrastructure that supports them, and that’s exactly what the EIS concluded: “no significant adverse impacts” across the board.

Conducting this EIS would not have been necessary in the first place, were it not for abuse of Washington’s State Environmental Policy Act (SEPA). And the SEPA process abuse may not be over yet. Based on feedback on the draft EIS, the city will then prepare a final EIS defining the “preferred” policy, burning four or five more months. And then obstructionists can appeal the final EIS before the legislation moves on to the city council (not holding my breath).

The two or more years of delay caused by the appeal means a city already grappling with an epic housing shortage will fall even further behind by a few hundred ADU homes. And because tight housing markets work like a giant game of musical chairs, in which the poorest people always lose, this pointless delay has already forced hundreds of low-income residents out of Seattle.

On the upside, Seattle’s EIS saga may finally neutralize once and for all the anti-housers’ firehose of spurious objections over ADUs—modest homes that are, after all, less intrusive to neighborhoods than any other form of added housing. Overall, the EIS makes it clear that the benefits of loosening ADU rules vastly outweigh any downsides, bolstering the case to move forward with the most welcoming of the policy options under consideration. If Seattle manages to soldier on without compromising, its ADU rules will serve as a model for cities throughout Cascadia and beyond.

What the EIS Dissected

Environmental Impact Statements analyze proposed government actions to identify potential adverse impacts on the affected community. An EIS typically assesses multiple action alternatives and compares them to taking no action. In Seattle’s ADU EIS, Alternative 1 is the city’s unchanged existing regulations, Alternative 2 is the most welcoming set of rule changes, and Alternative 3 imposes some restrictions on ADUs not included in Alternative 2.

Alternative 2 follows the recommendations of Seattle’s 2015 Housing Affordability Agenda to remove several key barriers to ADU construction. It raises the ADU allowance from one to two per lot; reduces the minimum lot size from 4,000 to 3,200 square feet (ft2); eliminates off-street parking requirements; removes the requirement for the owner to live on site; raises the occupancy limit of unrelated people on the lot from 8 to 12; and modestly relaxes size restrictions on backyard cottages.

Alternative 3 is more restrictive than Alternative 2. It retains the status quo rules requiring the owner to live on site six months of every year and limiting unrelated occupants to eight; mandates one off-street parking space for a lot’s second ADU; exacts Mandatory Housing Affordability fees on a second ADU; and limits the size of new single-family houses to 2,500 ft2 or a floor-area-ratio of 0.5, whichever is larger. (That last change is remarkable: it would impose an unprecedented cap on the size of every new house built in any single-family zone throughout the city, regardless of whether it includes ADUs.) Alternative 3 does loosen the rules in one way: it allows a second attached ADU (part of the main house) as a substitute for a backyard cottage.

Allowing more ADUs would slow home demolitions

A critical concern about any rule change that accelerates homebuilding is displacement of existing residents. In general, when redevelopment adds homes it helps reduce overall displacement across a growing city because it creates more room to accommodate newcomers, who would otherwise outbid less affluent residents for the scarce homes available.

In the case of ADU liberalization, however, there’s a more specific concern: would the expanded opportunity to create ADUs lead to speculative purchasing of cheaper houses and cause displacement of low-income tenants?

To assess that potential, the ADU EIS looks at how the alternatives would affect the economics of constructing ADUs and tearing down existing houses to build new ones. The analysis seeks to answer the question: on any given lot, what actions would yield the most financial value to the owner? Remodeling and adding a basement mother-in law rental? Tearing down the existing house and building a new house and backyard cottage? Doing nothing? And so on.

The analysis showed that in general, the two action alternatives reduced the likelihood of a teardown to construct a new house (see Appendix A in the EIS). This reduction was slightly larger for Alternative 3 mainly because it limits the size, and therefore the value, of new houses. The expectation of fewer teardowns makes sense if you consider that the expanded allowance for ADUs gives more owners a way to create new value on their properties without having to sacrifice the value of an existing house by tearing it down.

Teardowns would also be less likely in what the EIS designated as Seattle’s “low-priced” neighborhoods, which largely overlap with areas city planners previously identified as having a high risk of displacement. In those parts of the city, under all alternatives the most valuable option for owners is keeping the existing house and adding an attached ADU. That’s because lower home sale prices can’t as easily cover the cost of new home construction—in other words, the payoff isn’t worth the effort. For this same reason, ADU liberalization is likely to boost house turnover and ADU construction more in expensive areas rather than in low-priced neighborhoods that are often homes to communities of color.

