With rents continuing to skyrocket in Durham, affordable housing remains one of the greatest challenges facing the city. Increasingly, local stakeholders are looking to residential backyards for a solution.

Accessory dwelling units, also known as ADUs, can take many forms, but they typically refer to small, stand-alone residential units located on the property of a single-family home. Proponents say these units can be a cost-effective way of addressing affordable housing shortages by serving as rentals for low-income tenants. Through collaboration with design firms and local researchers, Durham leaders are working to reduce barriers to developing and financing accessory dwelling units in the hopes of alleviating some of the pressure on the city’s housing market.

Following the passage of the Expanding Housing Choices ordinance last year, which amended zoning rules to allow for increased density, and voter approval of a $95 million housing bond, the city began to look more seriously at ADU construction as a means of increasing the number of affordable units.

Erika Brown, the lead researcher on a city-commissioned report on the subject, concluded that the city needs to decrease barriers for property owners seeking to develop ADUs, paying special attention to creating affordable housing options and wealth-building opportunities for low and middle-income homeowners.

Brown collaborated with various local developers throughout her research, including the founders of Haven Ventures, a Durham-based real estate development company that owns Haven Modular, which proposes low-cost solutions for building ADUs.

“We believe in accessory dwelling units as just one tool in the toolkit for relieving pressure on the housing market that we’re seeing in Durham,” says Zach Sunderland, Haven’s executive director for architecture and operations. “It’s definitely not the only tool, but it’s something that we want to promote and we want to see more of, so we’ve particularly targeted that as an organization.”

Haven Modular plans to open a new production facility on Driver Street in Durham this month that will focus on factory-fabricated modular units.

Bo Dobrzenski, a senior development services manager in the Durham City-County Planning Department, says he’s been seeing an uptick in demand for smaller units.

“We’ve seen a trend in construction, which I’m sure is a reaction to the market, of smaller units becoming more popular, even just at market rate,” he says. “There’s less two or three-bedroom [units], and there’s a whole lot of drive for studios and one-bedrooms.”

Sunderland recognizes that construction is only financially realistic for a small group of homeowners. Brown says Haven’s modular approach could help reduce costs and make ADU construction affordable for more homeowners. A custom-built, market-rate project for Haven can cost anywhere between $175 and $225 per square foot, but the company anticipates the cost of their modular units will range from $100 to $150.

“We wouldn’t be doing something at all if we didn’t believe it had the opportunity to impact housing affordability,” says Drew Helm, Haven’s executive director of finance and real estate.

While Haven’s minimalist branding may make the firm seem like yet another gentrifier-chic developer, its founders stress the importance of finding community-oriented housing solutions.

“[ADUs] can be a low barrier to entry for the community at large, not just developers, to be able to have a positive impact on the housing market,” Sunderland says. “I think that’s valuable, because it creates a more tight-knit, neighborhood-by-neighborhood approach to solving some of the housing crisis that we’re facing.”

One key difficulty Brown identified is the lack of existing ADUs in the market, making it hard for banks to provide an accurate valuation for a loan. With very few home sales including ADUs, banks have little evidence of what buyers are willing to pay for a comparable unit.

As more ADUs are constructed in Durham, Brown says she expects homeowners, and especially low and middle-income families, to face significant informational and financial barriers. One of the key recommendations from Brown’s report is the creation of an ADU manual, which would help communicate expectations for the permitting, development, and inspections processes.

Durham Mayor Steve Schewel hopes that as more people learn about ADUs, more property owners will consider building them.

“It’s definitely a serious solution,” he says. “No question––and it does another thing, too, which is for a low-income homeowner, for example, who’s struggling to stay in their own home, it could provide them with an important, necessary source of income if they built an ADU on their property.”

Financing remains the trickiest piece of the puzzle, and both Brown and the Haven team are hopeful that the city of Durham will help make financing more accessible to low-income homeowners and foster greater financial literacy and education around ADU construction.

After speaking with lenders and developers, Brown determined that a product that helped close the gap between what homeowners could afford and the cost of construction would be the best approach. Gap financing, as this solution is known, helps homeowners without sufficient cash savings obtain a traditional loan to finance construction.

Haven is currently working with a group of investors to create a lending pool that would provide gap financing for their products, which the City could potentially join. The City’s participation could provide enough support to bring down the interest rate for participating homeowners. Brown pointed to the Durham Affordable Housing Loan Fund, which launched in 2019, as an example of what a public-private partnership could look like. The city initially contributed $3.5 million to the fund, partnering with Duke University, Self-Help Credit Union, The N.C. Community Development Initiative, and SunTrust Bank.

“That sort of partnership, where there’s the credit union, and there’s other community partners who are providing additional capital to what the city is providing—that is definitely the type of thing that we would like to do in the future,” Brown says. 

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