In Los Angeles, rising rents are forcing people to leave the city and exacerbating the area’s homelessness crisis. The county needs more than half a million new units of affordable housing to meet demand. A new startup, called United Dwelling, wants to take advantage of the county’s 250,000 underused two-car garages (and its hundreds of thousands of backyards) to tackle the problem—making a deal with homeowners to build a new apartment on their property for free, managing rentals, and then splitting the rent.
Founder Steven Dietz, a venture capitalist, started thinking about the concept of accessory dwelling units, or ADUs—small housing units built next to single-family homes—a couple of years ago. Recent changes in California law, and support from cities like L.A., have meant that many more of these units are being built. But Dietz felt that it wasn’t moving quickly enough.
“What struck me was that it was an interesting effort on the part of the state to build more affordable housing or encourage its construction,” he says. “But in low- and middle-income communities that most need affordable housing, it wasn’t likely to work; there would be too few households that had access to the capital needed to add a second dwelling unit, which is typically about $150,000.” Many homeowners also don’t want to deal with the legal requirements of becoming landlords, but might be interested in an extra source of income if it required little effort on their part.
When it partners with homeowners, the startup makes an agreement to lease either the garage or backyard for a period of time (usually 15 years), and then invests in building a studio apartment with a full kitchen, laundry, and outdoor space. The company insures the space and manages the rental, though homeowners can select from an array of vetted tenants, and then get a small cut of the rent, which will be priced at 30% or less of the area median income.
If the homeowner wants to buy the ADU back from the company, it costs $79,900, less than standard ADU construction. The company says it’s able to offer the lower prices by using a standardized design versus a custom design tailored for each property. The system, Dietz believes, could make a meaningful dent in the housing crisis.
He notes that there are are 580,000 parcels in Los Angeles County that could be the site of an ADU and that 91% of garages are used to store junk. “The real estate exists,” he says. “It’s incredibly underutilized. It’s in prime locations and has all the infrastructure already.”
The company hopes to connect the new apartments with tenants who previously had long commutes and now may be able to walk to work. “We look for tenants who work in the community, but cannot afford to live there,” he says. “What we expect is that fewer than half of our tenants will actually own a car. They’ll be within walking distance of work. That’s local teachers, and nurses, EMTs, social workers, etcetera, who can now live close to where they work.” United Dwelling also won $1 million through an innovation competition from the county aimed at finding solutions to homelessness, and will use that funding to give an additional incentive to homeowners who are willing to accept tenants who are using a government rent voucher.
The startup built a prototype in a garage in May, and another demonstration home was completed in November. In January, when new California laws to incentivize ADUs take effect, it plans to begin construction in earnest, building apartments in sets of five per neighborhood, which helps keep costs down. The company aims to build 500 units next year. One challenge is that many homeowners are still unfamiliar with the concept of ADUs and the idea will have to become normalized before it can fully take off.
“Homeowners have to say, ‘Hey, this is great. This is a good thing. It provides me a stable source of income and is predictable. It creates more housing. It takes traffic off the streets—the person who has been commuting an hour and a half to be the teacher at my kids’ school now can live nearby and spend more time with the kids, and walk to work and walk in my neighborhood instead of driving,'” Dietz says. Already, he says, the homeowners who are interested are expressing an interest in helping with the housing crisis, not just looking for extra income or a way to increase the value of their home.
There are nearly 600,000 parcels of land in L.A. County that could accommodate an ADU, either in the backyard or in place of a garage. That’s roughly the same number of households in the area that are paying more than they can afford in rent. But Dietz says that it isn’t necessary to build 600,000 units to begin to help with the problem of affordability. “You need to build thousands of units, or 100 in a given neighborhood, to start meaningfully impacting what rents are in that neighborhood. You simply need a larger supply of affordably priced housing, and the price of everything will come down to match that.”