Wells: Backyard Boom: Colorado’s ADU law enhances housing prospects

Colorado’s new accessory dwelling unit, or ADU, legislation, signed by Gov. Jared Polis and effective June 30, 2025, presents a significant opportunity for homeowners in the north Front Range region. House Bill 24-1152 aims to address the state’s housing shortage, offering a practical solution for residential real estate growth. Here’s what this means for Northern Colorado property owners.

Understanding ADUs and the Legislation

ADUs are secondary residences on a property — self-contained units with a kitchen, bathroom, and bedroom, often called in-law suites or accessory cottages. The new law prohibits municipalities from banning ADUs outright and eliminates mandatory parking requirements, reducing development costs. Units can range from 500 to 750 square feet, making them ideal for family use or rental opportunities. Supported by $8 million in state-backed affordable loans, this initiative targets Colorado’s growing housing deficit and affordability challenges.

Scope of impact: The North Front Range MPO

This legislation applies to towns and cities within Colorado’s five Metropolitan Planning Organizations, or MPOs, which are regional entities responsible for coordinating transportation and development. The North Front Range Metropolitan Planning Organization encompasses 15 member governments: Berthoud, Eaton, Evans, Fort Collins, Garden City, Greeley, Johnstown, LaSalle, Loveland, Milliken, Severance, Timnath, Windsor, and urban portions of unincorporated Larimer and Weld counties. There are other MPOs throughout the state, including in Denver, Colorado Springs, Pueblo and Grand Junction. Communities with over 1,000 residents in these zones must comply, while rural areas like Estes Park are exempt.

State objectives behind the policy

Colorado faces escalating housing costs and a limited supply, challenges that traditional development struggles to address quickly. ADUs enable increased density within existing neighborhoods, enhancing affordability without extensive infrastructure investment. This approach supports the growing trend of multigenerational living and aligns with state goals for sustainable, compact growth, benefiting both homeowners and communities.

Benefits for homeowners and communities

The financial incentives are compelling. ADUs can generate an estimated rental income of $700 to $1,700 per month, based on local market rates. (For reference, one-bedroom apartments in Fort Collins average $1,500 to $2,000, according to Apartments.com.) Property values may rise with additional functionality and rental income potential, enhancing long-term asset growth. Additionally, ADUs accommodate evolving family needs, a growing priority as demographics shift.

California’s experience — where ADU permits surged 165% from 2018 to 2021, according to the UC Berkeley Center for Community Innovation — suggests significant potential for housing expansion in Colorado.

Considerations and challenges

While the policy holds significant promise, it comes with complexities. Neighborhood concerns about density and character may surface, necessitating careful community engagement. Parking constraints could pose challenges in denser areas, though municipalities retain discretion to require a space when off-street options are scarce.

High construction costs, estimated at $200 to $300 per square foot, represent a potential limiting factor, particularly when combined with local permitting requirements. For example, Fort Collins mandates rear-lot placement and has floodplain restrictions, requiring careful planning. Fortunately, state loans may help offset some of these barriers, enhancing accessibility for a broader range of homeowners.

Preparing for implementation

The NFRMPO communities must align with the law by June 30, 2025. Homeowners should review local zoning regulations — Fort Collins’ development resources at fcgov.com/developmentreview offer a starting point — and explore state funding options.

California’s 24,000 new ADUs in 2022 underscore the potential awaiting Northern Colorado with proactive adoption.

This legislation isn’t merely about construction — it’s a strategic enhancement of residential assets, family flexibility and regional growth. Most communities have already integrated new ADU policies into their land-use and zoning regulations. As awareness grows, we will observe how homeowners take advantage of these opportunities and how ADU trends evolve across Northern Colorado.

Brandon Wells is president of The Group Inc. He can be reached at bwells@thegroupinc.com or 970-430-6463.

on Facebook on LinkedIn