Waiving or Reducing ADU-related Fees for Low- and Moderate-Income Households

1. Evaluate the fees that apply to local ADU development and identify which ones can be easily waived or reduced, including application and plan check fees, permitting fees, and impact fees (including school district or other outside agency impact fees) and/or utility system/connection charges. Keep in mind there may be limitations on fees assessed by outside agencies such as utilities and school districts. If a significant percentage of fees are assessed by outside agencies, consider if there are any funding or partnership opportunities to subsidize costs.
2. Determine program mechanics. This includes: 
   • Eligibility Requirements - What requirements to include, such as income and home equity levels, and the application process. 
   • Applicable ADU Projects – What ADUs are eligible for waivers or reductions, such as only ADUs only with existing single-family dwellings or those being developed along with new construction homes, etc. 
   • Fees to Waive or Reduce - What fees are included.
   • When and by How Much to Reduce Fees - Such as waiving certain fees for ADUs under a certain size or a percentage or dollar amount reduction.
3. Identify the cost and potential sources of funding for the program. Estimate the financial benefit to a typical ADU project as well as the number of applicants you think might utilize the program in a typical year. Secure support from leadership for implementing the program.
4. Consider implementing the program for a limited period of time to start. Offering a time-limited financial incentive functions like a sale, encouraging applications, and can be extended for a longer time if desired. This can also help with testing homeowner interest and estimating the financial commitment to the program during an initial pilot period, then refining and continuing the program based on experience and feedback.
5. Ensure homeowners are aware of the program and its benefits. Utilize existing communication channels such as: city newsletters, utility bill inserts, and social media; local media; targeted mailings and/or presentations to groups like local non-profit organizations working with low- and moderate-income residents.
6. Document program inquiries as well as actual applications and financial assistance awards. To the extent possible, follow up with inquirers who decided not to move forward with their project to understand their decision making and the obstacles they are facing. 

Addresses only a small part of ADU development costs, which might still be unaffordable for many low- and moderate-income homeowners.

• Consider other financial support that can be coupled with the fee program, such as a low-interest ADU loan program that can be offered by a local lending partner like a community credit union or the upcoming Colorado Housing and Finance Authority grant program for ADU development.
• If your goal is to overall increase ADU production and not specifically among low- and moderate- income homeowners, consider waiving or reducing fees for all households, without income eligibility. (See Waiving or Reducing ADU-Related Fees for All Applicants, below)

Fees are typically based on the actual costs of providing a service. Costs will need to be covered in other ways since they typically cannot just be “waived”.

• Consider general funds, housing funds, the DOLA program, or other sources that can cover part or all of the cost.
• Note: Jurisdictions may also see an opportunity to “right-size” fees based on ADU size or characteristic instead of a flat fee. More details are provided in Waiving or Reducing ADU-Related Fees for All Applicants, since this would likely be a strategy impacting all homeowners, not income-dependent. 

Extensive eligibility requirements and process can inhibit some homeowners from using the program.

• Ensure eligibility requirements and the process to apply are as simple as possible.
• Consider including middle income levels (80%-120% AMI, or up to 140% AMI for rural resort areas) and/or existing equity.

Affordability requirements set to ensure the ADU will be rented at below market rate can undermine the financial benefit, depending on the specific amounts of “lost rent” versus saved cost. It can also make the option unattractive to some homeowners, meaning the program will have little uptake and impact.

• Be clear about the goals you are trying to achieve through your program and be careful to align requirements with the level of benefit being provided.

See Waiving or Reducing ADU-Related Fees for All Applicants for examples of general fee reduction/elimination, not income-based. 

• Crested Butte: The Town’s discounted tap fee program will fund 2/3 of the cost of water and sewer tap fees for any deed restricted unit (for sale or rental) this includes the construction of Accessory Dwelling Units (ADUs).
• Grand Junction: Refer to case study for more details.
  In 2023, City Council adopted an ADU production program with fee waivers and incentives up to $15,000. In exchange, the property owner agrees to not use the ADU for short term rentals for seven years. In order to get the extra incentive the owner must make less than 140% of AMI.

• Supporting Homeowners to Bring Preexisting ADUs into Compliance: Lowering ADU-related fees is often limited to new or conversion ADUs, but could be expanded to lowering costs for permitting pre-existing ADUs (“ADU amnesty”). Use in conjunction with a program that helps owners permit pre-existing ADUs. 
• Partnering with Lenders to Provide Loans and Financing Opportunities: This fee waiver/reduction strategy addresses only a small part of ADU development costs. Coupling it with other financial support, such as a low-interest ADU loan program or offers from a lender who will take ADU rental income into consideration, can further open this opportunity to low- and moderate-income households. 
• Reducing the Tax Burden of ADUs: Low- and moderate-income households may also be particularly concerned about the tax implications of adding an ADU to their property. These increased costs are unlikely to be handled by typical financing for the project, but can be considered as part of support for affordable ADUs. 
• Supporting the Development of an ADU Nonprofit: Hands-on, 1:1 support for homeowners from an ADU nonprofit is particularly helpful for low- and moderate-income households to be connected with financial and other opportunities that will help them build an ADU. These households may benefit more from initial feasibility support and exploration of available resources and programs before committing to their ADU project. 

Note: Fee reductions/waivers like this one can be used as incentives for a variety of ADU programs or goals. You can refer back to this strategy to learn more about the potential mechanics and issues of instituting a fee waiver/reduction for: 

• Encouraging Factory-Built ADUs
• Providing Development Bonuses to Nonprofit Developers
• Providing Pre-Approved ADU Plans
• Incentivizing Affordable ADU Rentals
• Incentivizing Accessible ADUs
• Regulating the Use of ADUs for Short-Term Rentals
• Incentivizing Climate-Resilient ADUs