Why is building an ADU in Denver so expensive?

Question

I live in Denver in a SF home that is already zoned for 2 units (U-TU-C).  Our detached 1.5 car garage needs very extensive repairs so it was an obvious choice to look into simply replacing it with a 2 car garage with a small unit on top of it.  However, everything I'm reading suggests this is a 250K+ job and there just doesn't seem to be any way to make this a reasonably profitable venture for us, at least compared with other investment options.

On the other hand, I have friends in Seattle and LA, which have similarly heated real estate markets, who have done similar things for 120-170K.  I don't really understand why the costs are so different.  I get that there are a lot of factors--permitting, local construction resources, materials, etc., but I don't understand why it would be so expensive here compared to cities with many similarities in terms of age of housing stock, cost of living, and lack of affordable housing.

Extra credit to anyone who can explain to me why Denver's planning department is emphasizing the plan to rezone to allow ADUs much more widely when they seem like such a niche option right now?

Teri Feeney Styers · Answer

@Elisabeth Ihler - Holy Crap! That's $400 per square foot! Double or more what it would cost on this side of the mountains. I have built "tiny" and it is more costly per square foot because you still need a kitchen and a bath, etc. And the costs for those are pretty much the same no matter how large the rest of the house is. There are also slightly higher costs to build over a garage because you will need "fire separation" - but still... I don't hire a company. I sketch my designs and feed them to a draftsman, then I use my GC to guide the process (I pay him $5000 for that part). We get a couple bids on each step: concrete, framing, sheetrock, electrical, etc. He makes sure I am doing things in the right order, calls in inspections, and generally keeps an eye on things. He gets his money in three payments: plan approval, all rough ins passed inspection, final C.O. I do stuff like pick colors and materials. It always takes longer than I think it should.

James Carlson · Answer

@Elisabeth Ihler

Great freaking question. We have clients all the time that want to buy in the areas zoned for ADUs in Denver, and their jaws drop when they hear what ADUs are going for right now.

I know higher-end builds are going to get you into that $250k range. L&D Construction, for instance, has a niche in building ADUs in Denver. But most of their stuff is going from ground up with a 2-3-car garage with a new foundation poured and a 1-2br unit atop it. I did see on their Facebook page recently that they've done a ranch-style, single-level ADU, which should reduce the cost a bit, but not as much most people think.

So, still the question remains ... anyone else have insight?

To your extra credit question: My guess is that if the ADU recommendations found in the Blueprint Denver plan are fully implemented, then demand for ADUs would rise and more companies would enter the market for them and bring down cost. (For those nerds who love a good city-wide comprehensive plan, the Blueprint is found here, and the discussion of ADUs in Denver is found on pg. 84.)

Rick Wade · Answer

There are many factors that contribute to the high cost in Denver. First off, you are building a 2 car garage which is approximately 450 sq ft, which means that the unit upstairs will be approximately 400 to 450 sq ft depending on the roof line. I assume that Denver will require a special permit, aka extra fees.

. You will probably also be required to get an Improvement Survey, which runs about $6500, this may be part of the cost? Then you will need a drawing which can set you back $2-5K. The foundation will need to support 2 stories, there will need to be an outside stairs (if you are planning on a private access). Denver charges much more for plan review and permits than they used to and a Contractor has to spend more time than it used to take, which is passed onto you. Also, the cost of living has risen so much that subs charge more as do suppliers and the contractor...etc. It is probably not what anyone wants to hear, but these are the facts in the world of contracting in Denver. I no longer even pull permits in Denver as I have to charge too much for my time.

I hope this helps. Rick

Kyle Doney · Answer

Shortage of skilled contractors that can do these type of projects, so they can get those prices.. Supply and demand is why in my opinion. I agree, it's outrageous.

Steven Pesavento · Answer

There isn't a lot of contractors who are focused on this. Building anything is expensive, so to get a builder to take on a project like this, means they aren't taking on a $1M project, which will yield them much more. Impact and Permitting fees are costly too... but there's just not enough builders doing this to create competition to drive the price down.

Would be nice to see that change. Simplifying the process with the city would likely lead to some cost reductions too.

Tanner Crawley · Answer

Would you be willing to share the contact info of that builder? I would owe you one bigtime if it works out.

Elisabeth Ihler · Answer

@Andy Thompson

I haven't actually gotten to the quote stage, just doing preliminary research, but the reading I've done and the data from the few people I've been able to get numbers from are all around the 250K mark.  (the Simple Homes design calculator is estimating it at 218K, but there would be additional demo involved).   I'm more at the stage of trying to figure out whether this is something even worth pursuing as far as an estimate.

Andy Thompson · Answer

@Elisabeth Ihler

Had a friend in Denver ask me to build an ADU for him, he showed me a design/build firm quote at $150k to put the unit on top of his existing garage. I would be interested to know which company quoted you at $250k?

John A Murray · Answer

replied about 1 month ago

I personally believe investing in an ADU in expensive markets in California is a great idea. I would wait on it until January of 2020 when sb 13 kicks in and you'll save a lot of money on the permits. How many quotes from contractors have you gotten? 100k just seems too high especially for a conversion of an existing area. If you're handy and have time, I highly recommend you do some of the work yourself and you'll save a lot of money. I converted my garage into an ADU for 35k (with permits) I outsourced and managed the electrical, plumbing, drywall and texture. I'm planning on adding a detached 2 bed 1 bath adu on the right side of my home early next year.

Just adding to the mix. Of the $35k total cost, David paid $6k in Developer Impact Fees, which under new California Law effective 1/1/20 will be eliminated for ADU's under 750sf. Above 750sf the fees are charged at a progressive rate. I've been waiting for the new laws to go into effect to convert my detached 360sf garage. I will save $5k in impact fees but will have to have PV solar (3kw) installed on the roof, at an after tax credit cost of around $6k. I'm going to try to beat Davids $37k by doing some of the finish work and managing the subs myself, like he did.

Some cities in California were charging exorbitant impact fees, as high as $50k for an ADU, which spurred the legislature to reign them in.

I have a neighbor who added 200sf to his existing detached garage and converted it (600sf) with "builder" quality finish for $57k. Another neighbor built a 700 sf ADU from the ground up, sparing no expense with high end appliances and "custom" finish for $180k.

April O'Hare · Answer

I don't know, but the city's limits on how large an ADU can be (1,000 sq ft max no matter what size your lot is) is what ultimately had me running away from the idea.  (Well that, and not wanting to bother with getting a variance for it) Why the hell would I spend $250,000 for just 1,000 square feet when my double lot can fit something much larger and still not run into problems with the max zone lot coverage?  It's hilarious to me that they think this comes even close to any sort of solution for the housing shortage.  I am curious to see what the West Denver folks come up with for pre-designed plans.  But unless there is magically more contractors who can actually build them I don't see it being a very good solution at all.  My guess for why the city is pushing them?  Because homeowners are whiny about density and don't love the ugly 4 plexes going up in their neighborhoods but seem to be ok with the idea of ADUs.  It makes Denver look like they're coming up with a solution to the housing crisis and appears to be "win-win."  Too bad very few people are actually going to bother building them at the prices they are right now.  Here in Villa Park where I live, a ton of the neighborhood is already zoned for it and has been for some time now.  Yet very few homeowners have actually bothered to build one.  They're just too expensive.

Why is building an ADU in Denver so expensive?

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