The fires in Los Angeles have been mostly contained, but the housing crisis exacerbated by their flames is only growing worse. Tens of thousands of people are flooding an already brutal market in Southern California, and rents are soaring by thousands of dollars. Though terrible and tragic, the fires are also a rare opportunity to tackle housing affordability, not just in Los Angeles but also in San Francisco and throughout California.
The state’s housing shortage — estimated at 2.5 million homes — has three root causes: the high cost of construction, land, and capital. These factors have pushed prices beyond the reach of millions; the share of Californians who own a home trails the rest of the country by 15%, and the figure is getting worse. Current construction mostly creates high-end housing because it is the only type that financially “pencils out.”
Accessory dwelling units (ADUs) offer a different path. Their small size makes them more affordable, and factory-made ADUs can leverage economies of scale to further slash construction costs. In Los Angeles, these costs currently range from $400 to $700 per square foot; a reasonable estimate for an affordable factory-made ADU is $125 to $300 per square foot.
ADUs also bypass the land cost barrier, which can comprise over half of a new home’s price in places like Los Angeles and the Bay Area. ADUs can sit on land that doesn’t have to be purchased; its owners just have to be persuaded that an ADU is a good idea. They can also be built on city-owned land.
But just because ADUs are now legal across California doesn’t mean it’s easy to get a permit. San Francisco is one of the prime culprits: One recent analysis found that since 2021, it took an average of 404 days for an ADU permit to be issued in the city.
To make them as affordable as possible, California should establish a “buyer’s club,” a state program to negotiate the bulk purchase of up to 1 million factory-made backyard cottages. Using the state’s financing authority to issue lease-revenue bonds (a bond that is paid back by a future revenue stream), the program would allow cities, agencies, and homeowners to buy deeply discounted ADUs. Essentially, the state would pay the upfront cost of purchasing and installing the ADU in willing homeowners’ backyards, then the homeowners would buy the unit via a small monthly payment, presumably using revenue they earn from renting it.
History supports this approach. After the 1906 San Francisco earthquake, the local government joined forces with the U.S. Army to quickly build more than 5,000 “earthquake cottages” — each about 140 to 250 square feet — to help house the roughly 250,000 displaced residents. Families paid $2 monthly toward ownership, and today these units, modified and upgraded over the past century, are homes for many San Franciscans.
We could adapt what worked well for those San Franciscans to provide quick, affordable shelter throughout California while contributing to our long-term housing stock. California’s history with solar energy provides another blueprint. In the 1970s, solar power cost more than $100 per watt; today, it’s less than 5 cents per watt. By using state resources to create demand, California helped drive down per-unit costs and improve technology. A similar market-making effort for ADUs could revolutionize affordable housing. It could also guarantee that ADUs incorporate features like solar panels and battery storage, making them more sustainable and eliminating the fire risk of connecting them to power lines.
The California Department of Housing and Community Development should issue a request for proposal for tens of thousands of ADUs, prioritizing areas affected by the fires and the homeless epidemic. The state could clarify that these ADUs can go up as soon as they’re shipped. The governor just did this with an executive order that allows ADUs to be the primary dwelling on a lot in areas affected by the fires. Once displaced residents are housed, the program could expand statewide. Homeowners, cities, and nonprofits would purchase ADUs to do everything from addressing homelessness to providing affordable rental housing. Construction of these units should be exempted from CEQA — thus depriving NIMBYs of one of their favorite tools.
In San Jose, we’ve already prioritized quick-build housing for the homeless. Private homeowners have also installed nearly 1,400 new ADUs, with an average square footage of just over 600, in their backyards during the past five years, representing nearly one-third of San Jose’s new housing stock, with nearly 700 more in the pipeline. Expanding this approach with lower-cost ADUs would let cities house more people and prevent others from falling into homelessness.
A fully fitted ADU might cost around $30,000, and buyers could repay this sum with a $150 monthly payment to the state, making these units accessible to homeowners and readily affordable for tenants. Even doubling the total cost to account for site preparation, utility connections, and permitting fees, the total monthly cost would be well below average rents in cities across the state.
ADUs may not suit everyone, but they are ideal for many Californians, including single adults, small families, and extended households. They provide safe, decent housing at a fraction of current costs. They also enable homeownership opportunities; San Jose was the first city in California to adopt legislation that made it legal to sell an ADU separately from a home on the same lot. California’s low borrowing costs — around 4% interest — would make these projects far more affordable than traditional housing development, where construction loans can carry interest rates of 12% to 20%.
Manufacturing ADUs locally could create jobs and stimulate California’s economy, including in rural areas that source lumber to ADU-building factories here in the Bay Area and around the state. While initial production might require sourcing units from existing manufacturers, the state could introduce a “buy local” incentive to support local factories and workforce development. These factories would produce high-quality, sustainable units, ensuring that new housing meets modern standards for safety and energy efficiency.
We can help heal Los Angeles, and help every community struggling with high housing costs and homelessness, by responding with a bold plan for roughly a million new affordable homes.
Matt Mahan is the mayor of San Jose.