Bipartisan bill aims to provide federal funding for private ADU construction

The federal government could help homeowners in states like California more easily build accessory dwelling units on their property.

California Rep. Sam Liccardo joined New York Rep. Andrew Garbarino in proposing the Supporting Upgraded Property Projects and Lending for Yards (SUPPLY) Act on Friday, The Wall Street Journal reported. The bipartisan effort aims to get the federal government involved to address housing affordability across the country.

Most ADUs today are financed using homeowners’ savings or home equity lines of credit, as many other homeowners strapped for cash can’t get second loans on their homes where they don’t have equity. The SUPPLY Act aims to solve that problem by providing government-backed, flexible financing options to help homeowners of modest means overcome what is often the last hurdle to breaking ground on an ADU, also known as backyard cottages, granny flats or in-law suites.

The SUPPLY Act directs the Federal Housing Administration to provide government backing for second mortgages to finance ADU construction. It also permits Fannie Mae and Freddie Mac to purchase and securitize those loans.

“With access to capital, we can empower homeowners to become home providers for thousands of renters in every metropolitan area,” Liccardo, a former San Jose mayor, said in a statement on the legislation.

So far, the legislation has at least 16 Democratic and Republican backers in the House of Representatives, as well as the support of the National Association of Home Builders and other industry groups.

Everything has to begin somewhere, Liccardo said. “This happened to be a lower-hanging fruit,” the Bay Area Democrat said, per WSJ. “It helps to start in an area where you can actually get something done.”

California, the nation’s housing shortage epicenter, has been a leader in enabling ADU construction on residential properties. The state built roughly 23,000 in 2023, more than seven times the amount that was built in 2018. In Los Angeles, the city has been working with architects to create unique designs for such tiny homes to create more units available for rent.

“When you go to try to get a loan on [an ADU], people treat it like it’s like you’re adding your backyard pool, which is like a depreciating asset,” Mike McNamara, CEO of Samara, a prefab homebuilding firm, said at a press conference Friday about the legislation. “An ADU is an income-producing asset, so it’s different, and it deserves to be its own asset class. If you really go through the mathematics of the financials, it actually makes a lot of sense.”