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How high can Southern California home prices go? A lot, experts say A Lake Forest man wants to build a 500-square-foot cottage in his backyard so his parents can live with him when they retire.

A Newport Beach woman with an eight-car garage wants to convert part of it into living space for a relative.

And a Costa Mesa woman wants to build a 420-square-foot unit atop her garage for her daughter to use while she attends medical school.

Granny flats are not new, and Orange County municipal codes long have allowed them. But they’ve mostly been restricted to homes on larger lots with single-family zoning.

Now, cities throughout the region are reforming their laws to make it even easier for homeowners to build second units on their property, allowing them on smaller lots with fewer parking restrictions.

Additionally, new laws — adopted or under review from Laguna Beach to Pasadena — could make thousands of illegal guest houses across the Southland eligible for proper permitting.

The activity is the result of a new state law that took effect at the beginning of the year designed to increase housing and perhaps help ease the housing crisis.

The legislation signed by Gov. Jerry Brown last year encourages construction of mother-in-law units by making it easier and cheaper while increasing affordable housing options.

“California is in a housing crisis, and allowing people to modify their existing home or build a small cottage in their backyard will increase the rental supply at no cost to taxpayers,” state Sen. Bob Wieckowski, D-Fremont, author of one of two bills that’s easing regulation of granny flats. “It will also enable people of all ages to stay in the community they like without having to move away from their family, friends, work or school,” Wieckowski said.

Mike Balsamo, chief executive of the Building Industry Association of Southern California, said granny flats will be “a drop in the bucket” in terms of solving the housing crisis. But, he said, “we’ll take it.”

If just 10 percent of California’s 6.8 million single-family homeowners added granny flats, that would contribute 600,000 new units to the state’s housing supply, according to USModular Inc., a company that specializes in the construction of secondary housing units.

What the new law does

The legislation prohibits cities from requiring additional parking spaces for units located within a half-mile of public transit. It also eliminates sprinkler requirements if the primary home doesn’t have them. And it gets rid of municipal fees charged to connect local water and sewer systems for existing structures and reduces them for newly constructed units.

The newly relaxed regulations are contributing to an already booming construction industry and increased demand for craft workers, said Guy Hazen, who owns Construction Owl, an Encino business that specializes in home remodeling services.

“Before, you could not convert your garage into a second dwelling unit and rent it out, but now you can and that’s impacted things big time,” Hazen said.

Orange County reforms

At least a dozen Orange County cities either have revised their granny flat laws or are in the process of reviewing them.

Costa Mesa’s Planning Commission reviewed a plan Monday, Sept. 11 that could make an estimated 13,000 homes eligible to have secondary housing units on their property, a city planner said. The Santa Ana City Council committee reviewed a draft ordinance Tuesday.

The Laguna Beach Planning Commission will review proposed changes to its second-unit ordinance Wednesday, Sept. 20.

If adopted as proposed, Costa Mesa’s law will reduce the minimum lot size qualified to build granny flats to 6,000 square feet from a minimum of 8,500 square feet. Granny flats also will be allowed on lots with multi-family zoning so long as they still have a single unit on them, representing perhaps 200 to 300 additional properties, a city planner said.

Almost 32,000 homeowners became eligible to repurpose existing space into a dwelling unit under Newport Beach’s new ordinance, and just over 13,000 of those owners can build new units on their property.

Yorba Linda, Tustin, Anaheim, Garden Grove and Lake Forest also are among the cities that have revised their laws to allow more granny flats.

In Lake Forest, the maximum size of a granny flat was increased to 1,200 square feet, up from 640 square feet. Fullerton also voted to allow “tandem” parking, meaning one car can be parked behind another.

“This was just an attempt by the state to reduce costs to put in an ADU (additional dwelling unit) … to make it more feasible for more people to do ADUs,” said Joan Wolff, a Fullerton senior planner.

Granny flats across SoCal

There are about 50,000 unpermitted granny flats in Los Angeles, according to L.A. resident Ira Belgrade, who runs yimbyla.com (Yes In My Back Yard Los Angeles), which helps homeowners who want to build a granny flat — or legitimize an illegal unit — through the city’s planning process.

The Greater Pasadena Affordable Housing Group reported in June that city has about 740 nonconforming accessory dwelling units, although some may now conform to California’s new law.

Joanne Hwang, a planner with Pasadena, said existing secondary living units in Pasadena are considered legal and won’t need to be retrofitted.

Have residents been rushing to build granny flats since the new state law took effect in January?

“We’ve had a lot of inquiries, but in terms of the actual number of permits, we’ve only had four or five applications,” Hwang said. “I think more people will consider doing this … but it’s not cheap.”

Monrovia Mayor Tom Adams said his city has allowed homeowners to have a guest house on their property for family members, although the units couldn’t include a full kitchen and couldn’t be rented out. That has changed under the state’s new law.

“Over the years, there have been multitudes of garages that were illegally converted and rented out, and when the city became aware of them, they had to be converted back,” he said. “With this new law, they’re trying to help alleviate the lack of supply for housing.”

Kolleen Palmer, 36, who rents a granny flat in Pasadena along with her husband, Sean, said she wouldn’t trade her living situation for an apartment.

“It’s very quiet on this block and we have one bedroom, a living room, a dining room, a laundry room and a two-car garage,” she said. “We’ve also got a nice yard in the back.”

More housing needed

One fact is indisputable: Housing is in short supply — and it’s expensive.

A report released earlier this year from the California Department of Housing and Community Development found the Golden State is woefully behind on home production. An average of 80,000 new homes have been built each year over the past decade, the study said, but that falls well below the 180,000 needed to keep pace with the state’s ever-growing population.

National Association of Realtors figures also show California has some of the highest home prices in the nation.

At $1.2 million, the median price of an existing Silicon Valley house was the highest among the nation’s top 178 metro areas in the second quarter and was almost five times the national average, Realtor figures show. The Bay Area ranked second with a median price of $950,000, and Orange County ranked third with a median house price of $788,000, three times the U.S. average.

San Diego County ranked fifth at $605,000, and Los Angeles County ranked seventh at $514,200. The Inland Empire ranked 20th out of 178 U.S. metro areas at $342,100.

Overall homeownership rates are at their lowest since the 1940s.

The Housing and Community Development report notes further that most California renters — more than 3 million households — pay more than 30 percent of their income in rent. And nearly one-third — more than 1.5 million households — pay more than half of their income in rent.

Increased property values

Nick Angelopoulos, who owns Nicholas Construction & Development Co. in La Puente, thinks secondary housing units are a great idea.

“I recommended this to a client in Altadena who has a makeshift kind of unit behind his garage that someone built years ago that wasn’t permitted,” he said. “I told him that the value of his home would go up if he converted that into a granny flat, so we’ll be redoing it.”

Bruce Tolbert, who owns the Altadena home, said he’s not planning on renting out his unit.

“I did it more to increase my property value,” he said. “Things needed upgrading, so I figured I might as well put that in now.”

Belgrade said a homeowner could conservatively retrofit an existing 400-square-foot garage or other structure into a granny flat for as little as $30,000, although some contractors will quote prices as high as $80,000 to $100,000.

“It could easily get to $50,000 or $75,000, but that’s money you’ll recoup over time,” he said. “You have to look at the value you’re adding to your home.”

Staff writer Louis Casiano contributed to this report.