San Jose just became the first city in California to unlock a new kind of housing.
Under a new law, the South Bay city saw its first accessory dwelling unit, colloquially called an ADU, sold as a condo unit on an existing property this month. The unique transaction is the first time an ADU has been sold without an accompanying home in the state. This type of sale was previously illegal until Gov. Gavin Newsom signed a law in 2023 enabling standalone ADU purchases.
The two-bedroom, standalone home near downtown sold for $530,000. It has no homeowners association dues or shared utilities, and it has a separate entrance and private parking.
“It will be helping people who, they want to own a place more affordable and more easy to get a home,” Daniel Aflakian, the buyer of the 749-square-foot house, told KGO-TV.
The property was first listed for $598,000 in February of this year and underwent a price cut to $549,000 a month later.
Bay Area real estate developer AlphaX RE Capital completed the ADU and hopes to put two more of these types of homes on the market in the fall. The company has plans to build hundreds more in the future, appealing to Bay Area homeowners who want to convert a portion of their land, as well as build the homes on land they already own. Their ultimate goal is to make this new property type “a more normal part of the housing ecosystem,” said Jia Li, the company’s chief asset management officer.
The first completed sale helped the company better understand the needs of potential future homeowners of these types of units, Li said. Most potential buyers who came to view the home told them they were surprised by how much it felt like a single-family home, as opposed to a condo or townhome, and were pleased with the amount of private space. The unit was particularly appealing to working families who can’t afford a single-family home but also don’t want to pay the annual HOA dues that can come with a condo or townhome.
Li said that these projects can be completed in under one year, especially if people are using preapproved city plans. Many people have reached out to AlphaX RE Capital since the project was completed, especially homeowners, asking how they can build something similar. She said that many empty nesters who no longer want to maintain their large backyard and also would love some cash flow have reached out.
“A lot of people, especially the older generation, they’re rich but cash poor ... once they sell the ADU, they actually have cash to do what they want to do,” Li said.
San Jose is notoriously known as the most expensive housing market in the country, with median home prices exceeding $2 million, first topping that record in 2024.
The city has made efforts to build more housing in recent years, including a city initiative called the “ADU Ally” program. The government program is specifically designed to help homeowners understand if it’s financially feasible for them to build an ADU. “We’re unlocking homeownership opportunities at lower price points, one ADU at a time,” Mayor Matt Mahan said in a statement. “San José was the first city in the state to allow ADU sales, and now we’re the first city in California to see an ADU sold as a standalone home. We’re not waiting for costs to come down — we’re using innovative policies to create affordability wherever we can.”
Other California cities are likely to follow in San Jose’s footsteps. San Diego, San Francisco, Santa Monica, Santa Cruz and Berkeley have all adopted their own city ordinances allowing these types of sales and are deep in the process of setting forth regulations surrounding the new law. Some cities like Napa have also expressed interest in making this type of housing feasible, but they are not as far along in the process.
“New ideas always take time to go mainstream,” Li said.