Santa Rosa thinks ‘granny units’ could help solve housing crisis

Meg McNees loves her little home on a quiet street in Montgomery Village, and she would like to be able to live out the rest of her days there.

But since it is her largest asset, the 67-year-old retired landscaper and her husband are worried they'll be forced to sell their 1,200-square-foot bungalow to fund their retirement, especially health care costs.

So McNees is exploring plans to build up to a 900-square-foot “granny unit” above her garage to generate rental income, provide a place for her daughter and future grandkids to stay when they visit, and maybe even move into herself someday.

“As a middle-class person, I'm trying to figure out how to stretch my dollar so that I'll be able to stay in Sonoma County,” McNees said. “My financial advisor said this is one way to do it.”

As Santa Rosa grapples with a historic housing crisis, one key way it is trying to encourage more affordable housing is by easing the restrictions on granny units, officially referred to as “accessory dwelling units.”

As it does so, the city has sparked intense interest among property owners, real estate investors and contractors who see an opportunity to help the city to meet its housing demands through more efficient, flexible land uses.

The proposed changes, however, have the potential to significantly impact the density and character of existing neighborhoods, the cost of building such units and the livelihoods of people who already rent second units out for extra income.

Santa Rosa is not alone in tweaking its rules. Sonoma County announced changes to its regulations in January. But as the county's largest city, Santa Rosa's actions could have the broadest impact on the county's housing stock.

The proposed updates, which head to the Santa Rosa Planning Commission in the next couple of months, have the potential to:

- Increase the size of granny units in the city from 700 square feet to up to 1,200 square feet, a 70 percent boost that could create second units larger than some people's main homes.

- Restrict the rental of such units to a minimum of 30 days, a move aimed at freeing up such units for long-term housing. The proposal could face opposition from homeowners who currently rent their units through vacation rental sites like Airbnb.

- Eliminate the requirement that an owner live in either the granny unit or the main house, creating more investment flexibility but also potentially leaving less oversight of the property.

- Allow non-traditional foundations, such as trailers, opening the door to tiny houses being allowed on single-family home properties.

- Reduce steep city fees by aligning them to the size of the unit, instead of the flat-fee structure that requires people building granny units to pay some fees similar to homes three times their size.

The city is still crafting its final proposal in response to intense feedback from the public. A recent meeting on the topic drew about 120 members of the public, said David Guhin, the city's director of planning and economic development.

While details are still being nailed down, the goal of the effort is clear.

“We are working to try and address some of the key barriers that are preventing people from building second units,” Guhin said. “From our outreach efforts, we have heard loud and clear there is a demand for these type of housing units, and that updates to our policy will help make that happen.”

State rules in effect

The state Legislature got the ball rolling last year by passing new laws that eased parking requirements for units built entirely within the footprint of an existing home, such as the conversion of a bedroom or garage into a standalone unit. They also eliminated costly water and sewer fees for such units.

Those laws, which took effect Jan. 1 and supersede local regulations, also boosted the limit on the size of granny units to 1,200 square feet, until local regulations are revised. The state regulations have already led to the approval of two granny units at sizes never before allowed by the city - one off West College Avenue at 870 square feet and another off Highway 12 in east Santa Rosa at just over 1,000 square feet.

The state law, with an eye toward encouraging the conversion of interior spaces into new separate units, also created a new category called “junior accessory dwelling units” of up to 500 square feet.

Now it is up to the city to change its rules on second units in a way that conforms to the new state laws but also crafts regulations that work for Santa Rosa.

The updates are just one of several efforts the city is undertaking to boost housing production in general and affordable housing in particular. They include streamlining the permit review process, prioritizing affordable housing projects, and setting aside $3 million to seed affordable housing production.

Goodbye to Airbnb?

McNees is hoping the city backs off its proposal to restrict rental of such units to 30 days. That, she said, would limit her ability to rent the unit on Airbnb for extra income.

“As you create your plan for our city, can you please think outside of the box and give homeowners more options rather than more restrictions,” McNees wrote in her comments to city planners.

McNees, who said she's in the early stages of planning a 700- to 900-square-foot second unit, said her neighbor, a single mom, rents out a unit on Airbnb and no one had a problem with it. If homeowners continue living on the property, she doesn't see any problem with it.

But the goal of relaxing restrictions on accessory dwelling units is to increase the city's stock of housing that is affordable by design, meaning it is less expensive because it's smaller, not because it's subsidized, explained Guhin. The goal is not to help existing single-family property owners get into the business of renting rooms to tourists, city officials said.

But as it is currently drafted, the 30-day rental restriction would apply to all accessory dwelling units in the city. Since 1995, the city has issued permits for about 600 second dwelling units, and it estimates there are an additional 2,000 to 3,000 unpermitted units in the city.

A city proposal to create an amnesty program for such unpermitted structures in the late 1990s went nowhere.

