What Colorado homeowners need to know about the new ADU law

In less than a year, it’s going to be a lot easier to add an accessory dwelling unit (ADU) in most of Colorado. That’s good news for a state that’s facing a roughly 100,000-unit housing deficit that’s particularly glaring at lower price points.

Colorado House Bill 24-1152, which Gov. Jared Polis signed into law in May, goes into effect June 30, 2025. It aims to boost the supply of affordable housing by making it easier – and less expensive – for most Colorado homeowners to build an ADU (a.k.a. casita, in-law suite or granny flat). It also presents opportunity for those who have been either ineligible to add an ADU or for whom bureaucratic hurdles seemed too burdensome. That can provide for more personal elbow room or bring in rental income even as it boosts a home’s value by perhaps 35%.

As someone who’s been building ADUs in Colorado since 2008, I may be fairly viewed as a pro-ADU partisan (mea culpa). But the new law itself spells out benefits beyond rental income and property value.

ADUs add housing units with minimal impacts to infrastructure and with increased, compact infill development. They provide intergenerational living options and enable child or eldercare and aging in place. Because they’re small, ADU rents are typically low. They’re typically more energy efficient per square foot than primary homes, and they run on electricity that renewables can generate. They often replace high-water grass landscapes and, involving less landscaping in general, are more water-efficient.

And my own two cents: Because ADU housing tends to be in urban and close-in suburban areas where creatives and young professionals gravitate, ADUs often enhance their neighborhoods with youthful spending and social energy.

H.B. 1152 in a nutshell

H.B. 1152 is mainly concerned with creating a more unified regulatory environment for ADUs across much of the state. It also puts $8 million toward making ADUs more affordable for low- and moderate-income residents. That money is in addition to the $10 million that Proposition 123 allocated foraffordable housing – funds my company and others are giving back to ADU buyers as incentives (in our case, $2,000 for the first 40 we build, which we also match).

To be clear, the new law won’t apply to many of the state’s rural and mountain towns. It’s limited to those living in larger population centers under the jurisdiction of one of the Colorado’s five Metropolitan Planning Organizations (MPOs).

But for most of us, H.B. 1152 is easing several burdens, mostly by addressing restrictions and conditions municipalities often place on would-be ADU additions.

It forbids the blanket prohibition of ADU development in certain areas of town, as Fort Collins currently does. Basically, if there’s room for an ADU, there can be an ADU.

Further, with some exceptions, the law bars local authorities from requiring a dedicated parking spot for an ADU addition, as Boulder now does. That can save thousands of dollars in expanding a driveway, for example. It also forbids the requirement that the owner must live in the house associated with the ADU – though municipalities can require an owner to live there at the time ADU construction is completed (as Denver’s updated regulations will do) or if applying for a permit to use the ADU as a short-term rental.

In addition, it lets ADUs enjoy the same side-setback rules as the primary dwelling would; for rear setbacks, it’s either the same as other accessory units (sheds and the like) or five feet. And finally, H.B. 1152 doesn’t let municipalities require architectural style, building materials or landscaping that are more restrictive than that of the primary dwelling, and it mandates allowing ADUs between 500 and 750 square feet. In other words, local officials can’t “apply a restrictive design or dimension standard” to an ADU.

Local governments still have their say

Local rules will still apply, however. With parking, for example, a municipality can require a new parking spot if a driveway, garage, or other place for ADU-related parking doesn’t exist – or where there’s no parking available for the ADU and on-street parking is prohibited. Historic districts can still intervene. Municipalities can limit the construction of ADUs less than 500 square feet and more than 800 square feet, ADUs larger than the principal home, and multiple ADUs on the same lot. They can say “no” to motor homes and the like. They can require statements from water and wastewater services that confirm sufficient service for the ADU.

Most importantly, impact fees and similar development charges are still on the table. That can be a big deal, depending on where you are. In Boulder County, there’s a town that hits ADUs with a $65,000 fee to hook into the existing home’s existing water and wastewater lines. Lyons, in contrast, charges nothing for that.

Despite high interest rates, the financials work

Even in ADU-friendly places such as Lyons, ADUs represent a serious investment: all-in including utility hookups, the pad, and the finished home, you’re looking at $200 to $300 per square foot. (For comparison, popping the top for a new second floor can cost $350 to $550 per square foot in Boulder and Denver.)

As examples, the mortgage payment for 500-square-foot one-bedroom ADU at today’s rates will be roughly $700 to $1,000 a month. An 800-square-foot two-bedroom ADU would run $1,100 to $1700 a month. Still, given the rents in Colorado’s major population centers, rental ADUs are generally well in the black. In Denver and Boulder, the median rental price for a one-bedroom apartment is about $1,600 and that of a two-bedroom is in the $2,000 range. One can expect mortgage rates to fall as the Federal Reserve lowers rates, improving ADU payment numbers further.

H.B. 1152 is good for Colorado and its cities and towns. But it’s also good for homeowners who can create more space for themselves in the communities they’re tied to – or profit from building ADUs and renting them out in this housing-scarce market we call home.

Mike Koenig is the Co-Founder and President of Studio Shed, a leading modular home design and build firm based in Boulder, since 2008.