The EIS also puts the lie to the presupposed scenario of flocks of speculative investors swooping in to buy up modest houses so that they can build two ADUs and rent all three units. The analysis shows that renting is consistently “the least profitable valuation option,” and that “in current market conditions, single-family houses and ADUs are generally more valuable on the for-sale market than as rental properties.” A smart speculator would be highly unlikely to tie up money to demolish, rebuild, and then hold onto rentals.

The proposed rule changes would boost ADU construction

To project ADU production over ten years, the EIS analysts developed an econometric model based on historic ADU production rates, lot characteristics, regulatory constraints, and the economic analysis described above (see EIS Exhibit A-20). The results are shown in the table below (see EIS Exhibit A-40).

Alternative 1 Alternative 2 Alternative 3 Number of ADUs built 1,890 3,330 3,100 Number of existing homes torn down and redeveloped 2,610 2,460 2,200

To put these ADU numbers in perspective, Seattle currently has about 130,000 single family houses in single-family zones. Compared with ADU production under status quo regulations, the rule changes are expected to increase the number of homes in single-family neighborhoods by about 1 percent. Because the new rules would allow two ADUs on a lot, the additional single-family lots that would likely see new ADU construction under the rule changes is even lower, only about 0.5 percent of the citywide total.

Unsurprisingly then, the EIS found “no significant adverse impacts” for all analysis categories: housing and socioeconomics, land use, aesthetics, parking and transportation, and public services and utilities. What’s more, over the past few decades much of Seattle’s single-family land has actually lost population as household size shrinks and very few new homes have been added. These neighborhoods can unquestionably welcome more residents because they have before.

The differences between Alternatives 2 and 3 matter

As shown in the table above, the net effect of the tighter restrictions in Alternative 3 is fewer ADUs produced compared to Alternative 2. There were no historic data available to calibrate modeling of owner occupancy, parking, larger cottages, and Mandatory Housing Affordability fees, so to account for their effects the analysts made an educated guess on a single, consolidated adjustment factor that was then applied to the projections (see EIS Exhibit A-39). Because they are lumped together, the analysis cannot isolate how much each of these changes contributes to differences in projected ADU production.

The table above also shows the projected number of single-family homes torn down, and that includes cases without any new ADUs involved. Alternative 3 would result in 11 percent fewer total teardowns than Alternative 2. The primary cause of that difference is the size limit on new houses imposed by Alternative 3, which applies to any new single-family house, regardless of whether it incorporates ADUs. The size cap reduces the potential value of a new house relative to other options such as keeping the existing house or adding ADUs.

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In contrast, the other extra restrictions in Alternative 3 lower the likelihood of ADU construction, which raises the probability of teardowns—but that effect is outweighed by the house size limit pushing the other way. In particular, the owner occupancy requirement in Alternative 3 is likely to increase teardowns because it prohibits ADUs from the one fifth of Seattle’s single-family houses that are rentals. Deprived of the ADU option to add value, these owners will be more likely to maximize their property’s value by demolishing the house and building an expensive new one. Not to mention that there is no defensible justification for requiring owner occupancy on homes with ADUs when it’s not required for separate single-family home rentals.

Another proposed constraint in Alternative 3 to avoid is Mandatory Housing Affordability (MHA) for the second ADU on a lot. As described in the economic analysis given in EIS Appendix A, exacting a fee on an ADU will reduce the value gained by constructing it, and therefore will reduce the likelihood that it gets built. This circular logic highlights the core flaw in the MHA program overall. Through regulatory reform, the city hopes to increase production of ADUs to expand housing choices and affordability. At the same time it proposes charging MHA fees to fund affordable housing, but that will hold back ADU production. Does the city want more ADUs or not? If yes, then skip the MHA fees.

Even with no house size limit, Alternative 2 yields 6 percent fewer teardowns than does the status quo, because making it easier to build ADUs tips the financial scales away from teardowns. If policymakers wish to combine Alternative 3’s benefit of fewer teardowns with Alternative 2’s benefit of increased ADU production, they can simply add the house size limit to Alternative 2. They could also tack on Alternative 3’s allowance for a second attached ADU.



