Could ADUs be the solution to rising home prices?

With mortgage rates and rising home prices grinding away at affordable options for homebuyers, accessory dwelling units — or ADUs — have become increasingly popular amongst residents of states facing prolonged housing crises, like California.

Studio Shed Co-Founder and President Mike Koenig sits down with Yahoo Finance's Rachelle Akuffo to talk about new state policies allowing for ADU installments next to primary lodging.

"Now, it is becoming easier as the weeks and months go on, as municipalities combine with better zoning policies on the state level to effectively get an ADU in your backyard," Koenig says, referencing California's AB 1033 bill.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

This post was written by Luke Carberry Mogan.

Video Transcript

RACHELLE AKUFFO: An Accessory Dwelling Unit or an ADU is an independent living quarter built on the same lot as an existing residence.

They can be attached like an above-garage dwelling or completely separate from the main home.

Now, while some build them to house additional family members, they can also be rented out for extra income and adding much needed housing to areas short of affordable options.

Now, states are opening up new possibilities for the spaces.

With new policies in California, an ADU can now legally be converted to as-- converted to and sold as a condo.

And when underwriting a mortgage, lenders can now count a portion of estimated rental income from ADUs.

Mike Koenig is the co-founder and president of Studio Shed, the leading manufacturer of accessory dwelling units and backyard structures.

Thank you for joining me in this morning.

So give us the lay of the land here.

With these new policies opening up, what are some of the investments and the opportunities that now come with this expansion?

MIKE KOENIG: Yeah, I think there is-- well, first there's a lot of investments, I believe, to be made in terms of just adding income to your existing property.

And for, say, real estate investors who are looking to-- I think as the climate gets a little more, say, riskier or capital becomes a little harder to obtain with rates, you can effectively take, like, an apartment building and spread it out over many homes.

RACHELLE AKUFFO: So then for people who are wondering if they build their ADU in their backyard as a separate unit here, how does that work when they're trying to sell their property?

Will they have to sell the ADU with the main residence as well or how does that get navigated?

MIKE KOENIG: Yeah, well, California just passed Bill 1033 and Seattle has already been doing this for, I believe, a couple of years.