Want to build a home in your backyard? Madison just made it easier | Local Government

Accessory dwelling units, or ADUs, also known as cottage or carriage houses, backyard homes or mother-in-law units, can come in all shapes and sizes. They can take the form of a new housing unit built above a garage, attached to an existing home or carved out of an existing space like a garage, attic or basement.

The city has allowed ADUs since 2013, but they required special approval through the conditional use process. Since then, only about 20 to 25 have been approved and about a dozen have been completed, Planning Division director Heather Stouder said.

Richie and Bethany Radloff, who built an attractive ADU with a clean, tasteful interior above a garage on their Near East Side property in 2019, had to go through a roughly eight-month process before starting construction. “It was quite the process to get approved,” she said.  

To make it easier, the City Council in December made ADUs a permitted use in all zoning districts where single-family homes are allowed, meaning in those parts of the city, a property owner can create an ADU without needing any special permit or approval.

The proposal, co-sponsored by Mayor Satya Rhodes-Conway and Alds. Patrick Heck, Tag Evers and Grant Foster, is one of several initiatives included in the mayor’s Housing Forward agenda that aims to increase both the amount of housing being built in Madison and the diversity of housing types.

The council made other changes to the ADU ordinance to increase the allowable size up to 900 square feet, and to limit ADUs to no more than two bedrooms. ADUs can be used as extra housing space, housing for extended family or rented through a typical long-term lease.

Easing the regulatory requirements for ADUs was a step to encourage their development in the city, but getting financing to create them remains a major barrier for homeowners, city officials said.

The city’s Backyard Homes Project will now help address that problem by offering direct loans to homeowners interested in developing ADUs. The initiative, which makes $400,000 available for loans in 2022, is a limited opportunity, and applications will be accepted on a first-come, first-served basis. 

“We have issued permits for one ADU so far this year, which was actually just a conversion of a finished space that was actively under construction into an ADU,” city building inspector Matt Tucker said. “We also have a few in the queue for plan review right now, and more people have reached out after learning about the funding.”

ADUs are only allowed on owner-occupied properties, and the property owner must live in either the principal residence or the ADU. Loans up to $130,000 are available at 2% interest with a 15-year repayment term and can fund construction, materials and labor, site delivery or transportation, site work, mechanical equipment and more. 

“We think the money will go real fast, since these ADUs are not cheap to build,” Tucker said. “I have heard they can range from $100,000 to upwards of $250,000 for the standalone units, depending on what the owner wants. These estimates were before current inflation and high construction material costs.”

To be eligible, a borrower must have a minimum credit score of 620, have liquid assets no more than two times the value of the project, and make a 10% equity investment in the project. Landlord training is required if the owner elects to rent the ADU as a separate dwelling unit, and city fair housing training for landlords is also encouraged.

Madison’s housing market has seen tremendous growth powered by two engines: a high quality of life and a strong job market that have combined to attract thousands of new residents every year, the mayor’s Housing Forward plan says. If growth continues at the current pace, there could be 70,000 new residents and 40,000 new households in Madison by 2040, it says.