The Rules and City Government Committee on Oct. 13 approved changes to O-15-25 that remove the citywide owner-occupancy requirement for accessory dwelling units (ADUs) — a change intended to let more ADUs qualify for Federal Housing Administration (FHA) mortgage financing — while keeping an owner-occupancy rule for ADUs used as short-term rentals.

Sponsor Alderman Schandelmeyer described the change as necessary after FHA policy updates in 2023 that allow ADUs to qualify for FHA loans but bar eligibility in jurisdictions that retain rental restrictions such as owner-occupancy mandates. "It comes down to in order to make the financing of this more flexible for the FHA loans, which are the easiest loans for people to get, we need to do this," Schandelmeyer said.

The committee also approved two other sponsor amendments. Amendment 1 raised the allowable accessory unit floor area from the current 850 square feet to 1,200 square feet and replaced the code's ambiguous "livable space" measure with a simple floor-area limit. The amendment also eases upfront utility-connection costs by permitting ADUs to tap into a main house's water and sewer line instead of requiring a separate service connection, a change the sponsor said will reduce initial costs that staff previously estimated in the tens of thousands of dollars. "Utility connections are a large upfront cost ... costing 50 to $80,000 for upfront costs," the sponsor said in committee discussion.

Amendment 2 keeps the owner-occupancy requirement for any ADU that will operate as a short-term rental, addressing planning staff and Planning Commission concerns about proliferation of short-term rentals.

A separate amendment from Alderman Savage creates a block-face cap on new ADUs to address neighborhood infrastructure and character concerns. That amendment places an initial 10% cap on ADUs per block face and permits expansion up to 30% on a block face if a mobility (infrastructure/parking) assessment by staff finds it appropriate; the committee approved Savage's amendment after discussion of staffing and enforcement implications.

Planning staff urged caution toward hard caps, noting that ADU growth locally has been slow to date and that many technical and cost barriers remain. Eric Leshinski, chief of comprehensive planning, told the committee the city has seen only modest ADU construction since the 2021 ADU law and that ADUs often "have value throughout the city as a small residential unit that could support our housing goals." Conversely, Alderman Arnett and other members warned that eliminating owner-occupancy could invite investor-driven conversions and stressed the need to align housing growth with the city's comprehensive plan.

Public commenters reiterated worries about short-term rental conversions and urged stronger anti-conversion safeguards and parking requirements. Katie McDermott, a resident who prepared a white paper for the committee, argued that "if you allow ADUs and duplexes to become investor conversion and short term rentals, you won't achieve your goal of affordable housing, and you'll actually undermine neighborhoods." She urged owner-occupancy requirements for ADUs and duplexes and asked for explicit parking and infrastructure protections.

The committee voted by voice to approve O-15-25 as amended and will forward its recommendation to the full council. The ordinance as amended removes the owner-occupancy requirement for ADUs generally, keeps owner-occupancy for short-term-rental ADUs, raises the ADU floor-area cap to 1,200 square feet, allows tapping into an existing residence's utility connection, and adds a block-face cap with an exception based on a staff mobility assessment.