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Financing and Development Patterns Though ADUs cost less than building a larger detached home, they are also affected by rising costs of materials and labor across the construction industry. Compared to larger homes, ADUs often cost more per square foot because they have the same requirements for livability— kitchen, bathroom, and utility connections —in a smaller space. Current estimates for ADU construction in the Twin Cities area are about $250,000 for a 750-square foot detached unit.17 In Portland, where ADUs are encouraged by local policy, it is increasingly common for newly built homes to include a detached or attached ADU. Even with this new trend, only 10 percent of ADUs in Portland were built by a professional developer. Across the country, current homeowners are the primary developers of ADUs on their property. ADUs are most often financed using a patchwork approach of different funding sources that rely on homeowners' existing assets. The vast majority of ADUs are financed using the following approaches, in descending order of frequency:"$ Cash savings (including stocks) Home equity line of credit Cash out refinance Personal loans and other non -secured lines of credit (such as credit cards) Loans (or private gifts) from family and friends Home equity and cash out refinancing loans usually come with restrictions on the amounts that can be borrowed relative to a home's value, and equity lines of credit can require high credit scores. Debt -to -income ratio limits can also be a challenge for homeowners with lower incomes or less home equity. These terms limit the pool of homeowners that can access such financing. Renovation or construction loans allow homeowners to borrow against the future value of the property based on the projected value after the addition of an ADU.19 But in markets with few comparable properties, the added value of the ADU may be minimal. So far, this type of financing is not among the most common tools for building ADUs. The current cost and financing environment means that most ADUs are built by homeowners with access to substantial savings or home equity. In Portland, this trend corresponds with a greater share of ADU owners between the ages of 45 and 65, compared to all homeowners (See Exhibit 2).20 Research from California's large ADU market shows that homeowners who have built an ADU are more likely to be affluent compared to homeowners statewide, with 70 percent of ADU owners earning over $100,000 (See Exhibit 3).21 Black and Latino residents are disproportionately less likely to develop ADUs. Two percent of ADUs are owned by Black Californians, compared to 4 percent of homes, while Latino ADU and homeownership rates are 14 percent and 29 percent, respectively.zz 10