Call them DADUs or ADUs – just don’t call them STVRs. Also, are they a property, a use or both?

Welcome to the often-confusing state of play when it comes to adding a second dwelling to residential property in Tennessee’s urban cores.

More people than ever want to live in Nashville. And many want to be housed within the city, not in a bedroom suburb. The same is true for Knoxville and Chattanooga, although at somewhat lesser volume.

The problem for all three cities is, where to put all these new tax-revenue generators? The answer, for some, is the detached accessory dwelling unit (DADU) or accessory dwelling unit (ADU).

In essence, these are the latest incarnations of what was once known as the mother-in-law suite: a fully detached, small apartment over a garage, for example, or a new structure elsewhere in the yard.

However, rather than parking a nonpaying relative in there as in times past, people increasingly want to build them as long-term or short-term rental units.

The real estate community sees them as a viable way for a homeowner to generate income and add new, affordable options to scarce housing stock in city neighborhoods. So do others in the housing community.

Neighbors already leery of non-owning interlopers are more skittish.

Nashville’s suspicious minds

In Nashville, bruising fights over short-term vacation rentals (Airbnb, VRBO, etc.) has some saying this is just another Trojan horse designed to turn their quiet street into a raucous bachelorette party.

There’s no shortage of party-fueled chaos videos and horror stories to be found online, which further hardens resolve, especially for homeowners who’ve been around a while.

Realtor Wendy Monday has built this DADU in her backyard.

-- Photo Provided

In other words, not only not in my backyard, but not in your backyard. Or side yard, for that matter. That’s a shortsighted viewpoint and one that’s not sustainable given the city’s seemingly unstoppable population growth, says Wendy Monday, broker/partner at Village Real Estate.

“The city is growing and becoming more unaffordable for many,” says Monday, who has built a DADU at her own home. “Many teachers and service providers cannot afford to live in the communities that they work in. DADUs allow more affordable options.”

For owners, she says, an income-producing space is added to the primary residence, helping with expenses. It also increases the value of the property, another financial benefit for the owner.

It also creates more diversity within neighborhoods, she says. “Don’t [renters] deserve the option to live in a neighborhood and be part of the community? Do they need to be squirreled away in big buildings in only very specific areas?”

As pushback to the “I don’t want an Airbnb” next door, she notes Nashville’s current zoning allows DADUs only in single-family areas with a specific overlay for them.

And if rentals are an issue, she says that property owners could work with their Metro Council member or the planning commission to create specific language about DADUs having a 30-day or longer minimum rental restriction.

“DADUs service so many more functions than Airbnbs: they offer long-term housing usually under market rent, they offer a place for someone to house their relatives, in-laws, or people in general need of housing and can function as a way for someone to afford a house,” she says.

“People may be afraid that the character of their neighborhood will change dramatically if DADUs are allowed. They may be scared every single house will end up with one, and I don’t think that is going to happen.”

That said, there also are significant barriers to building them, namely cost. It might cost $200,000 to build a garage with an apartment above or convert an existing structure). Homeowners also would need to be OK with having a renter in the backyard. And that renter would likely need a place to park a car.

Those trade-offs are why property owners should take a close look before launching into the permitting process, says Kevin Wilson, president-elect of Greater Nashville Realtors and a broker with Pilkerton Realtors.

“We do need higher housing density in the core, and these do provide more sustainable housing,” Wilson says. “But they are being built less today than they were before January 2022, when new zoning codes went into place.

“Now you can only build a DADU if you’re occupying the property because they got bundled in with the Airbnb restrictions around limiting non-owner-occupied rentals. What that means is that an owner can’t build one, and then rent both it and the main house anymore.”

Despite restrictions and drawbacks, DADUs can still be a viable option for homeowners, Wilson says.

“It gives you a revenue stream from your property, and does help with housing options, but we’re still seeing changes in where they can go,” he says. “It’s a definite opportunity, but there is still some uncertainty about them that may be holding people back.”

