Bay Area homeowners add units for family, financial growth

Nancy and Bruce Chamberlain, with 5-year-old daughter Lillie, are excited about the new 640-square-foot cottage in their yard, which still needs some final touches. Nancy and Bruce Chamberlain, with 5-year-old daughter Lillie, are excited about the new 640-square-foot cottage in their yard, which still needs some final touches. Photo: Sarah Rice, Special To The Chronicle Photo: Sarah Rice, Special To The Chronicle Image 1 of / 34 Caption Close Bay Area homeowners add units for family, financial growth 1 / 34 Back to Gallery

The Chamberlains - Bruce, Nancy and 5-year-old Lillie - were bursting at the seams of their two-bedroom Berkeley bungalow. When the parents worked at home, Nancy used Lillie's bedroom as a makeshift office, while Bruce squeezed behind a living room table. When East Coast grandparents visited, they camped out in the living room or paid big bucks to rent nearby.

So the family tapped its home equity and some savings to replace a dilapidated garage out back with a new, 640-square-foot cottage that will serve as office, workshop, playroom and guest room - and adds 50 percent to their square footage.

"It feels liberating to have the extra space," Nancy said.

The family is among a growing contingent of Bay Area homeowners who are constructing small secondary dwellings on their properties for a variety of purposes: housing family members, lodging visiting friends, accommodating live-in caretakers or generating income as long-term rentals or bed-and-breakfasts.

The surge in home values across the region gives longtime homeowners substantial equity to finance these projects, experts say. As is true nationwide, about one-third of local homeowners own their homes outright with no mortgage, according to industry data.

"Up in Oregon, for instance, financing is a real problem, because it still costs around $200,000 (to build a cottage), but it's a lot harder to get that money out of a $400,000 house in Portland than to borrow $200,000 against a $1.1 million house in Berkeley, Menlo Park or Redwood City," said Kevin Casey, who's trying to streamline a turnkey method for adding cottages.

Joining cottage industry

He founded Emeryville company New Avenue Homes five years ago to help shepherd homeowners through the "painfully complex" process of design, permitting and construction of accessory dwellings, and he has helped about 80 Bay Area homeowners, including the Chamberlains, add the units, also called accessory dwellings, granny flats, in-laws or studios.

New Avenue works with vetted architects and contractors and is now ramping up to increase its presence nationwide. It also offers a free project management site at www.newavenuehomes.com.

Cottage costs range from about $100,000 to $300,000, Casey said. The most popular size is a two-bedroom cottage of about 640 square feet that costs about $250,000 including architecture, engineering, permitting and construction.

Proponents say that accessory dwellings - which include converted garages or basements - are an effective, low-impact way to inject affordable housing into existing neighborhoods. The Association of Bay Area Governments estimates the units could boost housing supply in established, transit-friendly neighborhoods by 5 percent.

"They're the best solutions we have for realistic unsubsidized housing that people of modest means can afford, other than trailer parks, which are vanishing," said Jacob Wegmann, a UC Berkeley doctoral student in city and regional planning who has studied the topic. "Cottages give an opportunity for people to live in residential neighborhoods rather than multistory apartment buildings even if they can't afford a single-family house."

Berkeley mayor backs idea

Some critics say second units can threaten the character of residential neighborhoods and increase demand for parking. Still, many elected officials back the idea.

"It's a sensational idea that allows us to have growth in neighborhoods without adversely impacting them," said Berkeley Mayor Tom Bates, who as an Assembly member helped craft a state law that eases the path for homeowners to add second units. Now he's pushing legislation in Berkeley to allow tandem parking for such units, making them more feasible.

But he's recusing himself from voting on it, as he and his wife, state Sen. Loni Hancock, are interested in the idea for themselves.

"Loni and I live in a place where we potentially could have an accessory unit," Bates said. "Because we're both busy, we've had no time to do it. But we live near campus, so we could rent it to a graduate student. If we wanted to travel, it would help to have a reliable person on the property. Eventually we could have someone there to take care of us. Or we might want to live (in the cottage) ourselves. It gives a whole new set of options for aging in place."

For some families, the units provide a permanent home for grandparents.

Spring Verity, along with her daughter and son-in-law, bought an Orinda house and hired New Avenue to oversee construction of a "a delightful little cottage" out back for her. Now she has a closer relationship with grandsons Gabe, 4, and Toby, 8.

"I can step in at a moment's notice if they need me, and I have the pleasure of seeing my grandchildren grow up instead of just seeing them once a year," she said. "Multigenerational living is good for everybody. When I was a child, my grandmother was my refuge. Whenever I was at war with my parents, I would run to Granny."

In fact, the rise in accessory dwellings comes as multigenerational living makes a strong comeback, propelled by economic necessity, the housing crisis and demographic changes such as a rising share of immigrants and more young-adult "boomerang kids."

In 2008, 49 million Americans, or 16 percent of the population, lived in a home with at least three generations, according to census data tracked by the Pew Research Center. That was a big jump from 1980, when the figure was 28 million, or 12 percent of the population.

Seeking extra income

Other people build accessory units for financial reasons.

Kim Stiewig and her partner put a small cottage in the backyard of her El Cerrito home to add value to the property and bring in extra income by renting it out.

It will take about 10 years to pay it off, which lines up with Stiewig's timeline for retiring.

"We wanted to create a way to retire and stay in our home," she said. "We weren't using our backyard to its fullest potential anyway."

Another plus: The cottage would be available if elderly family members need a place to live.

Two neighbors on her block were inspired by her cottage and started building their own accessory units.

Little house on wheels

Joe Hebel opted for a much cheaper - and smaller - unit and is relying on short-term visitors to pay for it. In December he parked a little house on wheels on his Sonoma property. The $60,000 model, just 20 feet by 8 feet with a sleeping loft, came ready-built from Tumbleweed Tiny House Co., a Sonoma company that makes extra-small houses on wheels. For zoning purposes, they qualify as RVs, vastly simplifying the permit process.

Visitors who book via Airbnb pay $75 to $170 a night to stay there. At that rate, he'll pay off his investment in a couple of years, Hebel said.

"It was the adorable factor," he said. "It reminds me of a human-sized dollhouse."