San Jose Leading the Way with AB 1033: New Opportunities in ADU Investment and Homeownership

San Jose adopts AB 1033

San Jose, known for its innovative spirit and forward-thinking policies, has once again positioned itself at the forefront of housing solutions in California. This week, the city became the first in the state to legalize the separate sale of accessory dwelling units (ADUs) as condominiums under AB 1033. This groundbreaking ordinance, effective from July 18, opens new doors for homeowners and investors alike, presenting unique opportunities for expanding homeownership and boosting the housing market in San Jose.

The Rise of ADUs in San Jose

In recent years, ADUs have gained significant traction across California, with 22,802 new units added in 2023 alone. These backyard cottages, often used as rental properties or extensions of the main home, are now set to revolutionize the housing market in San Jose. Mayor Matt Mahan highlighted the importance of this new development, stating, “ADUs are one of many solutions to expanding our housing stock. The ability to sell them as their own asset will serve an interest in the development of ADUs in the community.”

Benefits for Homeowners and Investors with AB 1033

The new ordinance under AB 1033 allows homeowners to sell their ADUs separately from their primary residences, transforming these units into valuable assets. This flexibility offers multiple benefits:

Increased Homeownership Opportunities

Smaller and more affordable than traditional single-family homes, ADUs can provide a new entry point for first-time buyers. With the median listing price per square foot in San Jose at $832, a 1,000-square-foot ADU could be priced around $832,000, significantly lower than the median single-family home price of $1.4 million.

Potential for Rental Income

Homeowners can still choose to rent out their ADUs, providing a steady stream of income while retaining ownership of their primary residence.

Financial Flexibility

In a market with high mortgage rates, this option allows homeowners to monetize their properties without selling their primary homes, offering financial relief and stability.

Streamlined Processes and Legal Considerations in San Jose

San Jose has a history of facilitating ADU development through streamlined permitting processes and lower-cost city reviews. This has led to a steady increase in ADU construction, with 466 permits issued in 2023 alone. However, the new ordinance introduces a critical requirement: homeowners must establish a homeowners association (HOA) to manage common areas and responsibilities between the primary unit and the ADU condo.

Impact on Prefabricated Housing Providers

As this new ordinance takes effect, it raises questions about the long-term implications for prefabricated housing providers and homeowners. A significant concern is the potential discrepancy in build quality between the primary home and the ADU. Prefabricated ADUs, which are often more cost-effective and quicker to build, might not always match the build quality of the primary residence. Over time, this disparity could lead to maintenance challenges and a decrease in overall property value.

Quality Disparities

Different build qualities between the main house and the ADU could result in maintenance issues and a mismatch in the aesthetic and structural integrity of the property.

Resale Value

Homeowners need to consider how the difference in construction quality could impact the resale value of their primary home. A high-quality primary residence paired with a lower-quality ADU might deter potential buyers.

Understanding the Difference Between AB 1033 and SB 9

AB 1033 and SB 9 are both pivotal laws aimed at increasing housing availability, but they differ in significant ways:

AB 1033

Allows homeowners to sell ADUs separately as condos, provided an HOA is established to manage shared spaces and responsibilities. This ordinance specifically targets the sale of ADUs and aims to increase affordable homeownership opportunities.

SB 9

Permits single-family homeowners to split their lots and build two homes on each parcel. However, SB 9 has never taken effect due to legal challenges and opposition, particularly in Southern California. This law has been mired in court battles and has faced significant resistance, preventing its implementation.

Acton ADU: Here to Assist

As San Jose leads the way in ADU innovation, Acton ADU is committed to helping homeowners navigate this new landscape. We understand that the transition to separate ADU ownership involves various legal and logistical considerations. That’s why we have established partnerships with legal teams specializing in drafting HOA agreements, ensuring a smooth and compliant process for our clients.

San Jose’s new ordinance under AB 1033 represents a significant milestone in the evolution of ADUs, offering unprecedented opportunities for investment and homeownership. As the city continues to pave the way for innovative housing solutions, Acton ADU is here to support homeowners in understanding and utilizing these new opportunities. Whether you’re looking to invest, build, or sell an ADU, our expertise and comprehensive services can help you maximize the potential of your property.

Contact Acton ADU today to learn more about our services and how we can assist you in navigating the new opportunities in ADU investment and homeownership. Our partnerships with legal experts ensure that your HOA agreements are expertly drafted, providing peace of mind and seamless integration into your new venture.

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