Chattanooga wants more

The Chattanooga take on DADUs is slightly more welcoming, says Steven Sharpe, a principal broker for Keller Williams and president of the Greater Chattanooga Realtors.

“There’s been a lot of push for them, and making them available to city residents,” he says, “but we haven’t seen a big uptick in applications. The upside is adding affordable housing and creating an option for a multigenerational family to have more room for themselves if not for tenants.”

Concerns were raised as the city reviewed and enacted legislation allowing them, everything from short-term rental use to people parking “tiny homes” in their yards and renting them. That led to limits on what could be built, and how it could be used, Sharpe says.

“A lot of the zoning legislation came from what Nashville has done, because we saw everything that was happening there,” he says. “The goal was to have a balanced approach around size – and allowed location – so these would be beneficial.”

The city is under a moratorium for short-term vacation rental use now, so that is less of an issue when it comes to DADUs, Sharpe says.

“There was a lot of concern around vacation rentals, especially when it didn’t have to be owner-occupied, because nobody wants to be the noise enforcer on their street,” he says. “That got worked out with the move to owner-occupied status, and so DADUs may have benefited from that.”

Realtor Wendy Monday has built this DADU in her backyard.

-- Photo Provided

On the legislative front, Chattanooga continues to tinker and tweak with additional residential options where there is an existing home, says Chris Anderson, senior adviser to the mayor for legislative initiatives and a former Chattanooga City Council member.

“We passed an ordinance last year that allows construction of an ADU in the back or side yard up to 700 square feet,” Anderson says. “It was seen as a way to catch up in terms of affordable housing and also help property owners, especially someone like a 70-year-old on a fixed income, create a unit of affordable housing and generate needed income.”

He also points out that an ADU is a structure, whereas a short-term vacation rental is a use, and so it’s time to untangle them in people’s minds. Since the ADU legislation was passed, he says 55 applications have been made, with only six denied, so interest is not intense, but may grow over time.

Jury’s out in Knoxville

Knoxville’s approach lands somewhere between Chattanooga’s and Nashville’s, says Hancen Sale, government affairs and policy director for the Knoxville Area Association of Realtors.

“A lot of people in the area don’t know what ADUs are, or least not by that name,” Sale says. “There is a lot of interest, but we’re not seeing very many of them yet. Knoxville enacted new zoning in 2020, so they are allowed, but it is exceptionally challenging still.”

He says that includes getting one or more variances among the hurdles, which may have resulted from concerns about short-term rentals, which are unregulated in Knox County but under increasing scrutiny within city limits and in nearby communities such as Farragut, which prohibits them altogether.

“We’ve had a lot of conversations around promoting housing density, but also making sure that the property owners live in the primary dwelling,” he says. “Right now, everything seems to be centering on zoning and housing density. A lot of HOAs here want to prohibit even long-term rentals, for instance, so that would definitely cut back on ADUs in those parts of town.”

Still, he adds, the association recently commissioned a poll around growth and development issues. Full results will be released soon, and Hansen says one question, which specifically talked about separate resident units, got a surprising result based on what some residents and neighborhoods say they want.

“We phrased it as would this person be opposed for someone having what is essentially an ADU on their property, a separate residential unit, and 75% said they favored loosening regulations so that could happen,” he says. “That says there is a lot of support behind the idea.”

D.J. Sullivan of East Nashville Urban Design, a platform for discussion about the urban fabric of Nashville, which works to share information about ADUs, commercial developments, sidewalks, trees and anything else that falls into the urban-living conversation, says antiquated zoning laws are holding cities back.

“I don’t see any virtue in enforcing limits on density,” Sullivan says. “Limits on density came into most U.S. cities through zoning in the early- to mid-1900s. At their best they were a well-intentioned reaction to crowded slums. At worst they were a racist tool to enforce segregation,” Sullivan says.

“In Nashville these 1960s and 1970s-era limits on density are largely still in place and actively driving up housing costs and accelerating displacement.

“ADUs shouldn’t be seen as unique,” Sullivan continues. “People need places to live and to provide affordable options for people of all ages and income levels. We need to allow more dense choices including ADUs.”