It's not clear how many such units are being rented out on vacation rental sites like Airbnb, but it appears to be hundreds. The site lists more than 300 properties in Santa Rosa, although some are outside city limits and others are full houses, not second units.

David Moll, a Junior College neighborhood resident who rents out a studio in his house on the vacation rental site, estimates there are about 70 Airbnb rentals within a 10-block radius of his property.

The massage therapist said he's concerned the new regulations would strip him of his ability to rent out his second unit on a short-term basis, income that has become very important to him.

“I agree there is a housing crisis, but there is also an income crisis in Sonoma County and Santa Rosa,” Moll said. “This income makes a difference in my livelihood.”

Moll suggests a more sensible approach would be to create a grandfather clause exempting existing owners of granny units from the 30-day rental requirement.

But city planner Eric Gage said the 30-day rental restriction in the draft policy was crafted specifically because the city wants existing and future units covered.

“That's exactly the intention - to make housing more available to full-time tenants, as opposed to it just sitting empty until it's rented out on the weekends to tourists,” Gage said.

Moll said the city should expect “significant pushback” on this piece of the proposal.

It's possible that owners of existing vacation rentals might be able to make a case that they have an existing legal right to continue using their second units as vacation rentals, such as by having a zoning clearance or paying the city's Transit Occupancy Tax, said Clare Hartman, the city's deputy director of planning.

But merely renting one's granny unit out in the past doesn't mean it's a right someone retains going forward, Hartman said. Such decisions will have to be considered on a case-by-case basis, she said.

“Accessory dwelling units have always been to provide housing, not for vacation rentals,” Hartman said.

Size matters

Just how big new units should be allowed to get is one area the city is taking more time to consider. The 1,200-square-foot limit now in place is just an interim rule until the city sets its own limit.

An original draft proposed by city planners would have kept the previous cap at 700 square feet and limited units to a single bedroom. But the strong preference expressed by people who attended the recent public meeting was to boost that to 1,200 square feet and eliminate the single bedroom limit, Hartman said.

There is some concern, however, about whether that would really create affordable units, Hartman said. Depending on numerous factors, a 1,200-square-foot unit could easily rent in many parts of the city for $2,000 or more per month.

So the planning department is rethinking its approach, possibly looking for a way to allow the higher limit but incentivizing smaller ones, she said.

Jason Kirchmann wishes he'd known the city was thinking of boosting the allowable size of such units. The civil engineer is building a 700-square-foot unit over a new garage behind the 1904 home he purchased two years ago in the Ridgeway Historic Preservation District.

“I'd absolutely have gone bigger,” Kirchmann said.

He probably would have added another bedroom to the unit, on which he's spending about $300,000, including about $40,000 in city fees.

He plans to finish the accessory unit in a couple months, and move into it while he renovates the historic home, he said.

As it stands now, the property has a deed restriction requiring him to live in one of the units. He feels the requirements lowers the property value, so he's pleased to see the city considering eliminating that requirement.

“My only potential buyer is someone who wants to live in a property with a rental on it,” Kirchmann said.

Not everyone agrees eliminating that deed restriction is a good idea. Michael Von Der Porten last year spent $150,000 to install a modular second unit behind his home on Manor Drive, a street with larger lots than surrounding neighborhoods. He did so to give his son a place to live and to be able to rent out the main house.

To make that work, he had to make his son an owner of the property. Eliminating that requirement might sound like a good idea, but it could also change the character of the neighborhood, he warned.

“If you get rid of owner occupancy, that has the potential to downgrade the neighborhood,” Von Der Porten said.

If everyone on the 20-home dead-end street built and rented out a granny unit and the main home, the density of the street would double and owners would be replaced with renters, with all the changes that entails, he said.

Lower fees, please

The fees to build granny units are lower than for single-family homes, but not that much lower.

A newly constructed second dwelling unit of 700 square feet will still cost between $22,000 to $29,000 in fees alone, depending on the part of town the project is in. That's not including school fees, which add thousands more.

The state offered some relief to two of those fees: the water demand fee and the wastewater demand fee, which are $1,195 and $5,097 respectively, for certain granny units. The fees, also known as hook-up or connection fees, are paid by all developers to recognize past investments and future capital needs of the water and wastewater systems.

But those fees were eliminated by the state law for granny units created by converting spaces in existing legal homes, garages or accessory structures like sheds and barns.

While the state's action to reduce fees was helpful, many property owners have told the city its remaining fees are still cost-prohibitive and need to be reduced further. That's a common refrain in the development community, but the city is taking the request seriously and needs additional time to study it, Hartman said.

“Fees was the No. 1 issue across all different audiences, so I'd like to address the fee issue concurrently if we can,” Hartman said. “We are going to be very thoughtful about this.”

You can reach Staff Writer Kevin McCallum at 707-521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.