The ADU Hoax, continued

By Charles Houston

My last Op-Ed mentioned ADUs, but here’s more detail and skepticism. I had a difficult time coming up with a title to this jeremiad about Loudoun’s Affordable Housing programs, which is now called “Attainable Housing.” I thought of possible titles for this piece:  Developers Outsmart Government; ADU’s – Developers’ Scam; The False Promise of ADUs, and so on. Chicanery needed to be woven into the title.

Start with the acronym “ADU” itself. I believe the name was purposefully changed by the County from “Affordable” to “Attainable” for undisclosed reasons. My presumption is that the County thinks “attainable” is easier to sell to the public, though the rationale could have been benign. I suggest cynicism, though.

Ever wondered why developers eagerly support ADUs? Ever wonder why so many proposed subdivisions include more ADUs in their applications than is required by Zoning?  

The zoning ordinance gives developers an automatic 10% increase in density (the number of units divided by the number of acres) and has an option to build more ADUs and get a 30% density increase. That translates into big profits for developers and a diminished lifestyle for us—more traffic, crowded schools, less peace and quiet.

Scottsdale

This affluent town near Phoenix promoted ADUs: A friend who lives there told me that some 15,000 ADUs were built in a four-year span. This would satisfy the aspirational goals of our Board of Supervisors.

But what really happened in Scottsdale?

These were “cookie cutter” units, many of them being apartments. While they detracted from the town’s aesthetic ambiance, there were worse problems. “Traffic became brutal,” said my friend. 

He’ll probably face something worse in a few years: Higher taxes as these new residents’ children enter the public schools. 

Scottsdale ought to be a warning for us, not a dream.

Windfall Developer Profits

A rule of thumb is that homebuilders’ profits are 25% to 30% of the total cost of a house. I’ll split the difference and use 27.5%.  

If the average market price for regular houses is $1,300,000 and $500,000 for the ADU units, what’s the effect on the developer’s profits? A 27.5% profit margin means he makes $357,000 on each market house and $137,000 on each ADUs. Up to a point he makes more money on the market units, but if he can obtain Special Exceptions to increase his density (Say tripling the zoning density) then by building extra ADUs Mr. Developer can make much more than building a smaller number of market houses. 

This additional housing would exacerbate sprawl: more traffic, loss of farms and, and thousands of new residents who demand expensive County services.

A Sales Job

My old marketing professor had a simple definition of marketing: “Find out what the customer wants and sell it to him.” So true. In this case, the “market” is the Board of Supervisors, to whom the developer tries to sell the idea of greater density. The simple acronym “ADU” is his marketing tool.

To market successfully, you must give the potential customer (here, the Board) what it wants and stress your generosity. Recently I wrote that offering up pollinator gardens almost assures that the developer gets the extra density he wants. Promises of “Attainable” housing units make many Supervisors happily swoon as they vote for the developer.  

Combine ADUs and pollinators and usually the developer gets what he has asked. We get the shaft.

Loudoun Already has a Better Program

Instead of coercing developers to build ADUs, or bribing them with more density, there’s a much better way. Deal with beneficiaries of this generosity rather than with real estate promoters. Loudoun already has a “Housing Choice Voucher” program. The government gives lower-income citizens money (or vouchers) and lets the recipients choose where they want to live.

Loudoun and its towns have extensive housing stock where an older house, say a rambler by the old hospital or a townhouse near the Safeway, should be available at a much lower cost than new ADU construction. That prompts a question: Why should an ADU program focus on brand spanking new housing? 

 The County currently funds this housing program from its accounts. There’s a better way: Assess all new construction (including data centers and houses) a special fee to fund the Housing Choice Voucher program. This would be a four-fer: Put a mild brake on more development; Have developers fund the program; Reduce some County spending: Improve some of the existing older housing stock. 

  A Definitional Problem with ADUs 

Eligibility for an ADU is based on one’s income. That poses a problem: Just what “income” is used? The IRS form 1040 has multiple types of income: Wage income, capital gains, total income, adjusted gross income (AGI) and finally, taxable income. I couldn’t find any direction in the zoning code as to which of these should be used to determine ADU eligibility. (AGI seems most logical.)

The ADU formula solves for new housing units that are affordable to eligible purchasers. This could be a real mess: What percent of one’s income could go for housing costs? (30% most often.) Are taxes and insurance included as housing costs? (Lenders want to see housing expenses be less than 30% of income.) Then, what loan term applies? Thirty years? Fifteen years? What is the correct mortgage interest rate? Is a down payment required? How about private mortgage insurance? 

It seems like a moving target.

These questions need specific answers for an ADU program to work, and I don’t think that’s happened. Instead, we may have a Wild West of applications with no guide on resolving them. The vaunted ADU program needs more work and frankly, a rethinking.  

I suggest giving the ADU program an expiration date of, say, one year, and reevaluate it then to see if it’s worth keeping. Who could argue with that?

Charles Houston’s career was developing large office buildings throughout the south. Every building had a tight and detailed budget and every building came in under budget and on schedule.