Chicago homeowners seeking to supplement their incomes, find a sustainable way to age in place, or simply contribute to the diversity of their neighborhoods will soon find themselves enjoying a new way to add value to their existing properties. As of May 1, new zoning regulations relating to Accessory Dwelling Units (ADUs), granny flats, coach houses, and carriage houses will go into effect in specific areas around Chicago.

These new regulations will provide a unique opportunity, both for property owners seeking to add value to their properties and for housing seekers looking to live in neighborhoods closer to work, family, or cultural opportunities. ADUs on existing properties can provide “gentle density,” allowing new residents to move to existing neighborhoods without changing the look and feel residents have come to love about these places.

An ADU is a secondary housing unit on the existing property of a main house. ADUs fall into one of two main categories:

• A detached ADU (also called a DADU, coach house, or granny flat). These units are usually new construction, created in a detached building in the backyard.
• A conversion unit (known as a basement or attic apartment, carriage house, or garage conversion). These units are created by converting a portion of the existing principal residential building to become a dedicated separate residence.

ADUs were a common part of the Chicago neighborhood fabric in the first part of the 20th century, but were effectively banned in 1957 by changes to city zoning ordinances that required the addition of parking for ADUs and banned new residential construction on existing lots. Proponents of ADUs say that the loss of these units has irrevocably changed the character of historic neighborhoods, and has served to push the city’s renters farther and farther from the neighborhoods they love. 

Chicago’s new rules, intended as something of a “test run” for new ADUs, provide a series of exemptions to these onerous requirements and will permit homeowners to construct or convert new ADUs or bring existing unpermitted units into compliance. Providing a pathway to legalization of existing units, in particular, will help preserve thousands of homes for the families who already live there.

Mayor Lori Lightfoot was effusive in her praise of the new program: 

This sustainable and cost-effective approach will simultaneously provide our residents with more equitable access to housing options and give us a model to build from as we examine ways to incorporate this approach into city policy. By increasing affordable housing opportunities for renters, while also helping property owners deal with the financial demands of their buildings, these ADUs will be a major step forward in our ongoing work to support our most vulnerable residents and our business community.

What’s Changed in the New Chicago ADU Ordinance?

The new city ordinance, approved December 16, 2020 and effective as of May 1, 2021, creates a pilot program permitting the addition of one or more ADUs per property in designated city zones. The zones are described as follows:

• North: includes parts of Edgewater, Lake View, Lincoln Square, North Center, Uptown, and West Ridge
• Northwest: includes portions of Albany Park, Avondale, East Garfield Park, Hermosa, Irving Park, Logan Square, Near West Side, and West Town
• West: covering portions of East Garfield Park, North Lawndale, South Lawndale, and West Garfield Park
• South: including some of Ashburn, Auburn Gresham, Chatham, Chicago Lawn, Englewood, Greater Grand Crossing, Roseland, Washington Heights, Washington Park, West Englewood, West Lawn, and Woodlawn
• Southeast: including parts of the East Side, Hegewisch, South Chicago, and South Deering

The number of ADUs allowed depends on the number of existing legal units on a property and on the applicable zone:

• For properties with 1 to 4 units, the property owner can add one detached coach house unit to any property, or one conversion unit to a property that is at least 20 years old.
• In existing properties with 5 or more units, coach houses will not be permitted, but an existing property owner can add up to 33 percent more units as conversion units. 
• In the North and Northwest zones only, vacant lots can have coach houses constructed before a principal residence.
• In the West, South, and Southeast zones, only owner-occupied buildings with one to three units may add a conversion unit.
• In the West, South, and Southeast zones, only owner-occupied buildings may add a coach house.
• In the West, South, and Southeast zones, permits will be strictly limited - only two permits per block will be issued each year.

If a homeowner adds more than one unit to a property, half of the units over one must also meet Chicago’s restrictions for affordable housing, limiting the amount of rent a homeowner can charge. Rent for affordable units must not exceed 30% of 60% of the applicable area median income. Homeowners can offset these rent restrictions by taking advantage of available Chicago rental subsidies, available through Chicago’s Low Income Housing Trust Fund for qualifying landlords. 

In addition to rental subsidies, low- and moderate-income homeowners who wish to add an ADU may qualify to defray some of their construction costs through Chicago’s new ADU Lending Program. This program provides forgivable loans (that is, loans that can be converted to a grant if certain conditions are met) covering construction costs of up to $25,000 or $35,000 for ADA-accessible ADUs.

Why Should Homeowners Invest in ADUs?

ADUs can provide a number of significant advantages for homeowners. They can be a source of economic stability by generating rental income, and they can create significant wealth for owners looking to add to the value of their property. 

Just as importantly, they contribute to the creation of vibrant, diverse, and more affordable communities within the existing fabric of Chicago’s historic neighborhoods, without changing the look and feel of those neighborhoods. ADUs can also support aging-in-place, either by allowing retired homeowners to generate supplemental rental income, or by allowing families flexibility to share property or living space with older family members.

What are the Risks for Homeowners?

Before deciding to move forward in building an ADU, homeowners should consider all of the associated costs of building a unit. Some of these costs are straightforward - homeowners would naturally expect to incur construction costs, costs associated with obtaining permits, and the costs associated with advertising for and vetting potential tenants.

Other upfront costs are a little less obvious. For example, the ordinance requires that ADU permit applications include plans created by an Illinois architect or structural engineer, at potentially  substantial cost. If a property will have more than six units after completion, the ordinance requires that the homeowner hire a licensed general contractor to perform the construction work (from a practical perspective, even smaller conversions will usually involve hiring a contractor). Licensed tradespeople must perform any permitted electrical, plumbing, or masonry work involved in the project. 

In addition, ADUs may have less obvious monthly costs. Utilities may not be able to be separately metered, and homeowners may bear the risk that increased utility costs will fall primarily to them. Finally, the addition of one or more ADUs are likely to increase your property taxes. These hidden costs can add up, and should always factor into any calculation of the investment value of an ADU.

Homeowners should also be aware that this market is untested, and ADUs can make resale of a property tricky. ADUs have not been a part of Chicago properties for over half a century, and new buyers may have trouble accurately assessing the value they add to a property, particularly during the three-year evaluation period of the current pilot program. Over time, this uncertainty in the market will likely fade, but it could, of course, still affect homeowners with a plan to sell in the short term. 

Finally, homeowners are not allowed to rent ADUs on the short-term vacation rental market. In the event of a dip in the rental market, it may be difficult to defray the significant upfront costs of an ADU. 

Want to Talk ADUs - Or All Things Chicago Real Estate?

Thinking about the upsides or costs of adding an ADU to your existing Chicago property? Ready to consider buying a home with investment potential? Curious about what it takes to transition from renting to owning in our competitive Chicago market? Consulting with a knowledgeable and experienced real estate professional is an essential step in the process! To begin the process, drop the experts at Real Group a line today!