The typical American first-time homebuyer last year was 40 years old, a record. First-time buyers made up 21 percent of the market, the lowest share the National Association of Realtors has recorded since it began tracking in 1981. A record 17 percent of all buyers purchased a multigenerational home, most often citing cost savings, aging parents, and adult children moving back in.
For a growing number of households, the answer to all three is sitting behind the house they already own.
Build another one.
Accessory dwelling units — the backyard cottages and garage conversions that most zoning codes banned outright for half a century — are now legal by right across large parts of the country.
How many are being built is harder to say than it should be. The Census Bureau's residential permit series does not break ADUs out as a category, so there is no federal count. National estimates come from private permit aggregators and listing data, and they do not agree with each other or with the states that keep their own records.
The states that do count are unambiguous. California permitted 26,924 in 2023, up from 1,336 in 2016, according to the California Department of Housing and Community Development. In San Diego County, permits across all jurisdictions rose from 1,150 in 2020 to 3,991 in 2024, and completions rose faster still, from 342 to 1,984, on a Center for Housing Policy and Design analysis of state annual progress report data.
The growth is real. It is also lopsided. A 2020 Freddie Mac study identified 1.4 million single-family properties with ADUs and found that California, Florida, Texas and Georgia together held half of them.
The law moved first
At least eighteen states have laws that broadly allow homeowners to build and rent an accessory dwelling unit, according to an August 2025 taxonomy from the Mercatus Center at George Mason University. Eleven of those laws passed in the previous four years, and more moved through statehouses in 2026. Until 2017, the list had three names on it: California, Washington and Vermont.
Massachusetts made ADUs allowed by right in single-family zones statewide in February 2025. Colorado's law took effect on 30 June of that year, the same day Washington's compliance deadline hit under HB 1337. Virginia passed a statewide law in 2026 that does not take effect until July 2027.
Mercatus sorts the eighteen into ten strong laws and eight weaker ones, based on whether the state actually removed the three barriers that historically killed these projects: owner-occupancy mandates, parking minimums and discretionary review. It is the same instrument several states have turned on their own cities across housing policy more broadly, and it has the same limit.
Removing those barriers changes what is legal. It does not change what is buildable.
The gap between permission and possibility
Taylor Nester, a general contractor at Nester Construction, a California firm that builds custom homes and takes on a limited number of accessory dwelling projects, put the distinction plainly.
"The states solved the zoning problem. They did not solve the utility problem," Nester said. "A homeowner reads that they can build three units, and then we look at the septic capacity and the answer is one, or none."
That gap is where the permit counts get complicated. Zoning was never the only constraint on a backyard unit, and across much of the country it is no longer the binding one. Water availability, wastewater and septic capacity, the distance to a utility connection, fire access, soil conditions and lot topography now determine what a parcel can hold. In coastal jurisdictions, a separate permit track can add months.
California is the only state with enough history to show how this plays out at scale.
What a decade of legalisation produced
California legalised ADUs in 1982 and then permitted almost none for thirty years. The reforms that began in 2016 changed the arithmetic. By 2023, ADUs made up more than 21 percent of all homes permitted statewide.
Local governments have kept loosening. San Luis Obispo County raised its cap from two units to three on single-family parcels, and from two to eight on multifamily parcels, in June 2025 — inland rules effective that July, coastal rules pending certification by the California Coastal Commission.
Even there, the units are incremental. Most projects are a single unit on a lot where several are now permitted.
The cost side did not cooperate
Loosening the rules did nothing to make building cheaper.
Freddie Mac put the 30-year fixed mortgage average at 6.66 percent for the week ending 27 August, above the 6.56 percent recorded a year earlier. Higher rates squeeze the market from both directions: homeowners face steeper financing costs to build, while would-be buyers face a national median existing-home price of $434,100 and borrowing costs that keep ownership out of reach. It is the same rate structure that has kept existing owners in houses they would otherwise have left.
The Harvard Joint Center for Housing Studies reported in June that 22.7 million renter households — 49 percent of all renters — were cost burdened in 2024, a record.
Building materials moved the wrong way at the same time. The price of combined inputs to residential construction has risen 40 percent since January 2020, according to the Harvard report. Gypsum is up 47 percent and steel mill products 84 percent through April. Framing lumber is the exception, running well below its 2021 peak.
That mix falls hard on small units, because the expensive parts of a house do not shrink with the floor plan.
"A kitchen and a bathroom cost what they cost," Nester said. "Whether you put them in a 400-square-foot unit or an 800-square-foot unit, you are paying for the same fixtures, the same electrical, the same connections. That is why cost per square foot is a misleading number for this kind of work."
Who this actually reaches
The states that moved first show an effect that is real and slow, measured in a decade rather than a season.
They also show who is participating. Building an ADU generally requires something the renters under the most pressure do not have: property, available capital, or access to financing. And even in states that preempt local bans, projects still move through local building departments, where staffing, utility reviews and processing times vary widely — and where a second unit eventually arrives on the assessment roll.
The Harvard report makes the point in a different language. States and localities are reaching for new supply tools, but the households furthest behind on housing costs are renters, and renters do not have backyards.
ADUs add housing without adding land. What they cannot do is change who owned the land to begin with.
The buyer-profile figures are from the National Association of Realtors; the permit series and its treatment of accessory units from the Census Bureau; the California permit and completion figures from the state Department of Housing and Community Development and a Center for Housing Policy and Design analysis of annual progress report data; the 1.4 million figure and its state concentration from a 2020 Freddie Mac study; the count of state laws and their classification from an August 2025 Mercatus Center taxonomy; mortgage rates from Freddie Mac; and the cost-burden and construction-input figures from the Harvard Joint Center for Housing Studies. Taylor Nester was interviewed by Cranberry Journal. The analysis is our own.
Topics nationalhousingzoningstate capacity