ADUs will not devour all the free on-street parking

To assess potential impacts on parking, the EIS analysts estimated ADU resident car ownership using a 2013 Portland State University survey adjusted for Seattle’s demographics. They estimated that each ADU would generate between 1.0 and 1.3 cars, and conservatively assumed that all ADU residents would park on the street. To establish a baseline for on-street parking utilization they applied recent parked car counts in four areas distributed across the city covering a total of 339 single-family blocks and 7,527 on-street spaces. Average weekday utilization was 52 percent.

The analysts then applied the 10-year ADU projections discussed above to estimate how many more cars would end up parked on the street. Compared with the status quo Alternative 1, under the proposed rule changes in Alternatives 2 and 3 utilization increased by between 1 and 3 percentage points, depending on location. In the worst case in the most heavily utilized location, it rose from today’s 78 percent utilization to 81 percent under Alternative 2 (see EIS Exhibit 4.4-14).

According to the city’s standard, “on-street parking utilization would not become an issue until it exceeded 85 percent.” Because all of the studied areas stayed below that 85 percent threshold, the EIS concludes that the rule changes would not cause adverse impacts on parking. And that minor blip in parking demand makes perfect sense when you consider that the liberalization proposal is projected to add only about 1 percent more homes to single-family neighborhoods over ten years.

The EIS also highlighted the interplay between parking and another overblown concern often raised by anti-housing activists: loss of tree cover. The EIS finds that under worst-case assumptions, the projected number of new backyard cottages would cover “less than 0.1 percent of the total tree canopy in single-family residential areas.” It adds that, “removing the off-street parking requirement could reduce the amount of vegetation and tree removal otherwise needed to accommodate a parking space when creating an ADU.”

The bottom line is clear: there’s no good reason not to remove all off-street parking requirements for ADUs, and doing so will yield more ADUs and likely less tree loss to boot. (You’d be forgiven for wondering why environmental laws require that building less new parking be assessed as if it’s an adverse impact when cars are Cascadia’s largest single source of climate pollution.)

Time for ADU reform

Seattle’s recently released draft EIS on proposed ADU rule changes is a 364-page testament to what most housing wonks already knew: relaxing regulations on ADUs is one of the most benign policy actions a city can take to improve housing equity. Even under the loosest set of proposed regulations, the projected number of new ADUs is small compared with the number of single-family houses. So it follows that the impacts on neighborhoods would also be small, as the EIS confirmed in excruciating detail.

Particularly salient, the EIS shows that by relaxing ADU rules, growing cities can ease the demolition of existing homes—and the associated risk of displacement—while simultaneously boosting the creation of flexible housing options for those who can’t afford a million dollar house. All told, the EIS makes a bulletproof case for the most permissive set of rules, and if Seattle acts on that prescription it will set an example for ADU liberalization across North America.

But cities in Washington will still have to face the entrenched problem of the State Environmental Policy Act (SEPA), Washington’s set of environmental review laws that enables obstructionists, no matter how unfounded their objections, to abuse the process and hijack efforts to create homes of all shapes and sizes for all of our neighbors.

(Those who wish to comment on the draft EIS can do so in writing until June 25, or can testify in person at a city hearing on Thursday, May 31, 2018 at Seattle City Hall.)

Endnote: Don’t ban Airbnb in ADUs

Though not proposed as part of Seattle’s ADU reform, many cities have considered or enacted restrictions on short-term renting of ADUs, but that’s misguided policy. The EIS analysts estimate that on average ADUs used as short-term rentals can generate between about $1,143 and $1,386 per month, depending on the location, and accounting for the typical gaps in renting. For long-term rentals, they estimate rent that varies from as low as $1,056 for an 800 ft2 attached ADU in a low-price location to as high as $2,470 for a 1,000 ft2 backyard cottage in a high-price location. Overall, the EIS data indicate that long-term rental of ADUs would typically be more lucrative than short-term. This suggests that the reason people put ADUs on short-term rental is because they need the flexibility—to reserve the ADU for family members at a certain time of year, for example. Denied that flexibility and supplemental income by a short-term rental ban, many owners would opt not to build ADUs. Furthermore, even if ADUs are used for short-term rentals they absorb hotel demand. Over the long term, that means fewer hotels get built, leaving more urban space for new apartments to ease the housing shortage.