Yes, Literally, In My Backyard

Author: Ishan Bhatt

2023 Dunlop Undergraduate Thesis Prize Winner

Abstract

Single-family zoning protects preferences of local residents but limits housing supply, driving up home and rent prices. I study an increasingly popular middle ground approach: allowing homeowners to build accessory dwelling units (ADUs) on their properties. In 2016, the state of California legalized ADUs on most single-family lots in the state, overriding local regulations. Exploiting geographic variation between single- and two- or three-family zones, I find upzoning had a significant effect on ADU construction. A single-family zone experienced .04 to .05 more ADUs permitted than a two- or three-family zone. Furthermore, I find that supply constraints strongly predict ADU construction, suggesting ADUs are filling gaps in rental supply. However, a linear panel model shows that ADU construction is insufficient to decrease rent. Through a difference-in-difference estimation, I find no evidence that an ADU has a nuanced effect on nearby property values. My confidence interval excludes effects larger than a three percent reduction in property values, qualifying previous literature.