How Does Real Estate Investor Ownership Mediate Accessory Dwelling Unit (ADU) Asking Rents? Evidence from Austin, TX

Jenna Davis

Housing Policy Debate, 2024, vol. 34, issue 6, 962-984

Abstract: Scholarly and popular discourse often describe accessory dwelling units (ADUs) as one of the last bastions of housing affordability, framing “mom and pop” landlords as historically renting out ADUs as a means to earn a passive income, offset mortgage costs, or age in place. As real estate investors enter the market for ADUs, this raises the question of whether ADUs will continue to represent relatively affordable housing packages. Despite growing interest in ADUs among real estate investors, research to date has not examined how investor ownership impacts ADU affordability. This paper investigates how real estate investor ownership mediates unit-level asking rents for ADUs advertised online on the “open market” in Austin, Texas. This analysis finds that owner-occupied and investor-owned ADUs are not listed for significantly different amounts at vacancy, all else equal. However, these results might not translate to the “closed” market for ADUs, which continues to represent a critical source of below-market rate housing. Further, the gap between investor and owner-occupied rents could widen over time, as owner-occupiers provide deeper discounts to tenants they wish to retain. After conducting interviews with owner-occupiers and real estate investors that own ADUs, this research identifies that the rent-setting strategies of the two groups both diverge and converge, further shedding light on findings from the empirical analysis.

Date: 2024
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DOI: 10.1080/10511482.2023.2294849

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