State Creating Financing Program for ‘Granny Flats’

The California Legislature has focused for several years on the significant need to create additional housing across the state.  As such, they passed the Accessory Dwelling Unit law, also known as accessory apartments, accessory dwellings, mother-in-law units, or granny flats, which are additional living spaces on single-family lots that have a separate kitchen, bathroom, and exterior access independent of the primary residence.

AB 69 by Assemblyman Phil Ting (D-San Francisco), was heard in the Senate Housing Committee Thursday.  The bill was written to create a state financing program so homeowners can add additional housing units, including an accessory dwelling unit to their property. 

Why do homeowners in California need a state-financing program?

The first reason is that AB 69 is largely a work-around to the barriers the state has created to building affordable housing of all kinds. Rather than amending or abolishing the California Environmental Quality Act (CEQA), other environmental mandates, and the multitude of state regulations and local county rules, this is what legislators chose to do.

The other reason is that the Legislature is trying to accommodate those with little-to-no equity in their property and/or have poor credit, by creating a state financing program to get them started.

Currently under the state’s Accessory Dwelling Unit law:

a) Provides that if a locality adopts a local ADU ordinance, it must meet certain requirements and cannot impose certain requirements, as specified. AB 69 (Ting) Page 2 of 8

b) Requires a local agency to ministerially approve, within 60 days, an application for a building permit to create an ADU and a JADU, as specified.

c) Prohibits a local ordinance from requiring an applicant for an ADU to be an owner occupant.

d) Imposes certain minimum and maximum square footage, height, and setback limits for ADUs.

e) Provides for a tiered schedule of impact fees based on the size of the ADU, as specified.

The other obvious “barrier” to homeowners wishing to add an accessory dwelling unit to their property is poor credit and/or a lack of equity in the property. 

Sen. Nancy Skinner (D-Berkeley), the co-author of AB 69, explained that the bill is a “financing tool,” available to any homeowner, but in particular those who have a difficult time obtaining traditional financing.

Sen. John Moorlack (R-Costa Mesa) expressed his concern that California is getting involved in things that are not necessarily the business of the state. He also asked if the borrowers who use the program are those who have no equity in the home and/or a poor credit rating, what is the anticipated default rate?

Deputy Treasurer Tim Schaefer explained that the issue lies with anticipated future rents from the accessory dwelling unit, and anticipated increase in value of the home because of the added accessory dwelling unit. Schaefer said traditional mortgage financing and the underwriters cannot use anticipated rents and increased values, so the state financing will act more as an interim financier and bridge loan for the borrower.

The Senate Housing Committee voted — some from the Senate Chambers, some from their Senate offices, and some remotely – and passed AB 69 with 6 Aye votes, 2 Not-Voting, and 1 No vote.