As a real estate professional, I often have clients who want help building an “accessory dwelling unit,” or ADU (a.k.a. “Granny flats”). These small, backyard homes are wildly popular with California homeowners, who see the opportunity to expand their living space – for their children, their parents, or as income-producing rental properties – without the hassle of moving or becoming developers.
But a current loophole in state law is penalizing many homeowners who would like to build ADUs but don’t have tens of thousands of dollars in a massive warchest for the fees many cities charge to build them. By fixing an arbitrary provision in state ADU law, the state legislature can save California homeowners tens of thousands of dollars in these fees – and help more homeowners build the housing we desperately need.
In my case, a client in Orange County wanted to build two ADUs on their property, one for each set of grandparents. To fit room for a bed, a bathroom, and a kitchen, the ADUs needed to be just over 750 square feet. But those extra feet crossed a line that meant more than $28,000 in fees. And because the client is covering the whole project with a home equity loan that has a fixed borrowing limit, the fee alone was enough to push their total cost past that ceiling. Without that financing, they can’t build those homes for the grandparents.
I see fee math like this block projects often. ADUs of 750 square feet or less are exempt from local impact fees, which cities use to fund everything from parks and libraries to roads and hospitals. But go one square foot over that line, and cities are legally allowed to bill you for the entire ADU, as if the first 750 square feet were never exempt at all. A 750 square foot ADU is free; a 751 square foot ADU can suddenly cost much, much more than just the construction cost of that one extra square foot.
Backyard homes have been one of the few genuine bright spots in California’s housing shortage. Annual permits went from 1,336 in 2016 to over 30,000 in 2024, now more than one in five new homes built in the state. But most ADUs top out just under 750 square feet to avoid the fee. Multiply that across tens of thousands of permits a year, and a law meant to encourage these smaller homes ends up capping how much housing gets built at all.
My client isn’t unusual. Most people building ADUs are normal California homeowners trying to house an aging parent, support an adult child, or offset their mortgage. That’s exactly why the size of the exemption matters: these are the multigenerational and senior-care housing needs that our ADU policies are specifically designed to meet.
There’s a fix for this in Sacramento right now. Senate Bill 1117, already passed by the state Senate and moving its way through the Assembly, would limit fees to only the square footage over 750, for the first two ADUs. So an ADU of 751 square feet pays 1 square foot’s worth of fees – not 751.
Reasonable impact fees can make sense as a tool to fund infrastructure when a big developer is buying up land, building thousands of homes, and profiting at scale. But that logic collapses the moment the “developer” is a homeowner building one ADU for their parent or adult child, financed against their own house. There’s no profit margin to absorb the fee, no portfolio to spread it across. It’s just one homeowner and one ADU carrying the entire cost, or more likely shrinking the housing space they need.
Nor are cities collecting real revenue from the ADU impact fee cliff. The fee only applies to ADUs over 750 square feet, so homeowners and designers routinely size ADUs at 749 square feet specifically to avoid it. That design choice means most ADUs never cross the threshold where the fee would apply, so the revenue the fee was meant to generate mostly doesn’t exist. If anything, by making the fee more marginal above the current cliff, homeowners will be incentivized to build larger and therefore would contribute fee revenue to cities.
Under SB 1117, an 850-square-foot ADU would owe fees on 100 square feet, not 850. That’s roughly an 80 to 90 percent cut for a typical project. It doesn’t take anything away from what cities are owed for real impact, and it only applies to the first two ADUs. It just stops the double charge.
This is a fixable mistake that legislators in Sacramento can address this year. Let Californians build the ADUs that they actually need rather than what a fee schedule dictates.
Stephanie Gutierrez is a licensed realtor and ADU strategist based in Seal Beach who has helped homeowners across California build accessory dwelling units.