The backyard is the next room: what LA's ADU boom and Maryland's new mandate mean for operators

Issue #026 | Friday, October 2, 2026 | thecolivinginsider.com

When California legalized accessory dwelling units statewide, most people pictured a granny flat for Mom. A decade later, the numbers tell a different story. According to a new Crosstown analysis, Los Angeles permitted 1,659 ADUs (accessory dwelling unit) in 2017, the law's first year. In 2025, that figure hit 7,321, close enough that ADUs nearly overtook apartments as the city's largest source of new housing.

That's not a niche. That's a market that got rebuilt one backyard at a time, by small owners, without a single big developer leading the charge.

Here's why that matters to you. The state didn't just legalize ADUs and walk away. It kept stripping out friction. AB 976, signed in October 2023, permanently bars cities from requiring the owner to live on the property to build or rent a standard ADU. That single change is what turned ADUs from a homeowner amenity into a pure rental play. SB 543, effective January 1 this year, forces cities to decide whether an application is complete within 15 business days and exempts units of 750 square feet or less (interior livable space) from impact fees.

Now think about it like an operator, not a homeowner. A detached ADU is not just "a second unit." It's more rooms on a lot you already control, with a separate entrance, separate utilities if you build them in, and no second purchase price or second closing.

The scale split is real. If you run one house, an ADU might be the difference between a five-room and a seven-room operation, and your acquisition cost for those two rooms is construction only. If you run twenty houses, the play is different: go back through your portfolio and score every lot for ADU potential before you buy house twenty-one. The cheapest room you'll ever add might be behind a property you already own.

One caution. Renting an ADU by the room can put you into boarding house or rooming house territory under local code, and that's a separate question from whether the ADU itself is legal. Verify with your city and a local attorney before you lease the ADU room by room.

Maryland's 2025 ADU law (HB 1466, cross-filed as SB 891) gave every county and municipality with zoning authority until October 1, 2026 to adopt a local law allowing ADUs on lots with a single-family detached home. That deadline was Thursday.

The state law sets a floor, not a full rulebook. Local laws must allow interior, attached, or detached ADUs, cap them at 75% of the size of the main house, keep them out of density calculations and growth limits, and not apply side or rear setbacks stricter than those for other accessory structures. Local governments can still restrict short-term rentals. Several stronger provisions from the original bill, including a lot-size floor ban and an impact fee exemption, were stripped before passage.

La Plata in Charles County shows what a compliance ordinance can look like. Its Ordinance 26-20 drops the old 5,000-square-foot minimum lot size, eliminates the owner-occupancy requirement, caps ADUs at 75% of the primary home, allows one ADU per lot, and bans short-term rentals. The planning commission recommended it 5-0 and the council held its public hearing in late August before adopting it September 16.

That's the good version for operators. No owner-occupancy rule plus a short-term rental ban is basically a long-term rental ADU, which is exactly the co-living use case.

The catch: the statute contains no penalty and no default rule for jurisdictions that miss the deadline. Some Maryland localities will pass lean, operator-friendly ordinances like La Plata's. Others will pass something restrictive, or nothing at all, and nothing in the state law forces the issue. If you operate in Maryland, you need to read your own county's or town's ordinance, not the state summary.

For single-home operators, the question is simple: does your jurisdiction's version let you build a long-term rental ADU without living on-site? If yes, you have a room-count expansion option you didn't have a year ago. For operators buying across multiple Maryland jurisdictions, the new ordinances become an acquisition filter. Two identical houses in neighboring towns can now carry very different upside, and the difference is written in local code, not the listing.

If you're weighing an ADU in California, one number shapes the whole project: 750 square feet of interior livable space. At or under it, SB 543 exempts the unit from development impact fees. Over it, you pay them. For units of 500 square feet or less, school impact fees go away too.

This is where co-living math and homeowner math split. A homeowner building for an adult child or aging parent often wants the biggest unit the lot allows. An operator should ask a different question: how many lockable, code-compliant bedrooms fit under 750 square feet with a shared kitchen and a bathroom ratio your residents will accept?

Two compact bedrooms plus a shared kitchen and bath is a realistic target in that footprint. That can beat a single large one-bedroom on revenue per square foot, and you skip the impact fees that come with going bigger.

Small operators should run this math before hiring a designer, because designers default to maximizing size. Larger operators should standardize: pick one plan that works under the fee line, get it through permitting once, and reuse it. California also requires cities to maintain pre-approved ADU plan libraries, so check whether your city already has one that fits the room-count target.

Run your own numbers with your local fee schedule. Impact fees vary widely by city, and that's the real variable in this decision.

Getting an ADU permitted is the part everyone writes about. Running it inside a co-living operation is the part that decides whether it pays. A detached unit behind the main house behaves like a second, smaller house, and it will develop its own culture unless you design against that.

Start with the question of whether ADU residents share the main house's common areas. If the ADU has its own kitchen, the answer tends to drift toward "no" within a few months. That's fine if you price and lease it that way. It's a problem if your listing promised community and the ADU residents never set foot in the main kitchen. Decide up front, write it into the lease, and price accordingly.

Next, utilities. If the ADU runs off the main house's meters, your utility cost per room just changed, and your all-inclusive rent may no longer cover it. Either submeter at construction, when it's cheap, or rerun your per-room utility budget with the ADU's heating, cooling, and hot water included.

Then connectivity and access. Wi-Fi from the main house often doesn't reach a backyard unit reliably, and residents notice that within a week. Plan a mesh node or a separate access point. Same for entry: if your main house runs on keypad locks, put the ADU on the same system so one turnover process covers every door.

House rules need a second look too. Quiet hours, guest policies, and trash and recycling duties written for one building often don't say anything about a second one. Add an ADU section rather than assuming residents will apply the main-house rules on their own.

Finally, call your insurance carrier before the ADU is occupied, not after. A new dwelling on the lot with paying residents is exactly the kind of change a policy needs to reflect

If your co-living house has a spare bedroom or garage you could carve into a junior ADU (up to 500 square feet, inside the main home), the owner-occupancy rules changed this year. Under AB 1154, a JADU with its own bathroom no longer requires the owner to live on-site. A JADU that shares a bathroom with the main house still does. Every JADU must now be rented for terms longer than 30 days.

What to do now: if you're converting interior space in a non-owner-occupied property, plan for a dedicated bathroom from the start, or the JADU won't be available to you. Confirm details with your city and an attorney before permitting.

Outside California: watch this as a model. Tying owner-occupancy to bathroom configuration is a design other states could copy.

→ California operators: pull your city's ADU page and check whether it has a pre-approved plan library.

→ Maryland operators: find your county's or municipality's adopted ADU ordinance and check three things: owner-occupancy, short-term rental rules, and size cap.

→ Portfolio operators: add an "ADU potential" column to your property list, even if you're not building this year.

→ Before renting any ADU by the room, ask your city how that use is classified under local code.

The Co-Living Insider | thecolivinginsider.com | Issue #026 | Friday, October 2, 2026