Hold on to your hats, folks! Higher interest rates since 2022 have worsened the housing affordability crisis in Washington state, and now the government is stepping in to increase housing inventory AND create a once in a generation opportunity for real estate investors in the process. We’re talking about House Bill 1337. Read the full bill here.
With the tech industry attracting new workers to the greater Seattle area, the demand for housing has skyrocketed, while the number of available homes has plummeted. Soaring home prices have worsened Seattle’s homelessness and displacement problems, and slowly but surely our state government has come to terms with fact that we need to incentivize and allow investors to build more housing. Enter House Bill 1337, which was passed by majority vote on April 6, 2023, which will limit the regulations around constructing Accessory Dwelling Units (ADUs), a.k.a smaller independent living units built on the same lot as an existing residence within Washington state.
Understanding the Bill
Let's dive into the nitty-gritty of HB 1337 and its impact! First up, we should talk a little bit about the Washington Growth Management Act. This law requires local governments in Washington to develop and adopt comprehensive plans for managing growth that balance environmental protection, economic development, and social equity. It's a crucial law that helps ensure the long-term sustainability of the state's growth.
One of the things the Growth Management Act requires is participating cities and counties to designate Urban Growth Areas (UGAs). These are areas where growth is encouraged, and all incorporated cities within the county must be included in the UGA. So if you're living in a Washington incorporated city, chances are you're smack dab in the middle of a UGA! (Find a list of Urban Growth Areas here)
Now, let's get to the juicy stuff. HB 1337 requires local jurisdictions that are planning under the Growth Management Act to allow for the construction of ADUs within all UGAs located within their jurisdiction. This is huge news for those concerned about housing affordability, as it increases the supply of low-cost housing options. Plus, it fits perfectly with the Growth Management Act's sustainable growth management principles. It's a win-win for everyone!
Here is a summary of the topics covered in the bill:
- Impact fees are capped at 50% of those charged on the main home.
- Eliminates owner occupancy requirements (AKA Rent Bans).
- Allows for at least 2 ADUs on all lots within an UGA that allow for single family homes, including detached ADUs. They may be configured as:
- one attached ADU and one detached ADU
- two attached ADUs
- two detached ADUs
- Allows an ADU on any lot that is legal for a single family home.
- Sets the maximum square footage at a minimum of 1,000 square feet. (You can still build smaller than that, however, a jurisdiction must allow for ADUs to have at least 1,000 square feet..
- Legalizes ADU height up to 24 feet, unless the maximum for the main house is less than 24 feet.
- An ADU can be built with no setback from a public alley.
- Existing structures may be converted to an ADU, even if they violate the current requirements for setbacks or lot coverage restrictions.
- This means if you have an existing permitted structure (like a detached garage) that is already there you can likely convert it to an ADU!
- Prohibits design standards and other restrictions that are more stringent than those that apply to the main house.
- Public street improvements are not allowed to be a condition of permitting an ADU
- Legalizes the sale of ADUs as condominiums. (This one is a big deal, see more below)
The bill also addresses off street parking requirements for an ADU. The required number of parking spaces is as follows:
- No requirement for off street parking within a half mile of a major transit stop.
- 1 parking space per unit for lots smaller than 6,000 square feet
- 2 parking spaces per unit for lots larger than 6,000 square feet
Cities or counties may offer incentives to develop ADUs in the form of waiving or deferring fees, deferring the payment of taxes, or waiving specific regulations, however, the extent of those incentives and qualifications are not as clear.
The bill does NOT prohibit restricting the use of ADUs for short term rentals. Other public health, safety, building code, and environmental requirements still apply, however they cannot be more stringent than what would be imposed on the main unit. The bill also does not apply to areas that are not connected to or served by the public sewer system.
When will this go into effect?
The bill was passed on April 6, 2023 and the effective date of the bill is ninety (90) days after the bill is passed, or July 5, 2023. The bill requires that a city or county adopt the bill within six (6) months after the jurisdictions next periodic comprehensive plan update. The next planned comprehensive plan updates are as follows (view webpage):
- King, Pierce, Snohomish, and Kitsap Counties: December 31, 2024
- Whatcom, Skagit, San Juan, Island, Clallam, Jefferson, Mason, Thurston, Lewis, and Clark Counties: June 30, 2025
That means that the very latest we would see this bill take effect would be May 31. 2025 for King, Pierce, Snohomish, and Kitsap Counties, however it is possible that the bill will be adopted before the next plan update.
What does this mean for you?
So, what does this mean for you? If you're a homeowner, this bill provides a fantastic opportunity for flexibility, extra rental income and affordable housing options for family members. Plus, the bill makes it easier for you to convert existing structures into ADUs, regardless of their current setbacks or lot coverage restrictions. The bill also allows for a condominium to be established with the main unit and your new ADU, which allows you to sell either unit independently. ADUs can provide a significant amount of equity in a short amount of time, and with the extra flexibility of being able to create a condominium and sell either unit it is an excellent investment strategy.
If you’re an investor, this is a huge opportunity to build new construction ADU’s and DADU’s on existing single family lots, then rent or sell each of the units separately. Seattle currently allows some version of this process, and the strategy typically nets investors $200,000 - $300,000 or more per deal!
All in all, this bill is a breath of fresh air for homeowners and renters alike in Washington state. So, if you're thinking of building an ADU or DADU, seize the opportunity and reach out to HouseHack Seattle for guidance on how to get started.
Written by:
Rebecca Bridges & Michael Haas. Michael Haas is a Managing Broker & leads the team of Investor-Agents at HouseHack Seattle. He has built multiple DADU’s and ADU’s - you can schedule time with him here to talk about this & other Investing & HouseHacking strategies: https://calendly.com/michaeljohaas/30-min-meet
