Transmittal - 9/23/2022
REDEVELOPMENT AGENCY of SALT LAKE CITY
SALT LAKE CITY CORPORATION
451 SOUTH STATE STREET, ROOM 118 WWW.SLC.GOV · WWW.SLCRDA.COM
P.O. BOX 145518, SALT LAKE CITY, UTAH 84114 -5518 TEL 801-535-7240 · FAX 801-535-7245
MAYOR E RIN MENDENHALL
Executive Director
DANNY WALZ
Director
STAFF MEMO
DATE: September 23, 2022
PREPARED BY: Austin Taylor , Project Manager
RE: Accessory Dwelling Unit Financing Program
REQUESTED ACTION: Briefing on RDA’s research and next steps in creating an accessory dwelling
unit financing program
POLICY ITEM: Creation of a new accessory dwelling unit financing program
BUDGET IMPACTS: N/A
EXECUTIVE SUMMARY
The Redevelopment Agency of Salt Lake City (RDA) is working to create a program to primarily help low-
to moderate-income homeowners finance accessory dwelling unit (ADU) construction. Accessory dwelling
unit construction has not yet happened at scale and throughout the city , partly due to cost barriers. The
RDA intends to publish a request for qualifications (RFQ) and work with community partners to provide
financing options with the goal of helping homeowners build ADUs and increase the supply of attainable
housing in low-density single-family neighborhoods. The initial focus of the program will be within the
RDA’s 9-Line Project Area.
BACKGROUND INFORMATION
Accessory Dwelling Units
Accessory dwelling units are one of many important tools to solving our region’s housing crisis. ADUs are
small rental housing units—attached or detached—located on the same parcel as the primary house. They
are typically rented and managed by the owner of the primary house who also lives on-site. ADUs are
flexible, allowing homeowners to earn rental income, downsize into the ADU, or provide intergenerational
housing. They are also typically less expensive to build than a new home or apartment unit (because land
cost is “free”) and are often rented below market rates—and perhaps even free to the owner’s friends or
family.
2
Salt Lake City’s latest housing plan, Growing SLC, calls for the City to encourage ADU construction:
Goal 1.1.3 - Revise the Accessory Dwelling Unit ordinance to expand its application and develop
measures to promote its use.
Launching the Program in the 9-Line Project Area
The RDA intends to launch a financing program to help low- to moderate-income homeowners pay for
ADU construction. The RDA has decided to launch a pilot program in the 9-Line Project Area primarily
because of its large amount of single-family housing stock, relatively high homeownership rates, and lack
of ADU construction to date. Launching an ADU financing program in the 9 -Line Project Area by 2025 is
a milestone within the Interlocal Agreement with the County authorizing the collection of tax increment
and will increase the portion of the County’s funds that the RDA receives.
The West Side Master Plan also calls for more ADUs in west-side neighborhoods:
“Salt Lake City should expand the geographic area where accessory dwelling units are permitted
to include the single-family districts in the Westside. Application of the accessory dwelling unit
ordinance in this community would provide opportunities for additional density and a wider variety
of housing choices without impacting the predominant development pattern.”
“Protect and encourage ongoing investment in existing low-density residential neighborhoods.”
Funding
The RDA has set aside $394,000 for the initial creation of an ADU financing program for the 9 -Line
Project Area.
ANALYSIS & ISSUES
Challenges
Salt Lake City legalized ADUs in single-family zones throughout the city in 2018. As of January 1, 2022,
only 30 ADUs have been built. This section highlights the barriers limiting ADU construction.
Challenge #1: Zoning Restrictions
• Though Salt Lake City has some of the most liberal ADU zoning policies in the state, there are still
a few codes that make ADU construction challenging for many homeowners such as height limits,
setbacks, and maximum unit size.1
• In a series of 12 interviews with builders, homeowners, and architects who have worked on ADU
projects, many people noted zoning restrictions as difficult to comply with, especially on smaller
lots.
• The Planning Division is currently working on a set of zoning code changes that will expand ADU
construction possibilities. The proposed changes address every issue that RDA staff heard in its
series of community interviews.2
1 https://codelibrary.amlegal.com/codes/saltlakecityut/latest/saltlakecity_ut/0 -0-0-68737
2 https://www.slc.gov/planning/2022/05/13/accessory -dwelling-unit-code-changes/
3
Challenge #2: Construction Costs
• Construction costs have escalated 15% per year from July 2020 to July 2022, much faster than the
standard 3% escalation rate between January 2010 and January 2020 .3
• RDA staff found that Salt Lake City homeowners are paying between $100,000 and $250,000 to
build a detached ADU on their lot.
• Homeowners incur many unexpected costs during ADU construction, especially in utility and
sitework.
