Bill to expand ADU financing introduced in Congress

A new bill proposed in Congress would make it easier for homeowners to build accessory dwelling units on their properties, a step supporters say will help alleviate the nation's housing affordability crisis.

The legislation, called the SUPPLY Act, aims to expand access to second mortgages for homeowners who want to build an ADU by making it easier for them to get financing. The bill would direct the Federal Housing Administration, Fannie Mae and Freddie Mac to do more to support ADUs, further expanding access to capital by making the loans less risky for lenders.

Homeowners who want to build an ADU would also be able to count expected rental income and property value increases when applying for FHA loan insurance, further building on a policy HUD instituted back in 2023. While the older rules focused on how to value an existing ADU when underwriting a mortgage, the new law would make it easier for homeowners to get second liens to build a new one.

ADUs are small structures that homeowners can build on their property, often detached from the main house. These small units are often rented out by the owner and can be an affordable option for renters.

The bill is sponsored by Rep. Sam Liccardo, D–Calif., and Rep. Andrew Garbarino, R–N.Y., in a rare effort of bipartisanship. In a joint statement, the lawmakers pointed to ADUs as a low-cost housing solution that remains out of reach for many due to financing barriers.

"With access to capital, we can empower homeowners to become home providers for thousands of renters in every metropolitan area," Garbarino said.

The legislation has already garnered praise from lenders and housing groups, including the National Association of Home Builders.

"By allowing HUD to insure second mortgages for homeowners seeking to finance ADU construction, this bill will ensure that property owners have access to ADU financing, which will ease housing shortages and improve affordability," said Buddy Hughes, the NAHB chairman, in a statement.

The Mortgage Bankers Association has also backed the bill, saying in an email that they support efforts to "create a crucial pathway for the development of more affordable sources of housing by allowing homeowners to use federally insured loans to finance the construction of ADUs on their properties."

In 2020, Freddie Mac identified about 1.4 million ADUs, a number that has likely grown as they've become increasingly popular. But building one often requires upfront capital that many homeowners lack, limiting ADUs to wealthier owners who can afford to pay out of pocket.

"A government-backed program tailored for ADUs could make the process of building an ADU much more understandable and affordable for property owners," said Scott Wild, consulting principal at John Burns Research and Consulting. "It should open this up as a viable option for a lot more households."

High prices and limited supply continue to be a barrier for homebuyers. A study last week from Redfin found that the median home sales price was $399,633, a new high. And while building has begun to catch up to demand in some regions, analysts estimate that the U.S. is still millions of units short of what we need.

A bill introduced by Rep. Maxine Walters, D-Calif., would offer new homebuyers up to $25,000 for a downpayment, and President Donald Trump's recently passed "One Big Beautiful Bill" increases a controversial tax credit for low-income housing. But there's concern from both consumers and economists that tariffs and tougher immigration enforcement will lead to higher building costs and pricier homes for consumers.