We’ve said it before but the problem with getting a lot more Detached Accessory Dwelling Units (DADUs) is regulatory but it is also about financing. The breathless contention over the last round of DADU legislation was a little overwrought since the legislation doesn’t deal with a key aspect of regulation that makes it impossible to get a loan — it doesn’t allow subdivision of the lot to create a for-sale possibility for the DADU. Without this, in Seattle right now, there simply won’t be a boom of DADUs. However, there is a chance that a bank or other lender or investor might find a way to break the cycle which puts homeowners in a place where they have to finance a DADU with a mortgage or a high interest cash loan. In California there’s now a bigger market. From the San Francisco Business Times:

“Because current laws don’t allow future rental income to qualify someone for a mortgage loan, Regan says, they’re working with local and national banks, including Wells Fargo, to create an ADU-specific home loan that will take that factor into account. This will allow people to pass through who may be ‘in the margins of qualifying,'” the site reports.

“But big banks act slow, Regan says, which is why he thinks a ‘sharp-minded entrepreneur’ will swoop in with a quicker, direct-to-consumer solution that provides private financing and building.”

It’s going to happen eventually. The problem is, of course, that the innovation killing Council will certainly find a way to goof it up six ways from Sunday should it catch on. The Council has already started a war on banks over the distant Keystone Pipeline project, something that makes absolutely no sense whatsoever.

But I’ve often thought that if a design build firm could offer a package to a homeowner with a set design and price and partner with a lender, a lot of DADUs could get built all over town. The secret would be being able to persuade a lender to take the risk, perhaps with some investor capital, based on rental income and scrap the mortgage loan all together. All that’s needed is to scale the idea up so that lenders or investors could see steady rates of return over time. Essentially, the financial world needs to see these in the same way they look at an apartment, but one unit at a time.

I think this is doable now, even with the current regulations, but there needs to be some way to back the loan other than the existing single-family home, and without allowing the creation of a second lot, that would be difficult. But I think someone will figure it out and it will work until the Council figures out someone actually made some money out of the venture. Then all bets are off.