ADU popularity is growing in Thurston County. But is it really affordable housing?
Update: John Erwin Remodeling technically is building a 600-square-foot addition behind a duplex near Rainier Vista Park in Lacey. However, once rules associated with House Bill 1337 are adopted by June 30, it would be considered an ADU. That legislation will allow ADUs to be built next to single-family residences, duplexes and other structures where there is enough space.
A Washington state lawmaker recently rattled off all the types of housing he felt the state needs more of: townhouses, condos and accessory dwelling units, often referred to as ADUs.
The ADU, which often looks like a tiny home, is growing in popularity here. For example, the city of Lacey, which began work on an ADU program in 2019 only to have it delayed by COVID-19, has since issued 31 ADU permits, according to city information.
The ADU is considered part of the city’s affordable housing strategy. But is it really affordable?
That question was raised at a Lacey City Council meeting last month. The council ultimately approved an expanded ADU interlocal agreement with Olympia, Tumwater and Yelm that takes into account recent changes to building and energy codes.
“The ILA would extend through December 2027 to better align with international and state building code cycles and split costs associated with ADU design updates between partnering jurisdictions,” city information reads.
In addition, the city now has six ready-to-go ADU designs, ranging from 318 square feet to 800 square feet.
But despite the growth of the program, questions remain about the cost to build the housing.
“That was the only thing I didn’t really like, you know, was the $125,000 it was going to cost to build one of these in my backyard,” Deputy Mayor Malcolm Miller said. “I mean, I could go out and buy myself a Winnebago or some thing and just level it out in the backyard. So I’m hopeful that these (interlocal) efforts will indeed reduce costs. And if cost remains the issue, maybe we can revisit some cost-saving efforts.”
Where are they being built?
An ADU is placed on a lot with an existing single-family residence.
Lacey is bullish on the housing because its older neighborhoods — generally between Golf Club Road and Judd Street or in the Brentwood neighborhood near Wonderwood Park — often feature a relatively small home on a large lot. For example, there is a home in the 4000 block of 14th Avenue Southeast that measures 1,100 square feet but sits on one-third of an acre.
In other words, there’s plenty of room for an ADU if that homeowner or property owner chose to build one.
John Erwin of John Erwin Remodeling currently is building a 600-square-foot, soon-to-be ADU near Rainier Vista Park in Lacey. He says his costs to build an ADU range from $250 to $300 per square foot. At the low end, that translates into a building cost of $150,000.
Why is it so expensive to build? Sometimes it’s simply the nature of the project, he said, such as needing to dig utility trenches that run for 50 yards that can cost between $10,000 and $15,000. And in another jurisdiction, he once had to pay $4,000 in impact fees on one ADU.
Erwin understands that cities need to generate revenue, too, so he hopes the state can provide additional funds to help communities trying to create incentives to build more housing.
Lacey is doing this, City Manager Rick Walk told the council last month.
“There are no connection fees, no permit fees and no actual product design fees,” he said about the ADU program. But he acknowledged the city has no control over material, labor or other costs a builder might have.
“And so there’s a whole bunch of dynamics that we can’t control, but we can look at what the city can control as part of a solution,” Walk said.
Financing an ADU
Olympia Federal Savings has an active ADU lending program, said Melissa Kirkeby, who oversees a team of lenders at the thrift.
Because the ADU is considered an accessory to an existing single-family home, one route to borrowing and paying for the cost of a new ADU is to seek a home equity loan, which top out at $250,000, she said.
Using Erwin’s building cost of $150,000, a 25-year loan at an 8% interest rate — rates are slightly higher than the current first mortgage rate of 7% — would result in a monthly principal and interest payment of $1,157, Kirkeby said.
That monthly cost does not include any changes to property tax or home insurance, she said.
So if you built and then were looking to rent an ADU, you likely wouldn’t charge just $1,157 to the renter. You need to cover that monthly cost plus earn a little income on the side, so perhaps you charge an additional payment of $500, which would raise rent to $1,657.
And that is right in line with what it costs to rent in Thurston County. Average rents in the county last year were $1,592, according to Thurston Regional Planning Council data.
But Kirkeby and Erwin also said this: It has been their experience so far that people are not building ADUs to rent them, but simply to provide housing for other family members, a situation where costs and rent may not be as important.
“The idea of living on one property as one family has become more desirable,” she said.
This story was originally published February 2, 2025 at 5:00 AM.