Challenge #3: Limited Financing Options
• Since lenders have not traditionally seen ADUs as a separate dwelling unit, homeowners have not
been able to borrow against the ADU’s potential rental income as inve stors are able to do with
multifamily investment properties.
• Through its interview series, RDA staff found that most homeowners are primarily paying for ADU
construction with liquid assets such as cash savings or by selling securities such as stocks and
bonds. Others are using home equity financing such as a home equity line of credit or a cash out
refinance.
• A lack of financing options has led to inequitable ADU construction. The Planning Division’s 2021
ADU report shows that homeowners in single-family neighborhoods east of I-15 are building
ADUs at a higher rate than homeowners west of I -15, despite having similar lot sizes and zoning
restrictions.4
Program Exploration Work
RDA staff has completed the following tasks to determine the challenges and opportunities regarding
ADUs in Salt Lake City:
1. Held a series of 12 interviews with local homeowners, architects, builders, policy experts, and
consultants who are working on ADU projects
2. Conducted a survey of ADU financing programs throughout the country (see Attachment D)
3. Studied Salt Lake City’s ADU zoning code and annual ADU reports (see Attachment B)
4. Examined Salt Lake City’s RDA 9-Line Community Reinvestment Area Plan and West Side
Master Plan
5. Attended local and national discussions to learn about ADU design, financing, policy, and trends
6. Researched available ADU financing products, including the home equity line of credit, cash out
refinance, and construction loan and refinance
7. Organized the City’s ADU Task Force which includes staff from the RDA and Community and
Neighborhoods’ Housing Stability, Building Services, and Planning divisions as well as the Public
Utilities Department to work collaboratively on ADU issues including zoning, permitting, and
financing
8. Drafted and continue to work on an RFQ to find potential program partners and structures to carry
out an impactful ADU financing program
3 https://fred.stlouisfed.org/series/WPU801
4 http://www.slcdocs.com/Planning/Reports/2021/ADU%202021%20Report.pdf/
4
RFQ Development
After completing the program exploration listed above, RDA staff decided that the most appropriate next
step would be to develop an RFQ to solicit proposals for a potential ADU program . Though the RDA has
money set aside and is able to run its own ADU financing program , RFQ submissions may show us that
there are other program ideas or partners that can help the RDA stretch its money and create the most
impact possible.
REDEVELOPMENT ADVISORY COMMITTEE MEETING NOTES
Staff brought this item to the Redevelopment Advisory Committee at their September 7 meeting for
feedback. Committee members shared the following ideas:
• The RDA offers inexpensive financing and flexible terms, it should require at least a short period of
rental affordability in exchange for financing
• The RDA should only loan on ADUs that will be associated with an owner -occupied house and
definitely not finance ADU construction for short -term rentals
• The RDA should look at partnering with a manufactured ADU builder that may be able to offer
discounted pricing for bulk purchases
• Staff should talk with homeowners who are building ADUs in Poplar Grove and Glendale
neighborhoods to see what they intend to do with the ADU and how they are financing the
construction. This can help the RDA tailor the pilot program to 9 -Line Project Area neighborhoods.
• Staff should explore opportunities to have utility connection fees waived or subsidized for ADU
construction
BOARD DISCUSSION ITEMS
Deed Restricted Affordability
The RDA is currently focused on creating a program to help low- to moderate-income homeowners build
wealth and housing supply through ADUs. The RDA may also choose to restrict the rent al rates on ADUs
built through its program to ensure affordability. Is the Board interested in deed restricting these ADUs
to ensure affordability for low-income renters?
Though it would ensure affordability for low -income renters, requiring rental rate restrictions could reduce
the number of homeowners willing to build and rent ADUs through the RDA’s program. Allowing low- to
moderate-income homeowners who participate in the RDA’s program to rent their ADUs at market rates
increases flexibility and allows them to more easily build generational wealth.
Offering ADU construction and mortgage loans to low- to moderate-income homeowners without rental
rate restrictions is in compliance with state law. State law 17C-1-411 (1)(a) states that the RDA may spend
Secondary Housing funds (which are used to fund the ADU program thus far) on market-rate housing
construction within a project area. However, if the RDA chooses to expand the ADU program outside of a
project area—perhaps in high opportunity areas—ADUs built with RDA funds will need to be deed
restricted for affordability.
5
NEXT STEPS
Board Input
RDA staff will seek Board members’ input to understand their goals for the ADU program.
RFQ Publication and Review
RDA staff will incorporate Committee and Board members’ ideas into the RFQ .
RDA staff, with input from the City’s ADU Task Force, will review RFQ submissions and may select one
or more organizations to partner with to create an ADU financing program . The RDA may run the program
alone if it does not make sense to partner.
