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• Internal/Conversion ADU: Space within the existing home converted to a separate unit (e.g., finished basement, attic, or interior room suite) • Attached ADU: An addition built onto the side or rear of the primary home with a separate entrance • Detached ADU: A freestanding structure in the backyard or built above a detached garage • Junior ADU: An internal ADU of no more than 500 square feet of floor area, defined and enabled by state law in some states, such as California What ADUs are NOT: ADUs are distinct from rooming houses, group homes, short-term vacation rentals, or duplex conversions that subdivide ownership. They remain secondary in scale to the primary dwelling, are owner -created and privately financed, and are not subsidized affordable housing developments. They are scattered throughout residential neighborhoods rather than concentrated in a single location.5 Reasons municipalities allow ADUs A. To address the regional housing need The Twin Cities metropolitan region must add nearly 13,000 units of housing annually through 2040 to meet anticipated workforce growth and demographic change.6 Vacancy rates for studio and one -bedroom units in the metro area hover around 2.1% and 2.3% respectively — far below the healthy threshold of 5% creating intense cost pressure for renters.7 ADUs offer a market - rate mechanism to expand housing supply without public subsidy, expensive land acquisition, or large-scale rezoning.8 If ADUs in the seven -county metro area achieved the same prevalence as Portland, Oregon (approximately 1.5% of single-family homes), the region could produce an estimated 11,000 new housing units — potentially meeting most of the regional need for households earning $40,000— $50,000 per year.9 Nationally, ADUs remain rare despite growing interest. The AARP/APA survey of planning directors found that more than half of jurisdictions had fewer than 500 ADUs, and nearly three- quarters issued less than 5 percent of all residential permits for ADUs in a given year.10 Despite widespread policy adoption in Minnesota, actual production has lagged significantly, underscoring the importance of removing regulatory and financial barriers. I I B. To address affordability and cost burden Research consistently shows that the monthly housing costs for an ADU are affordable to households earning below $56,000 annually — within reach of many working families, young adults, and lower -income seniors.12 Because ADUs are built on existing lots using private capital, they add housing supply without the overhead costs associated with land purchase or public subsidy programs. The greatest demand over the next 20 years will be for units with mortgage or 5 APA (2009). 6 Metropolitan Council. Thrive MSP 2040 Housing Policy Plan. July 2015, p. 9. Marquette Advisors Apartment Trends, 1st Quarter 2018. 8 Family Housing Fund (2019). 9 Family Housing Fund (2019). io APA ADU Survey of Planning Directors, October 2018. " HKGi. "ADU Research Summary: Accessory Dwelling Unit Guide for the Twin Cities Metro Area." 2019. 12 Family Housing Fund (2019). Page 2 of 8