The Impact of Legalizing Accessory Dwelling Unit Rentals on Property Values: Evidence from Ogden, Utah

Abstract

We study the impact of legalizing the rental of Accessory Dwelling Units (ADUs) on property values. We use a dataset of property sales in Ogden, Utah both before and after a policy change legalizing ADU rentals in 2016. We apply repeat sales and differences-in-difference methods to evaluate the impact of the ordinance on property values. Theoretically, the ordinance could increase property values due to the higher expected returns available from ADU rental income, however, potential congestion, noise, and parking issues could alternatively cause property values to decrease. In our analysis, we find no significant impact of ADU legalization on property values in areas affected by the policy change compared to unaffected areas. These results are robust to a number of different model specifications. Several features of Ogden’s real estate market and policy environment may also contribute to this null result including challenges in effectively prohibiting black market long-term ADU rentals in areas where they remain illegal and/or property owners using ADUs for short-term vacation rentals which is legal city-wide. These results suggest that legalizing residential ADU rentals may be an effective way to increase the supply of affordable rental housing and provide supplemental income to homeowners without negatively impacting property values.