ADU Financing Program Proposal
RDA staff, with input from the City’s ADU Task Force, will work alone or with partner organization(s) to
design an ADU financing program .
Board Approval
RDA staff will bring the ADU financing program proposal to the Board for final approval before program
launch.
Program Launch
RDA staff will launch the ADU financing program, providing loans to help low - to moderate-income
homeowners build and rent ADUs.
PREVIOUS BOARD ACTION:
The Board appropriated $394,000 in fiscal year 2022 budget to fund an ADU financing program.
ATTACHMENTS
Attachment A: 9-Line Project Area Map and Relevant Data
Attachment B: Map of Permitted ADUs as of January 2022 and Zoning Map
Attachment C: Observed 2022 Advertised ADU Rents and Affordability
Attachment D: ADU Program Examples
6
ATTACHMENT A
9-Line Project Area Map and Relevant Data
Relevant Data:
• $232k average assessed house value (2022)
• $47,719 median household income (2020)
• Historic redlining
• 8,279 sqft median lot size (2022)
• 89% of residential land zoned R1 (2014)
• 4.1 average family size (2014]
7
ATTACHMENT B
Map of Permitted ADUs as of January 2022 and Zoning Map
8
Areas shown in yellow are zoned for single-family housing and allow ADUs. Though there is a significant
amount of single family-zoned land in the 9-Line project area, it is not seeing as much ADU construction as
single family-zoned land east of State Street.
9
ATTACHMENT C
Observed 2022 Advertised ADU Rents and Affordability
The following table compares rental rates observed on ADU rental ads on KSL Classifieds and Facebook
Marketplace, both popular places for small -scale landlords to advertise their offerings.
The table also indicates the minimum income a household must make to afford the associated monthly rent
at 1/3 of their income.
SqFt Low Rent Avg Rent High Rent
Studio 500 $ 700 $ 1,050 $ 1,400
Renter’s Income
$ 28,000 $ 42,000 $ 56,000
1 Bed 650 $ 910 $ 1,365 $ 1,820
Renter’s Income
$ 36,400 $ 54,600 $ 72,800
2 Bed 800 $ 1,120 $ 1,680 $ 2,240
Renter’s Income
$ 44,800 $ 67,200 $ 89,600
The following table lists current Salt Lake County area median income levels.
Family Size AMI 80% 60% 40%
1 $71,688 $57,350 $43,013 $28,675
2 $81,938 $65,550 $49,163 $32,775
3 $92,188 $73,750 $55,313 $36,875
4 $102,375 $81,900 $61,425 $40,950
10
ATTACHMENT D
ADU Program Examples
Organization Offerings Requirements Program Link
City of
Boston, MA
Interest-free gap financing
up to $50k
Internal ADU only https://www.boston.gov/departments
/housing/addition-dwelling-
units/adu-program
County of
Los Angeles,
CA
$75k grants ADU must be rented
to formerly homeless
https://planning.lacounty.gov/second
unitpilot
City of Napa,
CA
$50k forgivable loan ADU must be rented
at approx. 55% AMI
https://www.cityofnapa.org/747/Juni
or -Unit-Initiative-Program
City of
Pasadena, CA
$150k 3yr construction
loan at 1%
Must be rented to
Section 8 tenant;
must be repaid within
3 years
https://www.cityofpasadena.net/hous
ing/second-unit-adu-program/
City of
Madison, WI
$130k 15yr second
mortgage loan at 2%
None https://www.cityofmadison.com/dpc
ed/economicdevelopment/adu-loan-
financing/3809/
Eight Village
Backyard
ATL
ADU owned and operated
by Eight Village;
homeowner may purchase
ADU at any time
Homeowner allows
ADU on their lot
through ground lease
https://www.backyardatl.com/
Keys to
Equity
(Oakland,
CA)
Technical assistance:
design, permitting,
financing construction, and
property management
None, though the
program primarily
focuses on black
homeowners
https://keystoequity.org/
La Mas (Los
Angeles, CA)
Technical assistance:
design, permitting,
financing, construction,
and property management
Homeowner must
rent to Section 8
tenant for 5 years
https://static1.squarespace.com/static
/5840c42cf5e2310b848ee53a/t/5be4
c7bcb8a0455819808583/154171999
7027/LA-
Ma%CC%81s_BackyardHomes_On
ePager_09.24.18+(1).pdf
Symbium Software that allows
homeowners to “fit” pre-
approved ADU designs on
their lot
None https://symbium.com/
Dweller Prefabricated ADUs owned
and operated by Dweller
Homeowner gives
free ground lease and
receives 25% of rent
https://www.dweller.com/